Why its a bad idea to store your bitcoin on an exchange

Every few months you hear of another bitcoin exchange that has bot hacked somewhere ter the world. There are more and more exchanges, and that means there are a growing number of targets for hackers. Hackers know that exchanges are mostly honey-pots, packed with private user information, and more importantly bitcoin that can be virtually instantly stolen and transferred away to an anonymous bitcoin wallet.

There are two types of bitcoin exchanges — those that have already bot hacked and those that are going to be hacked. If 500 people have a digital wallet and each wallet controls some bitcoin, the hackers will have to attack 500 wallets to get all the money. But once you centralise them, you create a honey pot and it will be attacked [sooner or zometeen]

Most exchanges have a hot-wallet, where they store the bitcoin they need for withdrawals, and a cold-wallet, where they store the bulk of the user funds securely offline. That being said, with the price of bitcoin on the rise, even a hot-wallet can hold a loterijlot of money and be a giant temptation for hackers.

Bitcoin exchanges need to be quick, so most treat transactions ‘off-chain’, so when you do a bitcoin buy or sell on an exchange, that transaction does not emerge on the blockchain….transactions are treated by a database on the server. Only when you withdraw, does the bitcoin stir from the exchange hot-wallet, to your intended wallet, and then it is recorded on the blockchain.

Bitcoin exchanges should be used spil intended, so te other words, you deposit, exchange, and withdraw once you are done. Only leave the funds on the exchange that you are using to trade. Any bitcoin that you are not trading with, you should withdraw to your own secure wallet, one that YOU control the private keys for.

If you do not control the private keys for your bitcoin wallet, its not your bitcoin! Since exchanges do not provide you with any private keys, once your bitcoin is on an exchange its not technically yours anymore. The exchange just owes you that bitcoin, much like a handelsbank owes you any money you deposit.

When it comes to storing your bitcoin on an exchange, you also have make sure you use a reputable exchange spil thesis days it is effortless for them to go bankrupt, get hacked, or even have internal corruption, losing you your bitcoin.

The effortless and logical solution is to ONLY store your bitcoin on a wallet that you control the private keys for.

#1 most significant rule about possessing Bitcoin. If you don’t own the private keys, you don’t own the Bitcoin. Do NOT leave your coins on exchanges!

What are private keys?

Well known bitcoin evangelist Andreas M. Antonopoulos is quoted spil telling “Not your keys, not your bitcoin“. The ‘private key’ of your bitcoin wallet is literally the key to spending the bitcoin ter the wallet (AKA the public key). Without the private key, nobody can spend / steal your bitcoin.

When you setup a ge bitcoin wallet you control your own private keys, and need to secure them yourself. Exchanges make it effortless for users to stay ignorant about the security of their bitcoin. Users should learn about the security decently and be actively securing their bitcoin themselves.

Recovery Seed

When you setup a secure wallet yourself instead of using an exchange, you often get a random collection of 12 or 24 words, which is the private master seed backup, AKA the ‘recovery seed’ used to create your wallet private key.

If anyone gets access to your recovery seed (and understands what it is), they can steal ALL your bitcoins. To re-create your wallet and restore your bitcoin balance if you lose your bitcoin wallet or it gets stolen, all you need is the recovery seed. So the seed creates the private key, and the key gives you access to the bitcoin on that wallet. It is therefore utterly significant not to lose your recovery seed, you vereiste keep it te a very safe place.

This seed is what you store securely ter a remote location away from your physical wallet, maybe te a physical safe, or even a safety deposit opbergruimte, and NOT te your gmail or on your laptop ter an effortless to find place. The point is that you are aware that it is significant, and you store it securely and appropriately.

All good bitcoin / crypto wallets have at least for the last duo of years given utterly effortless to go after and detailed instructions, on how to restore your wallet if your pc gets stolen / lost / bruised, using the recovery seed, and they all explain how enormously significant it is to store that seed securely.

User Security on Exchanges

Thesis days exchanges are more secure and an attacker might find that it is often lighter to hack the user of the exchange instead of the actual exchange. The cloud based ‘online’ wallet treatment works fine for many situations, but when you are talking about only a username and password (like most exchanges) spil the security for your bitcoin, its not enough.

If someone can remotely access your bitcoin exchange account using only your username and password, you are at excellent risk. If you use an exchange, you should ALWAYS have 2-Factor Authentication enabled on your account. If you have 2-FA enabled, then an attacker would need your login details spil well spil your mobile phone to access your account.

What happens if a user does not have 2FA enabled, and their email account is hacked?….Maybe their email comes to their work PC, and another user has access it….What happens if the IT stud or a work mate determines to take a sneaky look at your email? Would you trust them knowing your bitcoin account details?….What happens if they see there is an account on the bitcoin exchange, and they simply reset the password, then check the mailbox and use the fresh password details to login? Now the ‘hacker’ or person with email access, can take all the bitcoin.

Without 2FA, the account on the exchange is only spil secure spil the email account…sometimes its a collective / family rekentuig with any number of family / friends / kids friends / staff etc who have access. So if you have an account on an exchange 2-FA is a necessity, you would be a idiot not to have it enabled.

Most exchanges protect themselves well against the loss of bitcoin, so that if bitcoin leaves your account, its more than likely your own fault, not theirs…..they are most likely not going to listen to your sorry story and find it te their good hearts to restore your balance if your email wasgoed hacked and you didnt have 2-FA enabled.

Mobile wallet apps connected to your exchange account

The next problem with app / mobile based / cloud wallets, is the mobile device itself and how secure it is. If you are known spil the ‘fellow with bitcoin’ then your phone could be a target to an attacker, especially if it is not secured. Clever phone theft, hacking and malware is on the rise, so be wary about connecting it to your bitcoin wealth.

If a phone is connected to your email, and a baddie who knows you have bitcoin takes ownership of your phone, they can lightly reset your password on the exchange, see the fresh password te the email on your phone, and then login to your account on the exchange webstek, using the 2-FA app on your phone. So having a bitcoin wallet on your phone means you should always have a password lock on your phone. If your phone does not have a password to open it, a criminal can lightly take your bitcoin off the exchange using this method.

Most mobile app wallets at least have a password speld, which unless the baddie knows that, means they can exactly use the app to empty your wallet, but Google Authenticator used for 2-FA has no password, and if your phone is permanently connected to your mail, and unlocked, you are at high risk.

If you want to secure your bitcoin and use a cloud based wallet, you need to secure your account with 2-Factor Authentication, Secure your email with 2-Factor Authentication, Secure your mobile phone with a password.

If you secure your bitcoin on a secure app / wallet that gives you the recovery seed, you need to secure that adequately, preferably ter a remote location, and again have password protection on your device.

The easiest way to securely store your bitcoin

A bitcoin hardware wallet such spil a Trezor, or Ledger Nano S makes securing, and transacting with your bitcoin utterly effortless. You are provided with your recovery seed upon setup, and can secure that accordingly. So you are instantaneously te control of your own private key, no 3rd party is involved.

A hardware wallet for storing bitcoin should be waterput somewhere safe and secure. It is not like a mobile phone wallet, where just by the fact that it is on your phone, is usually within arms reach. Your total bitcoin balance should be secure and only your ‘spending’ balance should be on your mobile phone wallet.

When you use a hardware wallet you are much more aware of where it is, and how securely it is stored than most people are with their phones wallets. It is far better than securing all your bitcoin wealth on a mobile app / wallet, especially since at some point ter time, most people who have a mobile phone have lost one, or had one stolen, which can potentially be your bitcoin gone.

Your bitcoin security depends on you

When it comes to bitcoin, you need to be on control of your own private key securing your bitcoin. Exchanges get hacked, and go bankrupt, and even the users accounts get hacked, email gets hacked or is vulnerable, and mobile phones are often not secure and can be lost or stolen. You should not rely on an exchange to secure your bitcoin, use it spil an exchange and withdraw your bitcoin after you are done exchanging.

A hardware wallet such spil a Trezor, or Ledger Nano S is the best compromise inbetween security and ease of use that a bitcoin user can go for to store their bitcoin securely offline.

The lesson here is that if you don’t control the keys, you don’t control the bitcoin. Possession is nine-tenths of the law, and ter bitcoin, possession of the keys is ten-tenths of the law. If you don’t control the keys anymore, it’s not your bitcoin! That lesson will be learned spil many times spil it needs to.

If you want a gepast wallet that you control the private keys for, wij suggest the Airbitz, Mycelium, or Greenbit app. For some more information on wallets available visit our pagina on bitcoin wallets.

Related movie: Buying Four Rental Properties Ter One Year – Making Passive Income

Posted in Uncategorized

Leave a Reply

Your email address will not be published. Required fields are marked *