Tuesday, November 21, 2017

Unlike gold and sovereign currencies, cryptocurrencies like Bitcoin don't have insurance to cover theft or coding mistakes

When hackers broke through the world's primary platform for currency exchange (SWIFT) last year and stole close to $100 million from the Indonesian central bank, it signaled just how vulnerable any asset born from, or stored in, cyberspace can be with the right amount of time and ingenuity.

Cryptocurrencies, and by default their third party conduits such as an exchange, are no exception to this rule.  And because of the amount of value and growth cryptos like Bitcoin have garnered in just a short amount of time, even the most powerful encryption processes will be cracked and their assets subsequently stolen.

As in the latest cyber-theft of wallets from the 19th largest cryptocurrency known as Tether.

Hackers have robbed the wallet in the 19th largest cryptocurrency tether. The company behind the dollar-pegged cryptocurrency blamed "malicious action by an external attacker" for the theft of $30,950,010 on Monday. 
Tether would not redeem any of the stolen tokens. The cryptocurrency’s market cap is $674 million, with the value of one tether equal to one US dollar. 
“The tether.to back-end wallet service has been temporarily suspended. A thorough investigation of the cause of the attack is being undertaken to prevent similar actions in the future,” Tether wrote. 
As the largest cryptocurrency bitcoin reacted negatively on the news, immediately falling about five percent, but soon recovered and is trading above $8,000, not far from the all-time high of $8,200 seen on Monday. 
The incident is the latest in a number of hacks that are raising questions about the security of cryptocurrencies. 
This month, $280 million worth in ethereum was frozen after someone made a mistake by deleting the code library of Parity Technologies, a large provider of cryptocurrency wallets. 
The individual who triggered the lockdown claimed to be new to cryptocurrency. 
Mt.Gox, one of the largest bitcoin exchanges, faced bankruptcy after hackers stole $460 million worth in bitcoin in 2014. - Russia Today
Yet here is the thing... owners of sovereign currencies like the dollar, euro, yen have a modicum of insurance through the banking system in case of it being stolen from those accounts through a cyber attack.  Additionally, gold stored in a respected vaulting service will be able to have insurance in case of physical theft of their metal.

But in the cryptocurrency realm there is no insurance against theft, or as we saw last week with Ethereum, coding mistakes that locked out hundreds of millions of dollars worth of crypto from individual wallets.  And so the onus is 100% on the cryptocurrency owner, which makes owning cryptocurrencies completely reliant upon diligent investors, as well as in being able to trust in the facilities that in the end offer little recompense if hackers decide to target their platforms.

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