The debate on alternate methods of storing crypto assets has heated up in India after the recent breach of a WazirX wallet that led to the theft of over $230 million (roughly Rs. 1,900 crore) of crypto assets. The compromised multi-sig wallet was placed under Liminal Custody’s supervision by WazirX, but hackers reportedly succeeded in stealing the funds from the wallet. This has raised several questions over the security practices that crypto firms follow, including keeping the custody of user funds with themselves and sometimes tasking third-party firms with their asset storage needs.
WazirX rival Giottus has posted details of how self-custody of crypto assets would work in a country like India, days after the hacking incident. Before we delve into what Giottus has highlighted, we need to understand what exactly is the [self-custody](https://www.gadgets360.com/tags/self-custody-crypto) of crypto assets.
As the name suggests, a crypto firm can allow self-custody so that investors to keep the private keys to their respective wallets with themselves rather than storing them with the exchanges. The users can then choose if they wish to store their private key on a web-connected ‘hot wallet’ or a non-web connected ‘cold wallet’ — that includes paper wallets and hard wallets.
In a thread on X (formerly Twitter), Giottus said that it is possible for Indian exchanges to explore adding the self-custody of assets feature to their platforms, which could benefit customers in several ways.
“Self-custody means having full control over your crypto assets without relying on exchanges. You are the sole owner of your private keys. No intermediaries, no third parties. Just you and your assets,” Giottus said, claiming that the feature could enhance the security of funds eliminating the risks of hacks on centralised exchanges while also giving crypto holders complete financial sovereignty.
The exchange also, however, highlighted the roadblocks that stand in the way of exchanges offering self-custody of assets to the users in India. “Crypto withdrawals need additional safety measures in India. To remain compliant, and thus safe, crypto exchanges in India must follow a strict process to allow customers to take custody of their crypto assets. Once your KYC and due-diligence are complete, any FIU-registered exchange in India can offer self-custody,” the exchange said.
In addition, Giottus noted that not all users are equipped with the kind of security upgrades and advanced tech that self-custody of assets may make them feel compelled to keep up with. The crypto exchange says that in the case of hardware wallets, if the total funds stored within exceed Rs. 50,000, the cost of a secure hardware wallet could start from Rs. 10,000 and go above. Similarly, in case of software wallets for self-custody of assets, if the stored funds are below Rs. 10,000 then the users can face higher transaction costs.
Clarity in crypto regulations, as per Giottus, could solve these issues that are keeping crypto firms in India limited to tried and tested methods of conducting businesses rather than exploring alternatives less explored.
Demand for Self-Custody Increases After WazirX Hack
The wallet hack of WazirX has sent shockwaves across India’s crypto industry and even abroad – so much so that it has reportedly even caught the attention of the US Federal Bureau of Investigation (FBI). Both, WazirX and Liminal have cited their respective internal investigations to claim that the compromise did not occur from their ends, trying to pin responsibility of the incident on each other.
The deposits, withdrawals, and trading services on WazirX are on hold, leaving its userbase in the lurch without access to their funds. As WazirX hopes to recover the stolen funds through its bounty initiative, it has laid out a ‘socialised loss strategy’ to mitigate the aftermath of losing almost half of its reserves to this hack.
As per WazirX, users with 100 percent of their tokens in the ‘not stolen’ category will receive 55 percent of those tokens back. The remaining 45 percent will be converted to USDT-equivalent tokens and locked. Users can either willingly disable their crypto/INR withdrawals and continue with trading and INR deposits or choose to keep withdrawals open, but with daily limit. In case there is a recovery of the hacked amount, the people who choose option A will be rewarded with hundred percent of their funds back but people who choose option B will have to compromise with only some percent of the compensation. However, the exchange has received ample criticism for the decision.
