This famous quote popularized by Andreas Antonopoulos always echoes in my mind every time I hear about hacked or shady exchanges. There are dangers about centralized points and custodial accounts that we often underestimate. Let’s sum up what happened recently.
Problems with Exchanges
Cryptopia on January 14
Cryptopia, which operates since 2014, “suffered a security breach which resulted in significant losses.”
QuadrigaCX on January 31
QuadrigaCX, which operates since 2013, Cannot locate its cold wallet which resulted in liquidity problems.
These two exchanges are not a small player that you could expect some incompetence related to its operations. They were relatively old and reputable in this business, but still, users lost their money. These cases are a red pill for us (again) to store our funds only in our wallet.
So how about if you are a trader or want to exchange bitcoin into some altcoins? Well for the second problem, in my opinion, you could deposit, trade, then exit ASAP. There is no need to store your funds in a long time in exchanges. The risk of getting hacked is not worth it. Perhaps, you also could use ShapeShift to streamline this matter. As for traders, maybe you should save only a certain amount of money that you can risk losing. I know some people who are successful in trade, and they only trade in couple minutes then exit. Meanwhile, I’m waiting for decentralized exchanges to become better, as to date, it also poses security risks (usually about smart contracts).
About Private Keys
Sometimes we often become too smart to use the old school way, i.e., writing the 12–24 phrases on a piece of paper, and keep it somewhere safe. If the QuadrigaCX’s story is true about losing the cold wallet access (which I doubt), then this stupidity could also present in the corporate environment. The solution is simple, keep your paper wallet and hardware wallet in a safe box. Thus, if a bad thing ever happens to you, someone could open the safe box with force. Or, just hire Jeff Sitar :)
I heard a lot of people use an encrypted flash drive or other proprietary devices. However, I do not like the idea since it also requires you to remember or (still) write the password and stuff. It adds unnecessary complexity to a bitcoin wallet which is already super secure. If the purpose is only for storage, USB flash drives or hardware wallets are also vulnerable to being lost and stolen. Meanwhile, a piece of paper often missed from the thieves’ attention. The lifetime of electronic devices also carries some risk. Its memory can degrade over time that could corrupt the device. Therefore, in my opinion, a pen and a piece of paper is still the best solution, except you are a craftsman who able to carve private keys on top of woods or metals.
Finally, the safest way to store your assets is by own your private keys, write it on a paper, and keep it somewhere safe. Remember “your keys, your Bitcoin; not your keys, not your Bitcoin.” What do you think?