One of the most difficult things for a new cryptocurrency investor to initially get to grips with is the extent to which you are the sole custodian of your new asset. It’s completely different from having funds in a bank, for example, where you are a customer with rights and protections.
The first lesson you need to learn is: Do not leave your coins hanging around on the exchange where you bought them. There are a number of reasons why you don’t want to do this.
Cryptocurrency exchanges operate in a state of open warfare against continual penetration attempts, an ongoing arms race in which sometimes the hackers pull ahead – and funds are stolen
Firstly, exchanges can get hacked
Cryptocurrencies are booming, and they’re big news. They’re also pseudo-anonymous and easy to move around the world in a flash. No wonder they’re attractive to hackers.
And what is really, really attractive to a hacker? An exchange they know is loaded with lots of lovely money. As a consequence, cryptocurrency exchanges operate in a state of open warfare against continual penetration attempts, an ongoing arms race in which sometimes the hackers pull ahead – and funds are stolen.
Sure, some exchanges offer various insurances and guarantees. But at the end of the day, you are largely on your own if your coins are taken. As the owners of the US$450-million worth of Bitcoin ‘lost’ from the Mount Gox exchange found out in 2014, it’s unlikely that any assets exist to replace what is taken, whatever the cause of their disappearance.
Secondly, you can get phished
Even if the exchange itself never gets compromised, fraudsters know that people are logging in and out of them all the time, and go to increasingly subtle and sophisticated lengths to try and get you to log in somewhere else instead.
Would you have spotted this one, using an ṇ instead of an n? Certainly in a mobile browser, or an underlined link in an email, you wouldn’t see the dot under the two letters at all:
Spot the fake URL
Creating a site that looks enough like the real (and perfectly genuine and secure) Binance exchange is all it takes to complete the illusion and collect people’s passwords.
You can protect yourself to some extent by enabling two-factor authentication on all exchange account logins, and using an anonymous dedicated email account for all your cryptocurrency transactions. But the sums involved on exchanges are simply too tempting, so the efforts to rob them will never stop.
So, what can you do?
Keep your assets warm
It comes down to the usual trade-off in tech: convenience and usability, versus security.
Funds on an exchange are easy to access and trade. That’s what the exchange is for. Day traders need to be able to move as fast as the market moves, and have to keep their coins right there, ready to buy or sell as soon as the signals are right.
But most of us transact much less frequently, and can tolerate slightly less convenient access to our crypto coins, in the name of better protection for them.
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