There is a very good reason why you should never keep all of your cryptocurrency in an online exchange or digital wallet. You might lose all or most of it and never get your digital currency back.
Users of the popular Parity wallet learned this lesson the hard way recently when they lost $280 million worth of Ethereum to an unexplained event, The Register reported. News reports have labelled the cause of the loss as a hack, a glitch or a mistake.
A flaw in Parity’s system apparently allowed a user to accidentally shut down dozens of wallets all over the world. This meant that the wallet owners were unable to access their own money. Parity has blamed a catastrophic bug or flaw in its system but Kosta Popov, the founder of an online marketplace called Cappasity, believes the losses were the result of a deliberate cyberattack.
Disturbingly, the latest round of losses at Parity came after hackers stole $30 million worth of Ether from its wallets in July. It was Parity’s attempts to fix the flaws that led to that hack which might have created the current round of problems.
Digital Wallets and Exchanges are Not Safe
The risk of having cryptocurrency stolen from a digital wallet, or online exchange, is far greater than most people think. Thieves will snatch up to $225 million worth of Ethereum this year, an American firm called Chainalysis reported.
Ethereum owners have a one in 10 chance of having their altcoins stolen, Fortune reported. Disturbingly those figures cover just one kind of cryptocurrency.
Crooks are getting more sophisticated in their altcoin piracy, Chainalysis reported. One way they steal from exchanges and wallets is to use phishing scams to trick people into revealing their Ethereum wallet IDs or passwords, through social media or email.
If successful, such attacks might allow criminals’ access to all the wallets in a particular system, or an exchange, as the Parity hack demonstrated. It can also cut holes in security that other predators can take advantage of.
Avoid Paper Wallets
Something else you should avoid is the so-called paper wallets. A “paper wallet” is a digital wallet that is supposed to only be accessed with a code that is written or printed on paper.
Since the cryptocurrency is still in a digital wallet online, it can still be stolen by hackers. The “paper wallets” are just as vulnerable to hacking as any other digital storage solution.
How to Protect Your Cryptocurrency from Theft
Fortunately, there is a simple and common-sense means of protecting your digital currency. Simply use a hardware wallet.
A hardware wallet is a small electronic device designed for the safe and secure online storage of cryptocurrency.
Hardware wallets are also password protected so nobody can access them without a PIN number. Unlike a USB drive, nobody can simply stick a cryptocurrency hardware wallet into a computer and access your cryptocurrency.
There are now a number of excellent cryptocurrency hardware wallets on the market including the TREZOR, the Ledger Nano S, the Ledger Blue, and the KeepKey. It’s one of the smartest moves an investor can make.
A good strategy to follow is to keep only the currency you plan to spend or invest in the immediate future in a digital wallet or exchange. The rest of your cryptocurrency should be stored offline in a hardware wallet for maximum safety.