Is Cryptocurrency Really Secure?

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Is Cryptocurrency Really Secure?

If you’ve been following the cryptocurrency market then no doubt you’re aware of the volatility of this digital currency. You’ve already seen the massive swings that Bitcoin, Ripple and others have taken over the past several months. Although the big jumps and crashes have made most of the cryptocurrency headlines.

There has been another trend going on with cryptocurrency that hasn’t been getting as much attention: security breaches.

Hacks Becoming Commonplace
There have been several hacks in the digital coin market, including the Bitfinex hack, the DAO hack, and the Mt. Gox hack. In addition, in January of this year, Coincheck, a Japanese cryptocurrency exchange said hackers stole 500 million tokens of NEM, with a value of about $400 million. With cryptocurrency as a whole gaining more attention every day, the possibility of more frequent attacks is also growing. That begs the question: is cryptocurrency safe? There are actually two elements to this question. First, there are the actual cryptocurrencies themselves. Are these digital coins secure? Is their protocol capable of stopping hackers? The other part of the equation takes aim at the cryptocurrency exchanges. So far, the major hacks have happened at the exchange level.

Are the Exchanges the Problem?
In fact, according to Cryptocurrency expert,and co-founder and president of Blockchain University, Robert Schwentker,”The hack of the Bitfinex exchange in Hong Kong, which resulted in approximately 120,000 bitcoins being stolen—wasnot a hack of Bitcoin protocol itself.”Scwentker recently spoke with the ISMG networkand discussed the safety and security of cryptocurrency and its exchanges. He also pointed out that the Bitfinex hack “is similar to the Mt. Gox hack, where an exchange got hacked. Certain security protocols apparently might not have been followed, and the practices that they set up were not followed. Therefore, there’s been this loss of people’s funds.”

Is it Time for Regulatory Measures?
That begs the question, should regulatory oversight be put in place to oversee the cryptocurrency exchanges, like Coincheck, Kraken, Coinmama and Coinbase, for example? Time will tell if these measures are taken, but with the number of hacks increasing, perhaps it’s time to look at this matter more carefully.

Other Threats to Crypto Security
Hackers aren’t the only threat to cryptocurrency. There are also scams that trick people into purchasing fake digital coins and leaving them with nothing. Plus, Bitcoin and other cryptocurrencies can also be lost or stolen, even with something as simple as a hard drive crash. Because cryptocurrency is a digital form of cash it’s stored in cyber wallets. These wallets can easily be stolen or even lost. Hackers can penetrate wallets stored in the cloud. But even if you choose to store your digital coins on a personal hard drive, they aren’t completely safe. If your hard drive crashes there’s a good chance your digital wallet will disappear with it, leaving you with nothing.

Store it With Caution
This is why many cryptocurrency owners have turned to the exchanges to safely store their digital coins. However, as detailed above, even the exchanges are not completely safe. Thus, cryptocurrency, much like physical currency, is not immune to theft or loss. So, if you decide to get into the cryptocurrency market, make sure you consider all your options to keep your digital wallets safe.

 

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Alan Olsen, CPA

Alan Olsen, is the Host of the American Dreams Show and the Managing Partner of GROCO.com.  GROCO is a premier family office and tax advisory firm located in the San Francisco Bay area serving clients all over the world.

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