If you’ve been keeping up with the latest news in the crypto sphere, you’ll surely have heard about the collapse of FTX, one of the world's largest cryptocurrency exchanges. Billions of dollars have vanished and funds were drained from the cryptocurrency exchange hours after it filed for bankruptcy. What does that mean for the people who stored their assets with the exchange? They've just lost a lot of money!
Unfortunately, this isn't an uncommon occurrence in the crypto world…
In this blog post, we’re discussing why leaving your crypto on an exchange is risky and how best to safeguard your assets from future attacks.
EXCHANGES, CONVENIENT BUT DANGEROUS
There’s no doubt that exchanges are a convenient way to buy and sell cryptocurrency: you simply have to log into your account via an application or website in order to view your account balances and make transactions. But when you decide to leave your cryptocurrency on an exchange, you’re trading safety for convenience.
You see, because exchanges hold billions of dollars worth of cryptocurrency, they are enticing targets for hackers. Investors have lost over $3 billion to hackers across 125 hacks in 2022 so far, which is likely to surpass 2021 as the biggest year for hacking on record, according to blockchain analytics company Chainalysis.
But it’s not just the “outside” jobs you have to look out for. Exit scams are all too common in the crypto space, an occurrence where dodgy CEOs run a fake crypto project and then vanish once they have accumulated enough money. Take for example Faruk Fatih Özer, the founder of Thodex one of Turkey's largest crypto exchanges, who was accused of pulling an exit scam back in 2021 leaving thousands of users in the dark. It’s not a matter of if they will happen but more a case of when they will.
WHY THE CONSTANT HACKS?
One key consideration is that the cryptocurrency industry is still very much in its infancy, and with that comes a lack of regulation around most of the intermediaries. Cryptocurrency exchanges are effectively playing the role of a bank or at least part of what we traditionally rely on banks for, but without all of the oversight and regulation. Combine that with an ecosystem that’s booming with money and lacks experience and expertise, and it makes for a pretty appealing target for the unethical.
SO, HOW CAN YOU PROTECT YOURSELF?
Well, it’s pretty simple really. Move your assets onto a hardware wallet. This way, you can rest assured that your crypto wealth is in your hands and your hands only. Online digital wallets, or “hot wallets”, whether provided by a crypto exchange or a third party, all require internet access. They are considered the most vulnerable wallets in the world as they store your security keys and codes in an online environment.
Cold storage devices such as hardware wallets, however, are offline, meaning that they aren’t vulnerable to the most common hacks you see today. Your private keys are generated and stored on the hardware wallet which is then protected by a PIN and an optional passphrase. The keys are never exposed to the internet so they can’t be stolen or copied. That’s why it’s known as cold storage.
BEST COLD STORAGE SOLUTIONS
There are a few companies leading the way when it comes to cold storage solutions: Ledger & Trezor. Having sold well over 3 million devices between them to date, these two hardware wallet manufacturers are setting the standard when it comes to the usability and security of your cryptocurrencies.
As the popularity of hardware wallets has grown, so have the competitors entering the market. Here at Coinstop, we get requests almost daily from new and prospective manufacturers all over the world. Whilst we would love to stock them all, we have to be sure that we are providing our customers with only the safest wallets out there. We are always researching and reviewing samples that are sent to us in order to uncover the ‘next best thing’.
To check out the full range of wallets Coinstop offers, please check out our store.