What can you do against Exchange Hacks?
April 23, 2018 (Investorideas.com Newswire) Buying bitcoins nowadays is so easy. But it's also easy to lose your coins. If you store them on a crypto exchange or let anyone get hold of your private keys, you could lose your bitcoins at any time. And worse, there are no laws that protect you against bitcoin losses. It's up to you to protect your Bitcoins.
In late January this year, popular Japanese exchange, Coincheck, announced that hackers had compromised their security systems and stolen $530 million worth of NEM coins. It was the largest crypto hacks of its kind. In 2017, criminals in South Korea targeted people storing coins in local exchange, Bithumb, and blackmailed them into giving out their passwords to the exchange.
Stories of crypto exchanges getting hacked are not new. They keep happening, month after month. In fact, incidents of exchanges losing money to hackers are so rampant that 6 of the top 20 exchanges on Coinmarketcap have at one time lost funds to hackers. In nearly 90% of the cases, people who lost coins on the exchanges never got them back.
Exchanges Locking Coins
Cryptocurrency exchanges are known to lock people out of their accounts. For the better part of December 2017, Bittrex exchange users took to social media to complain about accounts being locked for no particular reasons. At the same time, Bitcoin traders in India were facing a similar problem. Exchanges in the currently locked people's accounts as the country's government targeted them for tax evasion.
Crypto exchanges suspend people's accounts for many reasons, but the main reason seems to be poor management. Some exchanges can't handle criticism from customers. In fact, most customers who say they were locked out of their accounts had previously made complaints to the exchange. Some exchanges have rogue employees who lock people out of their accounts to direct their funds into personal accounts. In a nutshell, here are common reasons exchanges give for locking or suspending users' accounts:
- Technical maintenance- in the final weeks before Mt. Gox shut down; lots of users' accounts were suspended. The exchange became unable to complete trades, and the exchange claimed they were maintaining their systems
- Political reasons- some exchanges, including Bittrex, have been accused of suspending people for having diverging political reasons
- Breaking T&C rules- most exchanges make clear in their terms and conditions of using their exchange that they could close down your account. If you break any rule, your account could be closed down with your coins intact
- Overwhelming customer requests- with exchanges receiving thousands of complaints about unauthorized withdrawals from customers, they tend to panic and suspend users' accounts. Cryptopia is an example.
- Hacking attempts- when exchanges are hacked, the first thing they do is to suspend withdrawals until they get hold of the coins hackers tried to withdraw
- Rogue employees- sometimes employees, like in the case of ShapeShift, have gone rogue and stolen users' coins and later locking them out of their accounts
How to protect your Cryptos
Trade on Anonymous Exchanges
The best exchanges to trade cryptos on ask for minimal verification details. Some exchanges actually ask for no registration or verification of any kind. Check this example here. The exchange allows you to trade anonymously. And better yet, you store coins in a personal wallet.
On such an exchange, there is a zero chance that a hacking heist on the exchange could affect you. The exchange closing down will also not affect you because you have total authority over your coins. Trading on anonymous exchanges where coins are held in your personal wallet also offers lower trading fees. Because you do not deposit coins or funds on their exchange, you only have to pay for trading on their site. You also don't pay withdrawal fees.
Secure Coins in a Personal Wallet
Nearly every modern crypto exchange has a wallet where users deposit coins before trading them. Also, when you buy any crypto on the exchange, they deposit them in your wallet provided by them. But given how easy it's to lose your coins on the exchange, it's better to store coins in a personal wallet.
Personal wallets give you the ability to completely secure your coins. With a personal wallet, all the keys and passwords needed to withdraw coins remain with you. When you have coins in a wallet provided by an exchange, the exchange holds the private keys needed to withdraw your funds. There are lots of personal wallets that offer tight security for bitcoins and other cryptos. The best wallets store your coins offline, away from the possibility of hackers compromising their security. Here is a list of types of coins and how secure they are:
- Paper wallet- you store your private and public keys on a piece of paper. Impossible to hack but vulnerable to theft and physical damage
- Hard wallets- offer tight security with zero possibility of hacking; most recommended wallets
- Desktop wallets- store your coins offline on your computer. Bugs and deleting the files could make you lose coins
- Mobile wallets- store coins online or offline. They can be hacked or bugs can compromise their security
- Web wallets- store your coins online and easy to access with a computer. They are generally not secure
Deposit Minimal Funds on the Exchange
If you love to trade cryptocurrencies regularly, you may have to deposit some coins on the exchange regularly. It's inconvenient and sometimes expensive to deposit coins from your personal wallet every time you want to trade. You can avoid this by holding a portion of your funds on the exchange, but only that amount of money you would be willing to lose.
The risk of losing your funds on the exchange are still there, but it's worth it if you are a day trader and you have confidence in the security of the exchange. Most traders who trade regularly tend to use more than one exchange to spread the risk of losing funds on exchanges.
Holding coins in an offline, hard wallet is currently the best way to secure cryptocurrencies. If you trade regularly, at least ensure the amount of coins in your exchange is not so huge as to affect you financially if anything happens to the exchange or your exchange account.
Source: Ronny Martelli, Collaboration Specialist
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