In the aftermath of the Cryptopia exchange attack, numerous opinions and “solutions” to these types of situations have been debated, including more notable opinions from the CEOs of leading crypto exchanges Kraken and Binance.
Binance CEO and cryptocurrency celebrity Changpeng Zhao (“CZ”) provided some insight on what options users had for holding their digital assets, providing the positives and negatives of each option.
Amongst the solutions regarding exchanges, CZ’s tweet mentioned only storing on “the most reputable, proven secure, exchanges.” History has shown us that even the most reputable exchanges can become compromised; Mt Gox was once the flagship exchange for the cryptocurrency sector before being hacked and closing down in 2014.
“PLEASE do not store more coins on an exchange (including @krakenfx) than you need to actively trade.”
Others on social media weighed in on CZ’s statements and prompted Kraken CEO Jesse Powell to issue some sound advice to the sector, including the risks of storing funds on decentralized exchanges (DEX).
Not Your Keys, Not Your Crypto
The stern Twitter statements are justified. Most cryptocurrency exchanges unregulated, and user protection is still limited. Combined with the technical nature of handling digital assets, new investors can often struggle with how to keep their digital investments safe.
Wallets function as an interface to the respective blockchain network as long as you securely store your private and public key pair, whereas exchanges allow you to hold your funds but do not give you the critical access to CONTROL your funds.
(Note: when generating a wallet key pair, some temporarily deactivate their Internet connection to avoid any data getting transferred to a third-party or server).
Exchanges store your funds in their own digital vaults. What you see is a number on a screen, similar to an I.O.U. Without the cryptographic access gained from your private key pair, any funds held on an exchange can be frozen, spent, or stolen at any time.
More will be coming on safe cryptocurrency storage options in the coming weeks!
This is not investment advice; please always do thorough research and only invest what you are willing to lose, especially in times of uncertainty.