A Solution to: Crypto Currency Reserves are Centralizing and are at Risk
This discussion was sparked by a recent post in the Safe Exchange forum when a user had inquired how they could store their Safe Exchange Coins (SAFEX) offline. The following text regards something that many long time users of crypto currency already know about. And if you are reading this and don’t know about the centralization of crypto currencies in exchanges then read on.
Today more and more crypto currencies are shoring up in the wallets of centrally operated exchanges. This is a huge issue that is not being addressed and it is about time to read on and understand why you should not actively store your crypto currencies in the coffers of exchanges beyond the duration of your exchanging needs. This is by no means an article against the services of centralized exchanges. This is an article to raise awareness of users so that they can minimize their risk to loss while using the good services of centralized providers.
Why is this a problem you may ask? What for is the point of presenting these data?
Let’s pursue the point further.
Over time the crypto currency realm has been a witness to many instances of violence acted upon the cryptos through centrally operated services.
Hackers and Outright theft plague a great deal of activity in the crypto realm, amounts of many magnitudes have been lost and tainted due to hacks, negligence, and fraud.
Here are just some of the examples highlighting the problems of centralized exchanges and some of the risks associated with them when storing long term:
Users of the Kraken Bitcoin/Altcoin exchange risked losing funds because their accounts were compromised. However, there is a claim that because their 2 Factor Authentication was not enabled thus the accounts were able to be hacked.
However, this does not save you because vulnerabilities in 2FA also do exist:
In a further example a now defunct Altcoin exchange was hacked and they had lost users funds of VeriCoin at the time VeriCoin’s marketcap was $6 million dollars.
Just a few months later, MintPal customers were outright robbed by the exchange operators:
In the Summer of 2016 an amazing hacking took place where Bitfinex.com had lost 119,756 Bitcoins in a single hack. The $value today is $149,207,593.08. The follow up to this was the users had to face a loss of deposit across the entire exchange. And in return people were given a proxy token in hopes of repaying customers.
A smaller sum was lost here, yet the article submission site similar to reddit with a built in rewards distribution system was hacked and the reason was that the web server was compromised.
And yes even Poloniex.com was hacked directly at its Hot wallet where it had lost Bitcoins. Nobly the exchange only lost a smaller amount of coins and it was able to repay everyone in a fairly quick time frame. Such a hack if repeated would not be so simple like in the case of Bitfinex.
Last in our list of examples, even Bittrex was not infallible to risking users funds. Where some users lost funds because of poorly secured accounts managed by the users themselves. Again 2FA was indicated as a solution.
All of these incidents could have been avoided.
The centralized coin exchanges are shoring up tremendous amounts of deposits, and these coins are now no longer in the actual possession of their “owners” they are in custodial care of a third party.
Poloniex has become a record high custodian of 81,000 bitcoin, and while this screenshot shows a reddit post from last year.. this is still true today. To put it into perspective a single owner is holding on to $100,695,960.00 of other people’s funds.
Besides Bitcoins there are Ether corresponding to the Ethereum Blockchain in the amount of 5,324,999 ETH which equates to $145,319,244.90.
Further examples intense reserves of coin holdings that technically belong to someone who is not who is holding onto them:
Poloniex again with it’s hot wallet in possessions of 9,610,421 TetherUS, which are connected directly to United States Dollars, equaling $9,610,421.00 of value.
In the next image you’ll see Poloniex’s further holdings of USDT of $15,000,000.00. Nearly 70% of the TetherUS tokens are in the custody of Poloniex.com
Another significantly notable situation is that of Safe Exchange Coin, centralizing in the Bittrex exchange wallet where more than 25% of the Safe Exchange Organization’s representative tokens are residing in the exchange’s coffers:
The incidents of loss set back the people who are entrusting their coins to the centralized exchanger. This is problematic because people are leaving these coins in the custody of the third party for long durations. It is understandable to use the exchange service to trade or exchange coins. However, when the coins are not in use they should be withdrawn and protected in personal cold storage.
Reduce the chances of loss with personal cold storage.
The best way to store your coins is to identify the official distributed wallet for the crypto coin that you are going to be storing. A credible and real crypto currency must have a wallet that you can download and use on your computer without requiring the use of a website or requiring you to go online because of the qualities of cryptographic addresses.
A simple process for storing Omni Layer assets such as Safe Exchange Coins exists. Since they are stored the same way that Bitcoins are stored so this process can be repeated to store Safe Exchange Coins as well as Bitcoins.
- Go to safex.io/keys
This will generate for you a pair of random keys. Copy down the private key and the public key for future reference. Once you leave this page those keys can never be recreated so please do copy them down perfectly. This is after all crypto currency and this is how it works.
Copy down the private key and the public key for future reference.
2. Copy the “public key” to receive the Bitcoins or Safe Exchange Coins: that you made on the Key Maker on the safex.io site. In this case we use the Bittrex exchange as an example of withdrawing Safe Exchange Coins to an offline address.
3. Finally you can check your balance/status of the withdrawal on http://omnichest.info/lookupsp.aspx?sp=56 Safe Exchange Coin is property #56 on the OmniLayer. You can also simply copy your address into the search box to see if your transfer has been completed. For bitcoin you can copy your address (public key) into blockchain.info
When using exchange services, you can consider using Instant Exchangers such as Changelly.com or Shapeshift.io
These services offer exchange where you do not need to store your coins for any long periods of time. Since these exchanges do not intend to store funds, then they are at a much lower risk than keeping them in longer term processing exchanges where you must deposit and stay on the platform.
When you are storing your coins on offline key pairs you should write them down on paper that is thick and using permanent Ink this will increase the longevity of the copy.
Later when you need to spend or transfer your funds, you can now have control about importing your keys into the appropriate wallet. Once you are finished with using the exchanger or transfer service, you should then generate a new set of keys for storing your remaining coins.
At first the value of bitcoin was low, then it went high, then it got stolen from many people due to centralized services. You should heed this article and don’t become a victim of what should be now known as an obvious risk.
Coins that have promising futures should be treated with respect. No one should allow the risk of their future of their own and the well being of friends and family to be loosely held by centralized parties.
I urge that all Safe Exchange Coin holders considerably follow this and take the appropriate measures to securely store their Safe Exchange Coins.
The only proper long term storage location is on keys that you control and in your possession. We need to protect everything that we work so hard to build.
Hope you will feel better knowing your coins are in your hands.
