BitMEX, Binance, Mt. Gox: Why Holders Need to Take Responsibility.
There are several dates that come to mind in regards to the history of cryptocurrency. January 3rd 2009, when Satoshi Nakomoto mined “The Genesis Block”. February 9th 2011, when Bitcoin became equivalent in value to the U.S. Dollar. January 30th 2015, when the Ethereum blockchain was launched which ushered in the beginning of the era of alt coins. These are considered some of the most significant, positive impactful dates in cryptocurrency history. Unfortunately, with every milestone that pushed forward blockchain and decentralized forms of cryptocurrency, there is another on the opposite end of the spectrum.
Arguably the most crippling day in cryptocurrency history, which was so significant it threatened to extinguish the forward charge Bitcoin had made, is considered to be February 24th 2014, Mt. Gox (at the time, one of the biggest exchanges handling roughly 70% of all Bitcoin txns at the time) suspended its services. It was later revealed that in an undetected theft the exchange had lost 744,408 Bitcoins. In an instant one of the most well known names in the industry became a ghost that would haunt its past users forever. With such a massive financial implication, there were lessons to be had and learned from both traders, holders who left their BTC on the exchange, and exchange CEO’s/creators who were at risk for these types of attacks. But would this instance help prevent it from happening in the future?
The short answer is no. Fast forward to May 14th 2020, Popular cryptocurrency lending and interest accruing platform BlockFi disclosed a hack which took place. While they claim that no funds were stolen and no personal information was stolen, it does state that “client information typically used by the company for retail marketing purposes” was visible and accessible to the hackers. These types of hacks and incidents seem to happen quite often. Companies are almost universally held responsible, with some even being sued or held liable for financial and personal damages causes by these nuances. This brings up a valid question which needs to be addressed before cryptocurrency, block-chain, and DeFi hit the mainstream: Why don’t we hold the individuals who control these funds and personal information responsible?
Let me be clear. I am in no way suggesting that someone who may lose their funds from an exchange hack or any other sort of infiltration are directly responsible like those perpetrators who set out to harm people maliciously. Let me also be clear and say that it is strictly the holders responsibility to make sure they are keeping their funds safe and secure when they are not looking. With hundreds of millions of dollars at stake, it is tiresome to see people act carelessly with their assets on these platforms. While it is tiresome to see this carelessness, it is just as awful to see that these exchanges and brokers do not educate their consumer base on how much risk is involved and how they can effectively lower this risk. There are many different options. Many of them are out there in the open, but people are notorious for not doing their own research, or DYOR.
I’m going to outline a myriad of ways that you can protect yourself since the people on the front-lines of the industry don’t do this job for themselves. Yes, I am speaking to you, seasoned cryptocurrency enthusiast. I’m also talking to the newcomers to the game who are probably extremely overwhelmed with information, which probably includes but isn’t limited to, WTF is Segwit? What the hell is a nonce? Different block-chains can have different block sizes? (This isn’t to poke fun at anyone with any particular background or skill level. This is all stuff that I myself just learned in the not so distant past, and I have been involved in crypto since 2017. For someone like myself who literally had no background in code, computers, or cryptography, this stuff can be EXTREMELY complicated and mind-boggling)
I’m sure that you may be surprised that someone out there may be actually trying to help you instead of finding some sketchy and obscure way for you to invest your hard earned dollars into a smart contract that promises ridiculous returns, or sets out to achieve some outlandish goal that many roll their eyes at. But I’m sincere, and I recently purchased a Ledger Nano X hard wallet (not a paid advert lol). After transferring my funds from my Coinbase.com wallet which they claim is insured, I feel much more secure and safe with my funds despite the fact my Bitcoin is subject to user error. I’ll tell you why. There is some solace in knowing that I, myself, would be directly responsible for losing my funds than having some random person who I blindly sent my money to via a Google/Apple Play Store App that can’t seem to stop crashing during the volatility that defines the crypto markets lose it because they aren’t holding up their end of the trust bargain.
First and foremost, when you are using any sort of crypto wallet, whether it be a software wallet, exchange wallet, or hard wallet, you need to save your private keys. Write them down. Twice. Thrice. Never save your seed phrases on any sort of device, as these phrases or private keys are susceptible to bad actors and poor security. Yes, I’m writing this in bold because if you do anything after reading this article, this is it. I recently gave myself a mini heart attack when I thought I lost my Metamask private keys which held all the BitcoinSoV (BSoV) I mined. All 32,000 were almost lost forever, and the feeling I had was more than awful. Until I remembered I wrote my phrases down, of course.
If you are looking for something a little more personal and physical which is encrypted that will protect your funds, there is whats called a hard wallet, which was mentioned above.
A hardware wallet is a type of cryptocurrency wallet, most popularly Bitcoin, which stores the users private keys in a secure hardware device. As outlined by Wikipedia.com (school wont let me cite it, but Medium will!), hardware wallets have these advantages.
- private keys are often stored in a protected area of a microcontroller, and cannot be transferred out of the device in plaintext
- immune to computer viruses that steal from software wallets
- can be used securely and interactively, private keys never need to touch potentially-vulnerable software
- much of the time, the software is open source, allowing a user to validate the entire operation of the device
Although I have been in the crypto game since October 2017, it took me over 2 and a half years to realize I needed to take security seriously and invest in a hard wallet. Different wallets have different pros and cons, but one of the most trusted names in the industry is Ledger, and I can tell you from my personal experience that setting up and storing your crypto on the Ledger Nano X ($120 on Amazon.com) was easy and hassle free. YouTube has some great tutorials on how to secure your wallet and funds. Keep in mind that even hard wallets come with private keys, and I strongly recommend writing them down vs. saving your keys in a notepad file or other type of digital storage. If they are written down in a place only you can access, only you can access them.
There are other options to store your crypto that I may not be aware of. But I am a firm believer in the hard wallet as a standard of storage. I have personally left my cryptocurrency in software wallets and even on exchanges (more on that in a minute) and I never felt the level of comfort I am feeling at this moment until I went out and made the investment in a hardware wallet. If there is one thing I would strongly persuade you from doing is leaving your funds on an exchange or third party site which has full control and access to your funds.
As I described in the beginning of the article, cryptocurrency exchanges and brokers can be completely responsible for losing your funds. Outside of Coinbase which is supposedly “insured" if they are hacked, tampered with, or manipulated in any way, you have no control, nor do you have any way to get those funds back for the most part. Keeping your crypto on exchanges may be necessary if you are trading, or lack another way of storage, but I highly recommend keeping any large sums in these wallets to minimize your exposure to risk. This is already one of the most volatile markets when it comes to any type of asset. Eliminating any other risk would do you good.
Now comes the part about accountability. Isn’t that why we are all involved in this crazy and volatile asset anyways? The transparency it provides, the independence it holds firm from foreign powers and world influence stands for everything accountable and integral. While these exchanges and various third party affiliates in the cryptocurrency industry provide great services, ultimately we are the people responsible for our mishaps. If we want a truly independent financial option, so must be its handling and accountability. Eventually there may be ways to circumvent losses and prevent hacks but right now with the industry budding and being so raw in its capabilities, we must be careful and do our due diligence.
This article is truly meant to be informative and if I save even just one cryptocurrency enthusiast from being exploited, this time taken to write this was not wasted. Everyone involved in crypto is early. Every purchase and very Satoshi should be held with the utmost care. Those 10,000 sats could very well be worth $1,000,000 one day. Stay safe my friends!