Many Canadians lost funds (and trust) in crypto due to the fall of one of the largest exchanges— how can customers regain trust, and find better alternatives?
Introduction
One centralized exchange has fallen, many more to go
Sadly, a harsh lesson is often our best teacher. And sometimes, it takes learning that same lesson, repeatedly, for the knowledge to solidify.
Many other exchanges have fallen before Quadriga, the most famous being Mt.Gox.
What are the causes for these repeated failures?
- Hacking (internal, external)
- Exit scam (the founders left with the money)
- Insolvency (running a fractional reserve)
Quadriga is not the first. It will not be the last.
In this article we highlight:
Why it is essential to know security principles
How to apply basic personal security
What are the alternatives to centralized exchanges
Security Principle in Bitcoin technology
“Not your keys, not your coins” — a truth that will never change.
The fundamental security mechanism in Bitcoin (and other cryptos) is the control of your funds using pairings of private and public keys.
In simplest terms:
The Public key is the location/address where your coins are located
The Private key is what controls the movement of those coins in that location
There is only one public key for one private key.
Anyone who knows the private key (control) has permanent control over the bitcoins stored on the associated public key (address).
The “all or nothing” control of funds by private keys poses a daunting task for exchanges. Centralized exchanges must retain secure operational control over bitcoins on their platform; however, at the same time, they must allow clients to be able to withdraw and deposit quickly.
One mistake, and all funds can be lost. Forever. Without appeal.
The simple way to understand your risk exposure is by asking the question:
Who knows and control the keys?
In a centralized exchange, they do — until you withdraw your funds.
If it is software: one mistake in the code = bitcoins are lost or hacked.
If it is a human: one human mistake = bitcoins are lost or stolen.
If YOU own your keys, you are responsible for your own security.
To summarize, you need to make sure that you, and no one else, control the keys to your coins. Then you have full control over the security measures of your private keys.
Personal security basics
Just 3 simple steps to achieve real safety.
We made a more in-depth article on wallet security in this entry to our Bitcoin Essentials series.
But let’s break it down to the 3 most essential steps everyone should remember:
1 — Choose wisely what device (hardware wallet) or software (app) you use.
Whatever you choose needs to be trusted by you, as it will have complete control over your funds. Alternatives are discussed in the above article.
2 — Generate and secure your seed.
Generate: Choose a proper wallet that can generate a recovery seed.
Secure: Seeds can be lost, forgotten, destroyed — ensure that your recovery seed is stored somewhere extremely safe, and that you have several copies in different locations. Some of these should be secure paths for inheritance recovery in the case of your death, because — yes — that happens.
3 — Test your knowledge
Do a simple test transaction on the new wallet with very low amount of funds. Then erase and regenerate your wallet from scratch. This is the best way to prove to yourself that you understood the steps and principles of storing and re-accessing your coins in the case of a lost or broken wallet.
Once you have understood the principles of security, and completed your test transactions, you are ready to buy a larger amount of bitcoin.
Alternatives to Quadriga
From most safe to least safe, here are your best alternatives as a Canadian searching for Bitcoin in 2019
As covered previously in another Bitcoin Essentials article, you have four main alternatives for buying and selling Bitcoin after Quadriga’s failure.
1st Place — Physical Exchanges
2nd Place — Localbitcoins
3rd Place — Bitcoin ATMs
Last — Other Centralized Exchanges
You can measure safety by the length of the time between you giving your money, and you receiving your coins for storage. The shorter the time — the safer.
Physical Exchanges — YAP
This is the shortest time between your money and your coins.
Give money → receive coins.
Pros:
- Prices are generally the best compared to other solutions
- Larger volume than ATM
- Security
- Customer service
- Beginner friendly
Cons:
- Not many brick and mortar companies
- Some people prefer dealing with an ATM, or doing it at home online with a centralized exchange, rather than a human being
Based in Montreal, our YAP Exchange specializes in this kind of cash to bitcoin transactions.
Localbitcoins (or similar ) — YAP again
Localbitcoins allows you to find local individuals or companies to arrange direct exchanges of bitcoin. You can use Localbitcoins-type services are optional escrow intermediaries.
Pros:
- Various options depending on your location
- Prices can be good
Cons:
- More technical
- Higher risks of frauds and scams
- Can be “sketchy” when you meet a random person to do an exchange
We advise dealing with companies that have good track records, using escrow services, and/or trading with accounts that have the highest ratings on the platform.
Bitcoin ATM — (more YAP!)
A machine based transaction, like an ATM but for bitcoins.
Some companies offer to buy and sell, but most often it is just to buy.
Pros:
- Bitcoin ATMs are conveniently located across major cities, and are sometimes available in remote locations
Cons:
- Highest prices
- Lower volumes
- If a mistake occurs, it can be hard to track and receive compensation
You can use Coin ATM Radar or Coinmap to find a location.
*Thanks to a new partnership, YAP now provides in-store rates on select ATMs.
Centralised Exchanges
Remember: Not your keys, not your coins.
Make sure you understand fully the process, the fees, the KYC requirements,
and withdraw your funds back into your control as soon as possible.
Pros:
- Online
- Various payment options
Cons:
- Higher risks of hacks and lost funds on the platform
- Least privacy focused
- Prices largely vary among different platform and payment options
- Hidden fees
- Slowest processing, sometimes days of delays to move coins out
We strongly suggest you to do your own research, but here are 3 that have a longer track record and are open to Canadian customers:
Shakepay.co (Canadian), Coinsquare.com (American), Coinbase.com (American)
