Kucoin Hack: Guarantee the Safety of Your Digital Wallet
Weekly Analyst Thoughts
KuCoin Hack: Guarantee the Safety of Your Digital Wallet
This week, I want to highlight the dangers of centralized finance (Cefi) and hot wallets (cryptocurrency wallets connected to the internet) by reflecting on the recent $150 million-dollar KuCoin hack. One of the major problems with Cefi exchanges like Coinbase, Kraken, Bittrex, and KuCoin is that the cryptocurrency user does not actually control the asset. The Cefi exchanges control the funds with private keys, making them a honeypot for hackers due to the large amount of money that is stored on these exchanges. There is a phrase in the cryptocurrency community to hammer home the point of Cefi exchanges: “Not your keys, not your coins.” If cryptocurrency users and investors continue to relinquish their private keys to these Cefi exchanges, these hacks will continue to occur. A nice middle ground is to set up a multi-signature wallet, which needs multiple keys, with a custodian, so if the custodian or the investor ever loses their key, they can easily access the wallet from utilizing additional keys. A good example of this multi-signature solution would be Casa, a provider of custodian storage solutions for digital wallets.
Although hot wallets are extremely convenient to use for buying, spending and selling crypto, there is a hardware wallet that rivals hot wallets: Ledger Nano X. Ledger Nano X improves upon its predecessor, Ledger Nano S, and its’ annoying USB cable and limited storage. The Ledger Nano X can hold up to 100 different cryptocurrency wallets with the help of Ledger Live and has a Bluetooth connection that enables investors to forgo connection via a USB cable.
In summary, KuCoin’s $150 million-dollar hack is a stark reminder of the dangers of centralized finance and hot wallets. Two solutions to Cefi and hot wallet hacking problems include using custodians like Casa to hold your private keys and using cold storage wallets like Ledger Nano X.
Jacob Stelter | Blockchain Analyst