The debate over alternative methods of storing crypto assets has heated up in India following the recent WazirX wallet breach that led to the theft of over $230 million (approximately Rs. 1,900 crore) worth of crypto assets. The compromised multi-sig wallet was placed under the custody of Liminal Custody by WazirX, but hackers reportedly managed to steal the funds from the wallet. This has raised several questions about the security practices that crypto companies follow, including keeping custody of user funds themselves and sometimes tasking third-party companies with their asset storage needs.
WazirX rival Giottus has posted details on how self-custody of crypto assets would work in a country like India, days after the hacking incident. Before we dive into what Giottus has highlighted, we need to understand what the [self-custody]( of crypto assets.
As the name suggests, a crypto company can allow self-custody, allowing investors to keep the private keys to their respective wallets with themselves instead of storing them with exchanges. Users can then choose whether to store their private key on a web-connected “hot wallet” or a non-web connected “cold wallet” — this includes paper wallets and hard wallets.
In a thread On X (formerly Twitter), Giottus said it is possible for Indian exchanges to add the ability to manage assets themselves to their platforms, which could benefit customers in several ways.
“Self-custody means you have 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 improve the security of funds and eliminate the risks of hacks on centralized exchanges, while also giving crypto holders full financial sovereignty.
However, the exchange also highlighted the obstacles that stand in the way of exchanges offering self-custody of assets to users in India. “Crypto withdrawals need additional security measures in India. To remain compliant and therefore secure, 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 completed, any FIU-registered exchange in India can offer self-custody,” the exchange said.
Furthermore, Giottus noted that not all users are equipped with the kind of security upgrades and advanced technology that they feel compelled to keep up with when self-custodying their assets. The crypto exchange says that in the case of hardware wallets, if the total stored funds are more than Rs. 50,000, the cost of a secure hardware wallet can start from Rs. 10,000 and can go higher. Similarly, in the case of software wallets for self-custody of assets, if the stored funds are below Rs. 10,000, users may face higher transaction fees.
Clarity in cryptocurrency regulations, Giottus believes, could solve the issues that are causing crypto companies in India to stick to tried and tested methods of doing business, rather than exploring less-researched alternatives.
Demand for self-preservation increases after WazirX hack
The WazirX wallet hack has sent shockwaves through the Indian crypto industry and even beyond – 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 breach did not come from their end, in an attempt to apportion responsibility for the incident.
Deposits, withdrawals, and trading services on WazirX have been suspended, leaving its user base stranded without access to their funds. As WazirX hopes to recover the stolen funds through its bounty initiative, it has devised a ‘socialized loss strategy’ to mitigate the fallout of losing nearly half of its reserves in the hack.
According to WazirX, users with 100 percent of their tokens in the “not stolen” category will get 55 percent of those tokens back. The remaining 45 percent will be converted into USDT-equivalent tokens and locked. Users can voluntarily disable their crypto/INR withdrawals and continue trading and INR deposits or choose to keep withdrawals open but with a daily limit. In the event that the hacked amount is recovered, those who choose option A will be rewarded with one hundred percent of their funds back, while those who choose option B will have to settle for only a few percent of the compensation. However, the exchange has received a lot of criticism for the decision.
