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Jonty Sachs and Chris McCormick
Many cryptocurrency investors are troubled by stories of cryptocurrency exchange hacks, loss of funds, and investors not being able to access their cryptocurrency due to forgotten passwords. In most of these cases, the investors are not to blame and unfortunately, they will not be able to recover the lost cryptocurrency.
Attacks on wallets and exchanges have become commonplace and seem to be increasing as the cryptocurrency market grows. You don’t have to look far to see how real this threat is. In January of this year, a global and well-known cryptocurrency exchange was hacked and $34 million was stolen from its wallets. A month earlier, hackers gained access to another exchange and stole $150 million, and just last week, over 8,000 Solana wallets were hacked, resulting in the theft of millions of dollars. Unfortunately, in many of the above cases, the affected investors did not get their funds back.
Investors should be aware of the risks associated with investing in cryptocurrency, as well as custody options to protect their investments.
A breakdown of some of the risks:
South African investors face many risks when storing cryptocurrencies in a cryptocurrency exchange or digital wallet on their phone, these include:
crime:
The risk of criminals forcing investors to transfer their cryptocurrencies to an anonymous account is common enough that the industry has its own industry term “$5 wrench attack” – referring to the fact that when an investor carries a large amount of cryptocurrency on your mobile phone, an attacker does not need to have sophisticated software to access it, just a threatening physical weapon.
This risk is significant given the country we live in, so investors should avoid walking around with large amounts of cryptocurrency stored on their mobile phone.
Exchange risk:
Exchanges have been targeted by cybercriminals for years because large amounts of value are centrally stored on their platforms. Therefore, by successfully hacking an exchange, criminals gain access to billions of rand, which can be transferred to an anonymous account and become irrevocable. In the industry, exchanges are called “honey pots” because all the honey is stored in one place.
For information about the Jaltech Cryptocurrency Basket, Click here.
Availability Risk:
Investors often fail to provide their partners, heirs or financial advisors with the necessary information to locate and access their cryptocurrencies. Therefore, tracking and accessing an investor’s cryptocurrencies after death may in many cases be impossible. An additional risk is that an investor will lose, forget or incorrectly back up their password and thus never be able to access their cryptocurrencies.
How to protect your cryptocurrency
As mentioned in the previous article, there are several storage options for investors to choose from:
On the exchange: Investors can store their cryptocurrency on their mobile phones with their cryptocurrency trading apps. For the reasons mentioned above, this is a high-risk approach.
Paper wallet: Investors can remove their cryptocurrency from the exchange and write down their keys on a piece of paper. This approach carries risks such as ease of copying, irrelevance and illegibility/corruption over time.
Hardware wallets: A hardware wallet is a special device (similar to a USB drive) designed to store cryptocurrency private keys. These devices are much less vulnerable to external attacks, but require technical knowledge to use them effectively. There is also the risk that the device may be lost, stolen or damaged.
Third party custodian: This is an option to transfer the storage of cryptocurrencies to a company that specializes in cryptocurrencies.
For information about the Jaltech Cryptocurrency Basket, Click here.
It is clear that the simplicity and convenience of storing cryptocurrency on the exchange is preferred by most investors. However, as history teaches us, these exchanges are often targeted by hackers as they centrally store hundreds of millions of rand worth of cryptocurrency.
For more conservative investors, third-party custodians typically provide investors with a more reliable and secure way to store cryptocurrencies. This type of service is aimed at investors who recognize the long-term value of cryptocurrencies and the risks associated with their current storage option, but do not want to deal with the technical side of securing their cryptocurrencies themselves.
As they say in the precious metals investor community, “if you can’t hold it, you don’t own it”, the same applies to the cryptocurrency space – not your keys, not your crypto. As investors build their cryptocurrency portfolios, it would be wise for them to manage the security of their assets in the best possible way, and to do so with a solution that provides protection against physical and cyber attacks, as well as human error.
- Jonty Sachs and Chris McCormick are fund managers at Jaltech
Jaltech offers investors access to a basket of cryptocurrencies selected and managed by a group of cryptocurrency experts.
For information about the Jaltech Cryptocurrency Basket, Click here.
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