This comprehensive guide will help beginner crypto investors understand the best security practices for protecting their assets from hacks when they buy and sell Bitcoin
Since the launch of Bitcoin in 2009, the cryptocurrency industry has been on a tedious uphill mission to achieve legitimacy. Traditional financial institutions and governments are not keen to support cryptocurrencies because they are worried that crypto might reduce their influence on the global economy.
Beyond the lack of government support, the stories you’ve heard about how millions of dollars are stolen in crypto hacks are probably making you afraid to buy and sell Bitcoin. There’s also the common knowledge that stolen Bitcoin can’t be retrieved.
While critics tend to exaggerate these depressing stories about hacks, there’s no denying the fact that people lose their money in crypto hacks. This guide provides four insights on how you can buy and sell Bitcoin while minimizing the risk that your funds will be stolen.
Recent crypto hacks and stolen funds by the numbers
The Mt GOX hack of 2014 was the most iconic crypto hack that brought the vulnerability of the crypto market to the limelight. In that hack, about 850,000 Bitcoins estimated at $7.2B in today’s prices were stolen. Since the hack happened in 2014, users haven’t had respite, refunds, or closure and the most recent news suggests that a lawsuit might help users recover about $2B out of stolen funds. Some other high-profile crypto hacks and their prices at the current BTC price around $8500 are listed below;
- October 2011: Bitcoin7 lost 5000 BTC valued at $42.5M in today’s money to Russian hackers
- September 2012: Bitfloor lost 24,000 BTC valued at $240M in a data breach
- December 2012: BitMarket lost 18,788 BTC valued at $159M
- December 2012: Bitcoinica lost a total of 102,101 BTC valued at $867M in three different hacks throughout the year
- October 2014: Bitpay exec transferred a combined 5000 BTC valued at $42.5M in a phishing attack
- January 2015: Bitstamp lost about 19,000 BTC valued at $161.5M in a hot wallet hack
- August 2016: Bitfinex reported the theft of 119,756BTC now valued at $1.01B when its multi-signature accounts were hacked
- January 2018: Coincheck lost $534M worth of NEM coins stolen from its single hot wallet
- June 2018: Coinrail lost $37M worth of Pundi X and Astoncoin tokens in a hack
- May 2019: Binance reported the loss of 7,000 BTC valued at $59.5M in a cyberattack. To Binance’s credit, it refunded the stolen funds from its reserves.
4 ways to buy and sell crypto without losing funds to hacks
The main gospel of cryptocurrency is decentralization and the decentralization that it promotes suggests that individuals must proactively take up the responsibility of securing their funds. If you don’t want to be at the risk of theft when you buy and sell Bitcoin, below are 4 insights that could get you started in the right direction.
Beginners who seek to invest in crypto should use a custodial service
For beginner crypto investors, it might be somewhat difficult to understand the concepts of hot wallets, paper wallets, and cold storage. It might be in your best interest to buy and sell Bitcoin using a custodial service until you can manage your Bitcoin transactions, wallet addresses, and private keys without making mistakes.
Skrill is one of the most reliable and trustworthy platforms that provides custodial services to people who want to buy and sell Bitcoin. Skrill, founded in 2001 has part of Paysafe Holdings UK Limited has almost 20 years of experience in providing simple, secure, and fast digital payment services. With Skrill, you can open a free account and deposit funds under two minutes. You can then locate its Crypto tab, select Bitcoin or other coins, enter how much Bitcoin you want to buy.
You don’t need to buy a full Bitcoin and Skrill allows you to buy fractions of a Bitcoin. Skrill then holds your cryptocurrency for you in its custodianship so that you don’t have to worry about managing private keys.
Another important point to note is that Skrill is not just another random crypto startup, it is part of an established group with annual revenues of $1.9 billion and it is regulated by the Financial Conduct Authority under the Electronic Money Regulations 2011 for the issuing of electronic money and payment instruments.
Experienced crypto investors might want to try out cold storage
If you have some experience with cryptocurrency or if you have some technical skills, you may want to take full responsibility for the security of your coins by putting them in cold storage. For cryptocurrencies, cold storage typically refers to any storage medium not connected to the Internet on which you store your private keys.
The most popular cold storage methods include hardware wallets, USB storage, desktop clients, and paper wallets. Hardware wallets are the most expensive while paper wallets are the cheapest. Hardware wallets and desktop clients provide you with seed phrases that could potentially help you recover your coins if you lose the wallets. Coins stored in paper wallets or USB sticks may not be recoverable if you lose the paper wallets or USB sticks. Desktop clients are somewhat intermediate but there’s the risk that the computer might be occasionally connected to the Internet.
If you buy and sell crypto is a day trader, choose your exchange wisely
Day traders typically buy and sell Bitcoin and other cryptocurrencies many times per day as they attempt to profit from the short-term fluctuation in the prices of crypto assets. If you are a day trader, you’ll mostly keep your trading funds on the exchange on which you conduct your trading activities.
Crypto exchanges are competing for users; hence, you should be able to shop around for an exchange that will give you the highest level of reassurance about the security of your funds. You should logically choose an exchange that guarantees your deposits over an exchange on which deposits are not guaranteed. If the exchange opens itself to independent financial and security audits; it will probably protect user funds much better than an exchange that operates under layers of opacity and secrecy.
If you are not a day trader, there’s no reason to leave your coins in an exchange
If you are not an active trader, you shouldn’t hesitate to move your crypto assets away from an exchange wallet as soon as you buy the coins. If you must keep your coins in on an exchange, you should take advantage of standard security measures to protect your crypto accounts.
The first security measure is to have the bulk of your crypto assets in cold storage and only transfer your trading funds to the exchange when you are actively trading. You should also take advantage of security measures such as 2-factor authentication, IP binds, and withdrawal limits from unknown locations.
From a critical examination of the most prominent crypto hacks, the common features of successful hacks suggest that hackers tend to focus on user funds instead of user information. Hence, there’s a higher chance that a hack will be mostly targeted at exchanges and trading platforms rather than the account of individual users. It also seems that brokerage firms, custodial services, and digital asset platforms are not usually targeted in crypto hacks.
It’s also depressing to note that some illegitimate exchanges can steal user funds in exit scams, and they will then use the untenable defense that they were hacked. Irrespective of whether you are trading Bitcoin for short term gains or you are investing for the long term, you must take responsibility for the security of your crypto assets.
This is a contributed article