We just released some important ratings changes on major cryptocurrencies. If you’re a subscriber, check your inbox for the email we sent you an hour ago. If not, you can join here.
With the violent market action we’ve seen this week, the timing couldn’t be better.
Plus, there’s another big issue you need to be aware of: exactly how and where to store your crypto to avoid hacks.
For starters, let’s be clear about one thing: There is nothing inherently wrong with blockchain technologies. The reason hacks happen is strictly because investors leave their cryptocurrency on an exchange. And exchanges are typically quite negligent when it comes to protecting their crypto wallets.
Remember: Cryptocurrencies were designed to allow people to effectively take back ownership of their assets.
So when you store crypto on a wallet for which you have the only private key, that crypto is truly yours. No one else owns it and no else can get their hands on it.
The money you have in a bank is a different matter entirely. When you make a deposit, you effectively grant the institution the right to take control of your assets. The bank loans your money to third parties. And yes, you could wake up one day to find that it’s no longer there.
Sound farfetched? In major industrialized countries, maybe. But pose the same question to residents of Greece, Cyprus, Argentina, Brazil, Uruguay, the Ukraine or Russia.
They’ll tell you how their savings were debased, confiscated and, in effect, stolen right from under their noses.
Not possible in the U.S.? Hah! Ask anyone with uninsured jumbo CDs during the multiple banking crises of the 1980s or the Debt Crisis of 2008.
Also consider the fact that the largest economies have run some of the worst deficits, have printed the most fiat money and are not invulnerable to monetary or banking crises.
Indeed, some argue that key aspects of the banking system have been fragile since the 2008 financial crisis. That, despite all appearances, nothing has changed; nothing was fixed. They just printed money and moved on.
This is the context in which Bitcoin was born, as cryptocurrencies threaten to turn the traditional banking system on its head: You get all the benefits of having an electronic form of money PLUS all the advantages of owning hard cash.
The assets are truly yours. No one else controls them. And they will be there tomorrow no matter how messy any future crisis might be … provided you store them properly.
Why Storing Your Currency
at Exchanges can be Flawed
When you keep your crypto on an exchange, who do you think controls those assets? If you think it’s you, you’d be wrong!
You see, in the crypto world, it’s the entity that owns the private key to a wallet that controls the ownership of that wallet … along with ALL the crypto it contains.
If store your money in your own wallet outside of an exchange, that’s you.
If you store your money at the exchange itself, it’s them. One day, you may suddenly discover that some anonymous genius with a laptop managed to hack it and steal your funds.
Exchanges are big, juicy targets for hackers. The hackers know that exchanges hold the private keys to thousands, if not millions, of crypto addresses containing billions of dollars’ worth of crypto. All they have to do is get their hands on the master file, grab all the keys and transfer the crypto to a wallet they own. Once they do, there’s nothing anyone can do. The money is gone.
That’s what happened in the Mt. Gox hack of 2014. And it’s what just happened again in the great Coincheck hack of 2018, when hackers made off with nearly $500 million in digital money.
Which was larger? The Coincheck theft was the largest ever in dollar terms. But as a percent of the total market cap it was one-twentieth the Mt. Gox disaster (0.25% vs. 5%).
No consolation for those who lost their crypto fortunes! So regardless of the size, there’s no reason to expose yourself to the shenanigans of the crypto Wild West. Be sure to follow these steps:
Step 1. Go to the coin’s website, and check to see if they recommend any particular wallets.
Step 2. Download and install the wallet. Sync the blockchain if necessary. It should only take a few minutes in most cases.
Step 3. MAKE SURE YOU STORE THE SEED/PRIVATE KEY IN A SECURE LOCATION. Without that seed, you will not be able to access those funds again. Do several backups, and store them offline if possible.
Step 4. Go to the exchange, select “Withdraw,” and when asked what address to send the funds to, use the address displayed on your wallet.
Step 5. You’re all done! The funds should be transferred to your private wallet in no time; that crypto is now effectively yours.
It’s also recommended, for ease of use, to start off by downloading the Exodus Wallet. It’s not the most secure solution. But it allows you to store several crypto assets in one easy-to-use platform.
Alternatively, you may also want to consider a “Hardware Wallet” like the Ledger Nano S. Hardware wallets are the ultimate solution in terms of security: The device stores the private keys. When a transaction is sent, the device is used to sign the transaction, yet those keys are never stored anywhere outside of this device. Just make sure to keep it somewhere safe, and ALWAYS keep a backup copy of the seed!