How cold storage can fight the crypto winter freeze

Crypto was founded on one unifying principle: decentralization.

The Bitcoin Whitepaper, the foundation upon which the crypto industry was built, held this sentiment as essential to the progress of the industry itself. The first line suggests “A pure peer-to-peer version of electronic cash would allow electronic payments to be sent directly from one party to another without going through a financial institution.”

The pseudonymous author Satoshi Nakamoto’s inclusion of “disintermediation” and “no third parties” is crucial. It lays out his and many others’ dreams of a completely decentralized space. In 2022, the current forex market and its enduring fallibility is the conversation most of us have on a daily basis; some exchanges are not as decentralized as they seemed.

So today, in light of the Celsius bankruptcy and Three Arrows Capital’s insolvency, we must ask ourselves two questions: How have we strayed so far from our founding principles, and how can we move forward to protect the assets we have accumulated?

From the beginning, the intention of crypto was to facilitate financial transactions, among peers, without having to rely on a trusted third party or an intervening financial institution.

Over the last few years we have seen a trend start to emerge in the sector; a trend of centralization in the crypto market where people have become comfortable trading and holding crypto assets in exchanges or organizations. However, we can now see that this practice corresponds to the “trusted” financial institutions of traditional finance. The problem that arises from this trend is of course that these institutions are not always as robust as they appear. Much of the trouble in recent weeks is due solely to the wanton over-exploitation of a select few seemingly reliable centralized institutions.

In reality, these centralized organizations in the crypto industry still present the same pitfalls and vulnerabilities that are always present in traditional financial institutions: Access is guarded, transparency is lacking, political pressure often plays a role, and liquidity is still a very relevant issue. All of these characteristics culminate in limiting withdrawals and fundamentally blocking access to assets not truly owned by their rightful owners.

Simply put, many crypto users and holders within this space are investing and trying to secure their assets in structures that have exactly the same flaws as the traditional institutions that crypto was designed to overcome.

If nothing else, the events of the past few weeks have served as eye-openers for many users as we all now begin to reevaluate the ecosystem we occupy. It is time we reassess and challenge the status quo, and look at how we can protect not only ourselves, but also other industry players.

Security and ownership tend to go hand in hand when discussing crypto holdings. When it comes to assets like digital art, the decentralized cold storage option starts to make even more sense. Investors and collectors have no reason to keep their assets online. Many holders of non-fungible tokens (NFTs) and digital artworks plan to hold these assets for the long term, as is the nature of artworks, not to be traded or sold, but to be enjoyed. As a result, safety becomes paramount.

To think of it another way, you wouldn’t store a priceless masterpiece in an open, public area without first investing in security measures. So why would you take the same risk with your digital artwork? This type of protection is exactly what cold storage provides. The crypto equivalent of security personnel, cameras and alarms – without the fuss.

Crypto holders, both novice and sophisticated, are coming to the realization that ownership is relative. But when you hold crypto on a centralized exchange or through a crypto broker, true ownership is almost impossible. So, where do we go from here? As attitudes change, we are seeing an increase in demand for self-storage solutions as holders begin to see the value of truly owning the assets they hold.

In the crypto industry, most innovations come from centralized parties doing decentralized things. Eventually, however, market crashes and fluctuations have revealed the true colors of many of the industry’s innovative leaders. If you take a misleading party and add under-collateralization and over-leveraging, you have a recipe for disaster; this is where we now find ourselves.

We are witnessing an unprecedented, pivotal time of change within the cryptosphere. Moving away from exchanges and crypto brokers towards decentralized mechanisms for holding crypto is not only the most sensible option – it is the industry’s last hope and key difference from the dangers of centralization. As more of the market begins to come to this realization, the focus will naturally shift to what we can control, which is how our assets are held.

Much of the infrastructure needed to truly interact in a decentralized manner has yet to be built. The structures we have are not yet widely available. So while there is work to be done, we can see that the building blocks are starting to be erected, with a really stable foundation for decentralization at its core. In time, industry will become a place where decentralization comes first and where people truly own their assets. Then we will all enjoy the benefits that lasting sector growth, financial authority and security can provide.