The Indian government has introduced a new Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 which may restrict all private cryptocurrencies including bitcoins and other altcoins. This means that there is a possibility that the government will restrict citizens from holding any form of cryptocurrency in their wallets or on exchanges. The government may also introduce its own cryptocurrency, details of which are not known yet.
The uncertainty surrounding this space may impact crypto exchanges and put a question mark on their survival. The Indian government may be also looking at regulations for crypto exchanges but it has left open the definition of cryptocurrencies. The last draft bill of 2019 defines cryptocurrency as crypto assets kept in electronic format, which are capable of being used to exchange with others for goods and services or money. This means that other cryptocurrencies apart from Bitcoins may be allowed till the time the government decides to regulate them too.
The intention is not clear so crypto asset holders should consider acting now to protect themselves and safeguard their assets, whether it is private cryptocurrencies or government-backed cryptocurrencies. In scenarios where the exchange becomes inaccessible, or where there is a technical glitch or cyber-attack, and where investors have not backed up their private keys, the risk of losing all crypto assets is very real.
What can investors do to safeguard their crypto assets?
Presently, there are many alternatives available to store your crypto assets. From physical wallets, hybrid wallets, custodial services, paper-based strategies, mental techniques, and password managers.
Here are some useful tips for you to help protect your crypto assets and are good hygiene to keep even if there is no regulatory ban:
- As an investor, you are the custodian of your assets. It is advisable to take charge and responsibility for protecting your digital wallet by following basic steps such as keeping private keys safely offline and in a secure place, not sharing the private keys with anyone, and using strong passwords to protect wallets.
- If you are trading on exchanges consider backing up your coins offline by splitting them into small quantities and storing them in several cold storage devices such as Ledger Nano S or Trezor.
- Make multiple copies of private keys and store them in a secure place offline on a hardware wallet, or on paper, or using the brain wallet technique involving a combination of dictionary words. This safeguard should allow custodial services including exchanges to be switched off at any time without impacting investors’ access to their coins held with them. In such a case, you should still have the access to your coins as long as you hold those private keys offline.
- In case you do not have time to manage your private keys, there are technologies such as the BitGo multi-signature technology and Coinbase custody available for online wallets which can be used to help safeguard your assets. These services may also provide insurance cover on Crypto-assets held with them which is not possible to provide by individual wallets.
- Keeping the majority of your assets in an offline or hybrid wallet such as Electrum is another alternative. This should de-link crypto assets from exchange or custodian-related risks. You can always move your coins back from cold storage offline wallets to exchange wallets though there may be network fees associated with those transactions.
- You can also use multi-wallet software that allows easy management of multiple currencies. For example, Exodus is one such multi-wallet that provides both desktop and mobile options for usage.
- Remember to keep all your passwords in a safe place offline so no hackers have access to it or any form of malware cannot steal your passwords.
- You can also use a password manager such as Dashlane or Roboform which are designed to provide secure and easy access to all the Crypto assets. It stores all your encrypted data in one place so that you may have better control over security even if one device gets compromised.
- Enable two-factor authentication on all wallets using an authenticator app or email/SMS-based OTP.
- You may also need to back-up your accounts on multiple secure locations like cloud storage, USB drives etc. in case the primary wallet device is lost. This will help reduce the chance of their being single points of failure.
In conclusion, there are many ways investors can safeguard themselves including; by keeping a backup of all Crypto assets whether private Cryptocurrencies or Government-backed Cryptocurrencies through several cold storage devices such as Ledger Nano S or Trezor; splitting the Crypto assets, and storing them in different cold storage devices as well as other wallet options such as custodial services; and using multi-signature technology for online wallets to safeguard their coins during the uncertain times.
Disclaimer: These are technical views of the author and not a recommendation on any of the products mentioned, or to trade or hold Cryptocurrencies. The contents of this article is not intended to and should not be construed as legal, tax, or financial advice. Readers must follow local laws and regulations and conduct their own research for a feasible and legitimate approach appropriate for their own circumstances. The author assumes no responsibility due to the inherent risks associated with trading and transferring Cryptocurrencies.
© Copyright 2021. The views expressed herein are those of the author(s) and not necessarily the views of Ankura Consulting Group, LLC., its management, its subsidiaries, its affiliates, or its other professionals. Ankura is not a law firm and cannot provide legal advice.
Article reproduced with permission from Business World India.