We’ve all heard it before: “Don’t store your cryptocurrencies on exchanges. If you don’t have your private keys, then you don’t really have your crypto.” But what about when large projects don’t do all they can to ensure the protection of crypto assets?
Sometimes there’s a massive portion of the circulating supply floating around for trading that isn’t properly secured. That’s why companies like Decoin are keeping 97% of their currency stored in cold storage for investors while only the remaining 3% is in supply for trading.
On top of that, the company is introducing credit cards for cryptocurrency usage and a revenue-sharing model where coin holders will receive 6.2% back annually for staking within their POS algorithm as well as sharing revenues of the trading platform and exchange fees which is the project build at Decoin.
All of these added benefits from companies are to bring consumers over to the side of the crypto market that cares about asset security. But why is that important? Let’s take a look at exchanges and their latest security rankings to see why that’s so crucial
After the recent release of a 2018 “Cryptocurrency Exchange Password Power Rankings” report by Dashlane, the current state of cryptocurrency exchanges is clearly still not what it could be.
According to the report, 71% of the exchanges tested failed to achieve a 5/5 passing score. Even though many exchanges have added security measures now like 2 factor authentication [2FA], they still come in short when compared to platforms in the traditional financial market. This can leave large amounts of funds vulnerable when not in use.
An Industry-Wide Problem
The main issue with storing cryptocurrencies online either in an exchange account or in an online, ‘hot’ wallet is that it forces users to hand over trust to another party. But is it a good idea to hand over that trust if that part isn’t doing all it can to protect your funds?
Projects like Noble Bitcoin and Decoin don’t think so (and neither should the community). If another party is storing assets for you as an investor, most would feel at ease knowing that their funds aren’t easy targets online. Additionally, when storing assets on an exchange, there are many others doing the same thing. This becomes an issue because large pools of crypto assets (like a centralized exchange or online wallet service) create even larger targets on their backs than individual wallets.
Think about it: If a bad actor were to put in the work to compromise a system, would they prefer the payout of a small personal wallet, or of a portion of an exchange’s assets? The answer is obvious. The crypto community has already gone through this tough reality following the events at Mt. Gox and Coincheck.
Upcoming Alternative Options
A better option for investors, traders, and companies alike is the use of ‘cold’ storage, rather than ‘hot.’ Decoin has been focusing on this in their currency distribution and storage model. Cold storage simply refers to a wallet storing crypto assets that are neither online nor connected to the internet in any way (your wallet downloaded on your PC still counts as a ‘hot’ wallet).
Though enthusiasts can make their own version of a cold wallet with a little bit of time and know-how, the most common cold wallets are hardware wallets and paper wallets for storage. Cold wallets are generally used for longer-term holding periods and for those dealing with large amounts of cryptocurrencies.
Because they’re so well suited for large amounts of assets, cold storage is being utilized by companies and cryptocurrency projects that take security seriously. As an added measure for asset security and risk mitigation, projects like Decoin are taking advantage of cold storage in how they operate, keeping 97% of customers’ funds in cold storage and fully insures the remaining 3% being actively traded in the markets.
Since the current status of the security on many of the large cryptocurrency exchanges isn’t as rock solid as it could be, it’s evident that cold storage is still the best option. Whether investors are looking to handle cold storage on their own via a hardware or paper wallet, or if they’re planning on operating with businesses that keep funds in cold storage to avoid another Mt. Gox, cold wallets are a necessity.