Recent Hacks

Exchanges are a convenient way to store and trade cryptocurrencies. With the convenience, however, there are risks including cyber-attacks directed at an exchange or of an exchange shutting down. According to a recent article by The Wall Street Journal, “Since 2011, there have been 56 cyber-attacks directed at cryptocurrency exchanges, initial coin offerings and other digital-currency platforms around the world”. The total of hacking related losses are estimated to be at $1.63 billion.

Reasons for Hacks

The tremendous growth of cryptocurrencies has sprung up hundreds of exchanges over a very short period of time. As noted by the The Wall Street Journal, “Unlike stock exchanges, which facilitate trading but don’t actually hold securities on behalf of investors, many cryptocurrency exchanges charge fees for trading and store currencies for their customers”. Because of this, hackers that breach the security weaknesses of an exchange can gain access to a user’s private key and their cryptocurrency. Furthermore, exchanges are connected to the internet at all times and because of cryptocurrency’s recent rapid growth, regulation of the industry has not caught up which results in weak internal security audit leaving many exchanges vulnerable to attacks.

How to Protect Yourself

When coins are stored on an exchange, you do not have control over your public and private keys. You must trust that the exchange, a third-party service provider, to keep your coins safe. If there is a hack or the exchange shuts down, you may lose your coins. To protect yourself, cryptosecurity security experts advise the use of a cryptocurrency wallet.

Types of Wallets

There are different types of cryptocurrency wallets available including desktop wallet, mobile wallet, online wallet, hardware wallet and offline wallet. Different wallets vary in features, level of security and convenience.

Wallets such as Cobo’s Cloud wallet and HD wallet are two types of wallets which at its establishment focus primarily and extensively on security. Every line of code is passed through rigorous audit and an experienced security team is present to protect all systems. Risk control and strict internal management systems are also in place for security purposes. This contrasts with some exchanges, whose main business is the exchange and not security.

Cobo Wallet Security

Cobo’s Cloud wallet is a web-based wallet. The Cloud wallet generates and uses encryption keys to ensure private key security. The private keys are stored on a hardware security module which has FIPS 140–2 level 3 standard. Furthermore, there are multiple signatures, a risk control system, and hot and cold isolation mechanism to ensure security. While there is a great level of convenience in using a cloud wallet, like not having to enter the private key every time you want to view, send or receive coins, high security is also a key benefit.

For even greater security, Cobo’s HD Wallet gives each user a separate encrypted private key with 12-word recovery phrase that the user must safely protect by themselves. Communication is encrypted with SSL v3 TLS and there is a white box audit through Cure53 security team. When the private key is stored offline, hackers must physical locate your private key or guess it. The chances of hacking an offline wallet is akin to winning the lottery 9 times in a row according to Marketwatch. If both the private key and the recovery phase are lost, destroyed or forgotten, access to your private key and your coins is no longer possible.