You can’t read financial news today without seeing something on cryptocurrency as a hot new investment vehicle. And it doesn’t take a lot more searching to find that some of the biggest financial thefts in human history have occurred on cryptocurrency exchanges since the emergence of Bitcoin on 2013.
The latest is a $500 million dollar theft on servers belonging to Coincheck, an online cryptocurrency exchange located in Japan. Hackers targeting a single type of cryptocurrency were able to make off with half a billion dollars, and thanks to the structure of blockchain, it is virtually untraceable.
Cryptocurrency began out of a distrust of the typical banking/financial exchange model, and sought to replace it with a decentralized platform, free from government oversight and the influence of the global banking industry. This has come with its own set of drawbacks, namely that anonymous transactions are just that: anonymous, with no master ledger or clearinghouse to monitor deposits and withdraws across the entire network of exchanges. Each exchange relies on current best standards and practices to secure the wallets of its depositors on its exchange. But in the world crypto, as in the traditional banking system, all security is not created equal.
To date, more than 3 million bitcoins have been lost or stolen, with a current market value of $39 billion USD. Factoring in that there is a finite supply of them, that accounts for 14% of all the available Bitcoins could be permanently gone.
If you plan on investing in any cryptocurrency, or are currently doing so, there are a few measures you should absolutely be taking.
DO YOUR HOMEWORK
Stick to the well-known exchanges, some of which do include some level of insurance on deposits on their exchanges. These include Binance, Coinbase, Kraken, and BitSquare.
Use two-factor authentication when logging into these exchanges, and do not share your password & authentication with ANYONE.
If you accumulate a large amount of any particular currency, or simply want to be as secure as possible, transfer both your wallet contents and wallet private keys to what is known as a ‘hardware wallet’. A hardware wallet is a USB device that stores your coins, wallet ledger and access keys completely offline, and can be used to check against loss or theft on an online wallet. They are set up with PINs, and can provide a string of words for easy recall in the event you’re ever locked out of the hardware. The most popular hardware wallet is the Ledger Nano S, available on Amazon for around $150.
BACKUP THAT BACKUP
Redundancy is the best way to assure your safety, so keep your hardware wallet in a safe place, and keep your 24 word pass phrase in a separate place as well. It may very well protect your entire investment from some of the smartest thieves in the world. Update your hardware wallet after every transaction, every time.
KNOW THE RISKS
Cryptocurrency is a new frontier and, as such, uses present day capability and paradigms with future technology that hasn’t even reached its full potential yet. The crypto market is global, open 24 hours a day, 7 days a week, and is not governed by rules in the typical investment platforms we have used before. If you’re safe, you can learn more about how the blockchain will potentially change your life in the future. If you’re safe and lucky, you might just increase your net worth beyond anything you could imagine