"I just have faith in my wallet to not mismanage my crypto": Investigating Changes in Users' Security Perceptions Post-FTX Collapse

Paper Title

"I just have faith in my wallet to not mismanage my crypto": Investigating Changes in Users' Security Perceptions Post-FTX Collapse

Publication Info

• Topic area: User security perceptions and behaviors in cryptocurrency wallets after a major exchange collapse.
• Keywords: cryptocurrency, custodial wallets, non-custodial wallets, FTX collapse, security perceptions, user behavior, risk mitigation, crypto custody, SEC compliance, crypto security.

Background and Problem

• Problem / challenge: The security breaches of centralized exchanges (CWs), such as the FTX collapse, highlight vulnerabilities in custodial models, yet their impact on users' security perceptions and behaviors remains understudied. Users often misunderstand wallet custody and fail to take appropriate risk mitigation actions.
• Significance: Understanding how users react to such incidents is critical for improving wallet security practices, educating users, and preventing future losses due to mismanagement or fraud.
• Motivation and related work: Previous research has focused on market reactions to crypto breaches or technical vulnerabilities in wallets but has not sufficiently addressed user-centered perspectives. This paper addresses the gap by studying how the FTX collapse influenced users' perceptions and behaviors regarding CWs and NCWs.

Solution

• Proposed approach: A mixed-methods study combining 22 semi-structured interviews and a survey of 430 participants to investigate changes in users' security perceptions and behaviors post-FTX collapse.
• Novelty:
  1. First systematic investigation of user-centered security perception changes following a large-scale CW breach.
  2. Identification of misconceptions about wallet custody and their influence on user behavior.
  3. Recommendations for improving risk communication and wallet onboarding processes.
  4. Quantitative validation of findings through a large-scale survey.
• Procedure and key techniques:
  • Conducted interviews to explore qualitative insights into users' reasoning and behaviors.
  • Designed a follow-up survey to statistically validate interview findings.
  • Analyzed users' knowledge of wallet custody, security features, and their responses to the FTX incident.
  • Examined changes in wallet adoption, crypto transfers, and trust in CWs and NCWs.

Results

• Concrete findings:
  • 56.5% of survey participants could not correctly identify their wallet type, and only 35.3% understood that CWs hold private keys.
  • Trust in CWs declined significantly post-FTX, while perceptions of NCW security improved slightly.
  • 70.7% of participants did not transfer crypto assets after the incident, often citing trust in their current wallets or insignificant holdings.
  • 16.9% of participants who trusted their NCWs were actually using CWs, including non-SEC-compliant ones.
• Advantage over baselines:
  • Provides the first user-centered analysis of security perception changes post-FTX.
  • Highlights specific misconceptions and behavioral gaps not addressed in prior studies.
• Experiments / evaluation:
  • Interview study: 22 participants, thematic analysis with 92 codes, Cohen’s κ = 0.86.
  • Survey study: 430 participants, non-parametric statistical tests, and detailed analysis of wallet adoption and crypto transfer behaviors.
• Limitations and future work:
  • Reliance on self-reported data, which may introduce inaccuracies.
  • Focus on the FTX incident limits generalizability to other breaches.
  • Future work should evaluate the effectiveness of proposed interventions, such as custody verification steps and standardized incident reports.

Summary

This study investigates how the FTX collapse influenced users' security perceptions and behaviors regarding custodial and non-custodial wallets. While trust in CWs declined and NCWs gained slight favor, most users did not take protective actions, such as transferring assets or adopting new wallets. A significant portion of users misunderstood wallet custody, with many incorrectly believing they had self-custody over CWs. The findings underscore the need for behaviorally grounded interventions, including mandatory custody verification during onboarding and standardized, action-oriented incident disclosures. These recommendations aim to improve user understanding of wallet risks and encourage timely risk mitigation.