With Bitfinex’s recent hack resulting in the loss of $65 million in Bitcoin, there’s been a lot of debate around exchanger danger. Whilst most of the finger pointing moves from hackers to exchanges – it may be misdirected.
Bitcoin exchange sites are fundamentally unsafe: “The risk of losing funds stored at exchanges is real but uncertain”, say Tyler Moore, one of two US computer scientists who recently researched bitcoin exchanges. They found a failure rate of 45%: one-third due to unannounced closure, whilst security breaches forced the remainder to collapse.
Researchers found the median lifetime of an exchange is only 381 days. Sites that bought and sold higher volumes of bitcoins were less likely to shut down, but more likely to suffer a security breach.
Founder and CEO of Bitcoin Trader, Nathan van den Bosch, says, “As soon as a bitcoin exchange is started, a huge target is placed upon its back. It’s known large volumes of fiat are stored by traders, miners and customers – and volumes of bitcoins are stored in hot wallets for easy access in trading.”
But he questions the exchange blame. “Bitcoin’s fundamental principle is that of individual autonomy – taking control of and securing your own currency. That’s why we use cold storage devices that are immune to hacking. The point of an exchange – is to exchange; not to store Bitcoin.”
The US researchers suggest a similar conclusion; “Bitcoin is expressly designed to be completely decentralized with no single points of control, yet currency exchanges have become de facto central authorities.”
Van den Bosch muses, “It’s a bit like stopping for a coffee, leaving your wallet on the table and asking the person adjacent to mind it while you go to the bathroom.” He suggests a reputable exchange is fine if you want to trade a small amount of Bitcoin with a quick time frame – but never leave it there. Use a cold storage device, like Trezor, then move smaller amounts to CoolWallet for transacting.
Bitcoin Trader acquires Bitcoin direct from miners at 7-10% below market rates and runs practical workshops in storing and spending Bitcoin safely.