How to Protect Yourself From Hacks
Written by Alexandra Perry
Posted June 20, 2018
More than likely, you’ve watched enough television to know what the standard bank robbery looks like.
Robbers tend to follow a fairly predictable formula:
- Walk in
- Wave a gun at a teller
- Instruct the teller to “put the money in the bag”
- Jump into a fully fueled car and make a quick escape
- Bathe in new riches
This kind of robbery seems familiar, almost comical. And you certainly don’t see investors withdrawing their savings from banks over them. But in the world of digital currency, everything is different.
A digital currency exchange robbery follows no formula. It could come from anywhere in the world. You could get hacked by a black ops agent, or all your money could be stolen by a techie teenager in his pajamas.
These kinds of cyber robberies are the startling reality of today’s digital currency market, which is still developing security infrastructure.
But there are ways to protect yourself from digital currency hacks. We're going to tell you more about those ways at the end of this email.
But first, let’s take a look at one of the most famous digital currency hacks in history.
Once you look at the hack, you’ll see why the protective measures I'm about to tell you about are so important.
The Reality of Exchange Hacks
In a way, the massive amount of cybercrime impacting the digital currency world is not a surprise. It's expected.
We’re moving toward an increasingly digital age, where more and more of our private information lives on the internet. As this happens, warfare and theft have changed, adapting to the digital realm in order to hit us where we are weakest.
As an emerging market rich with hype, cryptocurrency presents ample opportunity to thieves. New investors in the digital currency space tend to lack a high level of technical literacy, and many of them are uncertain of the threats that exist just beyond their screen.
But understanding why an exchange hack is dangerous can help you.
So let's look at one of the most famous exchange hacks in history so you can better protect yourself: Mt. Gox.
Today, Mt. Gox is often referred to as the biggest heist in Bitcoin history. At the time of the hack, Mt. Gox was the biggest Bitcoin exchange out there, handling over 70% of all Bitcoin transactions worldwide.
When the massive attack happened in 2014, Mt. Gox lost over 740,000 bitcoins, which was more than 6% of the total bitcoins in existence at the time.
Investors who held currency on the exchange had thousands of tokens skimmed out of their accounts.
In this case, the reason investors were robbed was because they were keeping their tokens on the exchange itself.
If the tokens hadn't been in the exchange, they couldn't have been stolen.
Which leads us to the next big question: How do you take digital tokens, which don't exist in a tangible sense, offline and bring them into the world?
The answer is actually quite simple: You get a hardware wallet.
Protect Yourself With a Hardware Wallet
The simplest way to protect yourself against this kind of crypto crime is by taking your assets offline.
While many exchanges do provide top-notch security (I've spoken to many investors who keep their assets in software wallets provided by exchanges), the truth is that the only way you can entirely protect yourself is by putting your assets in a hardware wallet.
What is a hardware wallet? Great question.
Hardware wallets are basically physical wallets that you use to store digital assets.
They are different than software wallets, like your Coinbase or Gemini wallets, because they have no connection with the internet. This basically cuts the channel through which cybercriminals could reach your digital assets.
That said, we want to warn you off the bat that hardware wallets come with their own unique kind of risk: forgetfulness.
When you have a hardware wallet, you alone are responsible for protecting your digital assets. Forgetting a password or having a wallet destroyed would mean kissing your crypto goodbye.
Just look at any crypto forum on Reddit and you'll see hundreds of horror stories: hardware wallets eaten by toddlers, hardware wallets eaten by dogs, hardware wallets crunched by the vacuum.
If you don't feel comfortable with that kind of responsibility, make sure to do everything you can to protect your assets on the exchange, including two-factor authentication. This is a security measure that most exchanges prompt investors to partake in as soon as they sign up.
But if you are ready to take the plunge and buy a hardware wallet, here are some of the best on the market.
The 3 Best Hardware Wallets of 2018
To date, Trezor is one of the best hardware wallets on the market.
The wallet pairs a sleek design with top-notch security in order to provide investors with a rounded experience. The Trezor wallet is shaped like a USB and comes with a display screen, allowing for easy use.
Like all the hardware wallets on this list, the Trezor wallet requires that investors make a pin at setup. You also will need a 24-word pass phrase, which can be used to recover the wallet if it is accidently destroyed. To many investors, Trezor is a lot more like a mini computer than other wallets, which tend to rely on secure chips.
2. Ledger Nano Hardware Wallet
The Ledger Nano is one of the most well-known wallets on the market, providing investors with a cheap but secure way to store their tokens offline. The Ledger Nano is the best solution if you want to invest in multiple cryptocurrencies. The wallet supports Bitcoin, Ethereum, Litecoin, Zcash, Dash, Stratis, Ripple, Bitcoin Cash, Ethereum Classic, and others.
The company behind the Ledger Nano, Ledger, has been creating hardware for Bitcoin security since 2014, making it one of the oldest companies in the space. To date, the company has sold over 1 million Ledger Nano S wallets in 165 countries.
With the Ledger Nano, you can create a pin code that could potentially protect you if you lose the device. You can also use a 24-character phrase to recreate your wallet if it is destroyed.
Out of all the hardware wallets we've mentioned so far, KeepKey is the youngest and perhaps the most techy.
The wallet is the most secure and feature-packed Bitcoin hardware wallet available. And those traits come at a high price, with a KeepKey costing around $99.
But for many who like the sleek design, the price is well worth it. The wallet was launched to consumers in 2015. Its setup mirrors the other wallets we've mentioned on this list.
KeepKeys are HD wallets, which means your entire wallet can be backed up with 12 words, which are generated upon setup.
There you have it. The use of a hardware wallet is an easy way for you to protect your digital assets from exchange theft. That said, we encourage you to follow the instructions of any hardware wallet very carefully.
More often than not, it is wallet owners that destroy their assets, not thieves or malware.
@AlexandraPerryC on Twitter
Alexandra Perry is the managing editor of Token Authority and the associate editor of Technology and Opportunity. She also contributes weekly content to Wealth Daily, a free investment research newsletter that addresses a range of market topics. She has multiple years of experience working with startup companies, primarily focusing on artificial intelligence, cybersecurity, alternative energy, and biotech. Her take on investing is simple: a new age of investor can make monumental returns by investing in emerging industries and foundational startup ventures.
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