Sunday, 31 May 2020

Storing Your Cryptocurrency Carefully Is a Big Deal

Michael Terpin is no cryptocurrency newbie. The founder of BitAngels, a network and incubator for cryptocurrency startups, he’s used to handling digital coins and managing wallets.

If his clients paid him in new coins that weren’t traded on exchanges and couldn’t be stored on hardware wallets, he would keep the keys on his phone, making sure that they were safe and secure. So when his phone stopped working in January 2018, he probably just thought that there was a problem with the network.

In fact, a young hacker had called AT&T and, using Terpin’s identity, had transferred Terpin’s SIM data to a different card. Terpin’s phone stopped working, and the hacker was able to access all of the digital coins that Terpin had stored. The hacker, Nicholas Truglia, goes on trial in April on 21 felony accounts. He stole a total of $24 million.

Even for crypto-veterans keeping your cryptocurrency safe isn’t straightforward. It always includes risk, and it requires an acceptance of personal responsibility because cryptocurrencies aren’t piles of notes or numbers in a bank account. They’re lines in a digital ledger, and characters that let you access those lines. What you’re keeping safe isn’t a stack of digital coins but a string of numbers and letters.

If someone else is able to access those characters they can take your coins. If you lose those characters, you’ll lose access to your money forever. A private key isn’t like a password; no one can reset it or send you a new one. And no one can compensate you for your loss.

That’s very different to the analog world. If someone robs your bank and takes a million bucks, you won’t be affected. The bank will take the hit, not you, and the insurance company will cover their loss. But if someone hacks their way into an exchange and transfers digital coins to their wallet, there’s no recompense. You can hope that the exchange will be able to recover the coins or will cover your losses, but there’s no guarantee—and like a bank, a cryptocurrency exchange is a very tempting target for digital bank robbers. That’s where the digital money is.

Some experts have compared the current cryptocurrency environment to the days of the Wild West. There’s no law, just a few saloons and a lot of big safes. You can’t depend on the banks, the exchanges, the police or anyone else to look after your coins. You have to do it for yourself.

So you could (and should) take your money out of the exchanges unless you’re making a transaction. But where should you put it?

We’ve seen that you shouldn’t keep your keys on a mobile phone but storing them on a computer is little better. Keep your private key on a computer attached to the Web, and if someone is able to hack into your computer, they’ll be able to search your hard drive, take that key, and make off with your coins.

So store the private keys of the coins you’re holding for the long term offline. Use a hardware wallet that’s not attached to the Internet and keep that hardware wallet somewhere safe, like a bank vault.

If you’re just going to write down your key or print it out on paper, make sure that you have more than one copy and secure each one. If your house goes up in flames, it shouldn’t take your savings with it. And never assume that you’re doing enough, even if you’re not a newbie.

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