A threat that shouldn’t even exist is one of the biggest challenges to cryptocurrencies: Hackers.
The entire basis of cryptos is that they’re totally safe and secure. But hackers – computer wizard rebels who try to access other people’s computers – chip away at that… by taking advantage of the bad habits of people who invest in cryptos.
If you haven’t been hacked, be sure you keep it that way (see below). And if everyone follows some simple rules, the hacker threat will be a lot lower than it is today.
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An all-too-familiar story
Importantly, most of the crypto hacks that you hear about are attacks on crypto exchanges – and not on individual crypto investors’ crypto wallets.
Last week, Bithumb, one of South Korea’s leading crypto exchanges, was hacked for US$13 million. And that was just the latest episode of crypto hacking.
In January, New Zealand-based cryptocurrency exchange Cryptopia was hacked for US$16 million worth of cryptocurrency.
In the past, exchange hacks caused crypto prices to plunge. In March 2018, rumours of a breach at Binance, the largest crypto exchange, triggered a five percent drop in the price of bitcoin within hours.
A report by crypto security company Ciphertrace found that US$927 million had been stolen from cryptocurrency exchanges in the first three quarters of 2018 alone. Last year, around US$3 million was stolen from exchanges every day.
It’s a big problem if frequent hacks desensitize crypto investors to the long-term danger that hackers pose to the future of cryptos.
How do exchanges get hacked?
Centralized exchanges, which can hold billions of dollars’ worth of customers’ crypto, are an attractive target. Hackers focus on finding vulnerabilities to access the exchange’s computer servers.
There are two ways hackers are able to take money from exchanges. First, they can steal funds directly, by breaking into exchange wallets. Or, they can steal user data – which they can then use to impersonate account holders, log into their accounts and withdraw their crypto.
Hackers have a lot of ways to get their hands on user data, which we’ve talked about here. Even so, hackers don’t usually target individual investors. That’s because the exchanges hold so much more money in one place.
The threat to adoption – and existence
Mass adoption of cryptocurrency won’t happen if people aren’t confident that their assets are secure.
In a study conducted by Clovr, a crypto research company, 27 percent of survey respondents said they “worry about the cryptocurrency service getting hacked” when sending crypto to family abroad. More alarmingly, some suggested that was reason enough to stop them from using cryptocurrency at all.
That by itself is enough to keep crypto prices from rising. Worse yet, a lack of adoption caused by distrust in the security of the technology will keep people and organisations from using crypto.
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Protect yourself from hackers
Crypto was designed to put individuals in charge of their own money. There are two things crypto investors should do to keep the hackers out:
- Never store your crypto on an exchange. Exchanges are convenient, that’s for sure. But hackers are drawn to them because investors leave too much money on the exchanges. After you’ve made a trade, withdraw your crypto to a wallet you control.
- Make sure you are using good security habits yourself, such as installing antivirus software and using secure passwords (learn more here). This is basic crypto security that everyone should use. It’s not fool proof, but it’s easy and it will keep out most hackers.
Cryptocurrencies are generally designed to work without a middleman, such as a bank or an exchange. When used correctly, they’re unhackable. And, in the near future, there will be more options to securely store your tokens.
Bakkt, the upcoming crypto exchange from the team that operates the New York Stock Exchange, plans to offer customers insurance against hacking and theft.
That will give institutions the confidence they need to start pouring serious cash into the space. Not only will that increase security options for all of us, but it will also give us a chance to make fabulous profits in the process.
Lead Crypto Analyst, Stansberry Pacific Research