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Not your keys, not your crypto

*This content is brought to you by Jaltech

By Jonty Sacks and Chris McCormick

A problem for many cryptocurrency investors are the stories related to cryptocurrency hacks, missing funds and investors unable to access their cryptocurrency due to forgotten passwords. In most of these cases, the investors are not to blame and unfortunately cannot recover the lost cryptocurrency.

Wallet and exchange attacks have become commonplace and appear to be increasing as the cryptocurrency market grows. You don’t have to look far to see how real this threat is. In January this year, a global and well-known cryptocurrency exchange was hacked and $34 million was stolen from its exchange wallets. A month earlier, hackers accessed another exchange and made off with 150 million USD, and just last week more than 8000 Solana wallets were hacked resulting in millions of dollars being stolen. Unfortunately, in many of the above cases, affected investors did not get their funds back.

What investors need to be aware of are the risks associated with cryptocurrency investments as well as the storage options to protect their investment.

Breakdown of some risks:

South African investors face numerous risks when holding cryptocurrencies in a cryptocurrency exchange app or digital wallet on their phone, including:

Crime:

The risk of criminals forcing investors to transfer their cryptocurrencies to an anonymous account is common enough that it has its own industry term, “a $5 wrench attack” — referring to the fact that an attacker, if an investor carries large amounts of cryptocurrency on their phone, an attacker doesn’t need sophisticated software to access it, just a menacing physical weapon.

This risk is significant given the country we live in, so investors should avoid walking around with large amounts of cryptocurrencies stored on their phones.

Exchange rate risk:

Exchanges have been targeted by cybercriminals for years due to the large amounts of value stored centrally on their platforms. Successfully hacking an exchange gives criminals access to billions of marginal assets that can be transferred to an anonymous account and become irrevocable. Exchanges are known in the industry as “honeypots” because all honey is stored in one place.

For information about Jaltech’s cryptocurrency basket, click here.

access risk:

Investors often fail to provide their partners, heirs, or financial advisors with the necessary information to locate and access their cryptocurrencies. Therefore, in many cases, it may be impossible to track and access an investor’s cryptocurrencies after their death. An additional risk is that an investor could lose, forget or incorrectly secure their password and consequently never be able to access their cryptocurrencies.

How to protect your cryptocurrency

As covered in a previous article, there are a few storage options that investors can choose from:

On the stock exchange: Investors can keep their cryptocurrency on their phones with their cryptocurrency trading apps. For the above reasons, this is a risky approach.

paper wallet: Investors can remove their cryptocurrency from an exchange and record their keys on a piece of paper. This approach comes with risks such as being easily copied, misplaced and becoming illegible/corrupt over time.

Hardware wallets: A hardware wallet is a dedicated device (similar to a thumb drive) designed to store private cryptocurrency keys. These devices are significantly less vulnerable to external attacks, but require technical knowledge to use them effectively. There is also a risk of the device being misplaced, stolen or damaged.

Third party custodian: This is the option to outsource cryptocurrency custody to a company that specializes in cryptocurrency custody.

For information about Jaltech’s cryptocurrency basket, click here.

Understandably, the ease and convenience of holding cryptocurrency on an exchange is preferred by most investors. However, as history has taught us, these exchanges are often targeted by hackers as they centrally hold hundreds of millions of rand worth of cryptocurrencies.

For more conservative investors, third-party custodians generally offer investors a more reliable and secure way to store their cryptocurrencies. This type of service is aimed at investors who recognize the long-term value of cryptocurrencies and the risks of their current storage capability, but do not want to deal with the technical side of securing their cryptocurrencies themselves.

As the saying goes in precious metals investor circles, “if you can’t hold it, don’t own it,” the same is true in the cryptocurrency space – not your keys, not your crypto. When investors build their cryptocurrency portfolios, it would be wise to manage the security of their assets in the best way possible, with a solution that offers protection against physical and cyber attacks, as well as human error.

  • Jonty Sacks & Chris McCormick – Fund Managers of Jaltech

Jaltech offers investors access to a basket of cryptocurrencies selected and managed by a team of cryptocurrency experts.

For information about Jaltech’s cryptocurrency basket, click here.

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