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
Cryptocurrencies: the new gold?
By Gerald Moser, Chief Market Strategist, Barclays Private Bank
Time to add to a portfolio?
There has been a lot of talk about bitcoin, and cryptocurrencies in general, being a “digital” gold. Similar to gold, there is a finite amount, it is not backed by any sovereign and no single-entity controls its production. But for bitcoin to be considered in a portfolio and to become an investable asset, similar to gold, the asset would need to improve the risk/return profile of that portfolio. This seems a tall order.
While it is nigh on impossible to forecast an expected return for bitcoin, its volatility makes the asset almost “uninvestable” from a portfolio perspective. With spikes in volatility that are multiples of that typically experienced by risk assets such as equities or oil, many would probably throw the cryptocurrency out of any portfolio in a typical mean-variance optimisation.
And while bitcoin’s correlation measures are relatively supportive, it seems to falter when diversification is most needed, such as during sharp downturns in financial markets. Looking at weekly return correlations since 2016 shows that bitcoin is not strongly correlated with any assets (see below). It is however only second to US high yield in its correlation with equities. US Treasuries, gold and US investment grade were better diversifiers than bitcoin when it comes to equities.
Furthermore, looking at global equity corrections since 2015 (see below), it is noticeable that bitcoin has performed even worse than equities over the last three corrections. And while gold and fixed income provided some relief during those corrections, bitcoin compounded the loss that investors would have incurred from equities exposure.
The fact that cryptocurrencies also fluctuate alongside equities suggests that investment in bitcoin is more akin to a bubble phenomenon rather than a rational, long-term investment decision. The performance of the cryptocurrency has been mostly driven by retail investors joining a seemingly unsustainable rally rather than institutional money investing on a long-term basis.
Several studies around market structure have shown that emerging markets with high retail/low institutional participation are more unstable and more likely subject to financial bubbles than mature markets with institutional participation. And while more leading financial houses seem to be taking an interest in cryptocurrencies, the market’s behaviour suggests that the level of institutional involvement is still limited. Another issue is around its concentration: about 2% of bitcoin accounts control 95% of all bitcoins.
In summary, difficulty to forecast return, lack of diversification and high volatility makes it hard to consider bitcoin as a standalone asset in a diversified portfolio for long-term investors.
An inflation hedge?
Another point widely quoted in favour of cryptocurrencies is that they provide an inflation hedge. This might be a valid point, if inflation stems from fiat currency debasement. As mentioned above, a currency’s worth comes from the trust economic agents have in it. If unsustainable amounts of debt and large money creation shatter belief in sovereign-backed currencies through spiralling inflation, cryptocurrencies could be seen as an alternative.
Regardless of its price, bitcoin’s production is set on a precise schedule and cannot be changed. If oil or copper prices go up, there is an incentive to produce more. This is not the case for cryptocurrencies. In a very specific and highly hypothetical scenario of all fiat currency collapsing, this could be positive. But other real assets such as precious metals, inflation-linked bonds or real estate usually provide a hedge against inflation.
Bitcoin’s technology should theoretically make it extremely secure. As there is no intermediary, each transaction is reviewed by a large number of participants which can all certify the transaction. However, there have been frauds and thefts from exchanges. Another point to consider is the risk of “losing” bitcoins. According to the cryptocurrency data firm Chainanalysis, around 20% of the existing 18.5m bitcoins are lost or stranded in wallets, with no mean of being recovered. As there is no intermediary, there is no backup for a lost bitcoin.
From a sustainability point of view, adding cryptocurrencies to a portfolio will make it less green. Mining and exchanging them is highly energy intensive. According to estimates published by Alex de Vries, data scientist at the Dutch Central Bank, the bitcoin mining network possibly consumed as much in 2018 as the electricity consumed by a country like Switzerland. This translates to an average carbon footprint per transaction in the range of 230-360kg of CO2. In comparison, the average carbon footprint of a VISA transaction is 0.4g of CO2.
Beyond energy use, the mining process generates a large amount of electronic waste (e-waste). As mining requires a growing amount of computational power, the study estimates that mining equipment becomes obsolete every 18 months. The study suggests that the bitcoin industry generates an annual amount of e-waste similar to a country like Luxembourg.
Cryptocurrencies are here to stay
Innovation in digital assets continues rapidly and will likely drive increased participation, both from retail and institutional investors. The underlying blockchain technology behind bitcoin was meant to disrupt a few different industries. While results have not lived up to the initial hype, more sectors are investigating the use of the technology.
And with Facebook announcing a stablecoin, or a cryptocurrency pegged to a basket of different fiat currencies, central banks have accelerated the movement towards central bank digital currencies. Those could improve payment systems resilience and facilitate cross-border payments.
Energy stocks drag down FTSE 100, IG Group slides
By Shivani Kumaresan
(Reuters) – London’s FTSE 100 slipped on Thursday, weighed down by falls in energy stocks as oil prices slid after a surprise increase in U.S. crude inventories, while IG Group tumbled on plans to buy U.S. trading platform tastytrade for $1 billion.
The blue-chip FTSE 100 index lost 0.4%, while the domestically focussed mid-cap FTSE 250 index also slid 0.4%.
Energy majors BP and Royal Dutch Shell fell 3.2% and 2.5%, respectively, and were the biggest drags on the FTSE-100 index. [O/R]
“What is holding back the UK is a lack of tech stocks to capture the ‘rotation’ back into tech seen since Netflix results,” said Chris Beauchamp, chief market analyst at IG.
“Stock markets overall are much quieter today, looking so far in vain for a new catalyst for further upside.”
The FTSE 100 shed 14.3% in value last year, its worst performance since a 31% plunge in 2008 and underperforming its European peers by a wide margin, as pandemic-driven lockdowns battered the economy and led to mass layoffs.
British Prime Minister Boris Johnson said it was too early to say when the national coronavirus lockdown in England would end, as daily deaths from COVID-19 reach new highs and hospitals become increasingly stretched.
IG Group tumbled 8.5% after announcing plans to buy tastytrade, venturing into North America after a stellar year for the new breed of retail investment brokerages.
Ibstock jumped 7.3% to the top of the FTSE 250 after the company said fourth-quarter activity benefited from better-than-expected demand for new houses and repairs.
Pets at Home Group Plc rose 2.2% after reporting an 18% jump in third-quarter revenue, boosted by higher demand for its accessories and veterinary services as more people adopted pets during lockdowns.
(Reporting by Shivani Kumaresan in Bengaluru; editing by Uttaresh.V and Mark Potter)
Wall Street bounce, upbeat earnings lift European stocks
By Amal S and Sruthi Shankar
(Reuters) – European stocks rose on Wednesday after Dutch chip equipment maker ASML and Swiss luxury group Richemont gave encouraging earnings updates, while investors hoped for a large U.S. stimulus plan as Joe Biden was sworn in as president.
The pan-European STOXX 600 index closed 0.7% higher, getting an extra boost as Wall Street marked record highs.
All eyes were on Biden’s inauguration as the 46th U.S. President, with traders betting on a bigger pandemic relief plan and higher infrastructure spending under the new administration to boost the pandemic-stricken economy.
Tech stocks rallied to a two-decade peak in Europe after ASML Holding NV rose 3.0% to all-time highs on better-than-expected quarterly sales and a strong order intake for 2021.
Meanwhile, Richemont rose 2.8%, after posting a 5% increase in quarterly sales as Chinese splashed out on Cartier, its flagship jewellery brand.
Britain’s Burberry jumped 3.9% after it stuck to its full-year goals, saying higher full-price sales would boost annual margins, while Asian demand remained strong.
The pair boosted European luxury goods makers that are heavily reliant on China, with LVMH and Kering gaining between 1% and 3%.
“Any sign that retail spending is picking up in China is going to be a boost to the Western markets and those heavily exposed to it,” said Connor Campbell, financial analyst at SpreadEx.
The European Central Bank is set to meet on Thursday. While no policy changes are expected, the bank could face more questions about an increasingly challenging outlook only a month after it unleashed fresh stimulus to bolster the euro zone economy.
“With the new round of easing measures fully in place and no new forecasts to be presented tomorrow, it should be a fairly uneventful day for the euro,” ING analysts said in a note.
Italy’s FTSE MIB gained 0.9% and lenders rose 1.6% after Prime Minister Giuseppe Conte won a confidence vote in the upper house Senate and averted a government collapse.
Conte narrowly secured the vote on Tuesday, allowing him to remain in office after a junior partner quit his coalition last week in the midst of the COVID-19 pandemic.
Daimler AG jumped 4.2% after its Mercedes-Benz brand unveiled a new electric compact SUV, the EQA, as part of plans to take on rival Tesla Inc.
Germany’s Hugo Boss added 4.4% after Mike Ashley-led Frasers said it boosted its stake in the company.
(Reporting by Sruthi Shankar and Amal S in Bengaluru; Editing by Shailesh Kuber and Arun Koyyur and Kirsten Donovan)
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