I’ll go here again. A centralized Crypto Exchange (CEX) has been hacked, but this time it could be the largest amount in human history. We are fortunate to avoid the worst platform collapse and catastrophic consequences. This incident reminded me once again that even the strongest market players are not invincible.
The freedom to manage CEXS’s customer funds is risky and reminds users that good old, non-mandatory storage is still the safest. With recent advances in security features, wallets protect coins and allow users to make the most of their cryptos securely.
Golden Rules do not rust
After a $1.5 billion bibit hack, things settled very quickly. However, if the client fund platform fails to maintain 1:1 reserves, the hack could have disastrous results across the industry. When the issue of FTX liquidity emerged in 2022, banking runs killed the platform in a matter of days and billions of repayments have just begun.
Historically, CEXS has been a major target for hackers. Between 2012 and 2023, centralized exchanges fell victim to 118 hacks, losing around $11 billion. This is 11 times more money stolen directly from blockchain networks and cryptocurrency wallets. Again and again, we see how vulnerable Crypto Market Titans is. Golden “not your key, not your bitcoin” rule is very relevant.
Having a centralized crypto exchange deposit means delegating the storage of your money. CEXS maintains all private keys, allowing you to have full control over your clients’ funds. In addition to a smooth trading experience, this comes with some unpleasant consequences.
First, centralized platforms store substantial amounts in some wallets and are frequently targeted by hackers. CEXS uses cold wallets and multisig transactions. This is ultimately considered a safe method. However, this framework relies on third-party infrastructure to merge signatures, and these systems have been found to be vulnerable. When traders let CEXS maintain their private key, they could lose all their funds one day for reasons they are out of total control.
In addition to hacking, there are many other ways to put your funds at risk when delegating custody. Centralized exchanges can freeze accounts for sophisticated legal reasons, impose withdrawal restrictions and false funds, leading to bankruptcy. History suggests that these things often happen unexpectedly – and the only way to prepare is to take responsibility for keeping our money in our hands.
It’s not just encryption
When you store Crypto in a non-custodial wallet, the private key resides on the device in an encrypted form. Unlike a concentrated platform you don’t have, you have full control over your funds.
Independence is not zero risk. You can be involved in decentralized finance (defi) protocols and exchange any (private) coins. This freedom has a great responsibility. The Defi platform has become a more frequent attack target in recent years. Developers often focus on rapid growth and leave security measures behind.
However, today’s wallets support user freedom and provide more tools to protect your funds than ever before. These start with several layers of encryption and make sure that the private key cannot be reached. Passcodes often validate outgoing transactions and distributed application (DAPP) permissions, so daily wallet activity has double protection.
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Some wallets eliminate the need to remember seed phrases while dispersing them. When you configure a multi-party calculation wallet, your private key is spread across multiple devices. There is no risk of a single point failure and you can still recover access to coins if one wallet keeper is lost.
Today’s security measures are even further, making “storage-only” wallets a thing of the past. In addition to secret key encryption, wallets can detect risks around cryptographic landscapes and help users to limit interactions with malicious projects. Dedicated systems can help you detect phishing attacks, malicious addresses, fraudulent contracts, display risk alerts for users, and prevent theft.
Sometimes users will give DAPP excessive permission, allowing indefinite access to funds, and forgetting about it. Some wallets provide a simple tool to check previously granted permissions and revoke access, especially if the system is flagged as risky.
Responsible wallets are constantly undergo independent security audits by multiple parties and check for additional features such as the core code and token swap tool, NFT marketplace and more. Some platforms maintain a protection fund to refund users in the event of a security incident. Finally, some people educate their users on how to protect themselves from fraud.
A good, non-resistant wallet doesn’t just store your funds well. They help you use them safely and make the most of your coins.
The large amounts stored in CEXS wallets will captivate fire hackers. One solution is to spread your assets to even more wallets so that the entire system is not at risk by compromising what is infringing. The other is to minimize users’ reliance on centralized platforms, regain control of the fund, and take advantage of the wallet’s smart security capabilities.
This article is for general informational purposes and is not intended to be considered legal or investment advice, and should not be done. The views, thoughts and opinions expressed here are the authors alone and do not necessarily reflect or express Cointregraph’s views and opinions.
