Bitcoin is technically very secure as a protocol, which means there is only one reason why you would ever lose your coins: human error. As with many things, the biggest security issue in Bitcoin is humans and, as we know, humans are much harder to fix than code.
Two stories from last month showed how far we are from solving Bitcoin’s security challenge. In early October, federal prosecutors charged crypto trading platform BitMEX with facilitating unrecorded trade violations. Two weeks later, one of the world’s largest crypto-fiat exchanges suspended recordings indefinitely after one of its key holders went AWOL.
As Noelle Acheson said, these stories highlight one of the cryptocurrency market’s greatest ironies, which is that an industry created on the basis of decentralization is dominated by centralized companies with centralized vulnerabilities.
Somehow, Bitcoin’s defining ethos of decentralization has been forgotten. Not by everyone, it is true; but by a large portion of both new and experienced Bitcoiners who naively continue to believe their bitcoin is more secure when someone else holds the keys.
On-Exchange is unsafe
Let’s be clear: without exchanges, there wouldn’t be a Bitcoin ecosystem. Period. The problem
is not with these platforms necessarily but with the assumption that an exchange is the safest place to store bitcoin.
It is easy to see how this is done. People make the mistake of assuming that bitcoin functions just like cash, and that coins are best protected by handing them over to a third party who can leverage enterprise-level security technologies to ensure they are best protected . But there is a crucial difference between bitcoin and traditional forms of money: unlike cash, you never “hold” bitcoin; you only own the keys they control on the blockchain.
Bitcoiners who don’t realize this may in turn believe that they are putting their coins in a digital Fort Knox, but all they have actually done is relinquish all control (and thus ownership) of their bitcoin to a third party. And if bitcoin is mismanaged and lost through that third, it will likely never be recovered. The only way to make sure your bitcoin is very secure is to keep your keys in a cold store yourself.
So, what went wrong? Why isn’t this message filtering through to more Bitcoiners? And why don’t exchanges teach their customers the best practices for keeping their coins safe?
The most obvious answer is that it is convenient for exchanges to keep their clients’ Bitcoin keys as this makes it easier for people to actively trade. There are other less appetizing reasons why an exchange might want to keep control of the keys that secure bitcoin, but the main motivation is to make the entire process of buying, trading, and storing bitcoin as seamless as possible. But if they come at the expense of making Bitcoin significantly less secure, all these benefits count for nothing.
Security in the hands of users
Bitcoin has transformed the world so quickly that it is easy to forget how recently it was introduced. In striving to improve user training, we must remember that it takes ordinary people time to understand a new concept of infosecurity. Self-custody is no exception.
It certainly hasn’t helped things that our industry has appropriated language and concepts associated with fiat cash wherever possible, which provide bad analogies for explaining an entirely new concept of money. After all, bitcoin wallets don’t contain bitcoin like regular wallets contain fiat: they contain your keys. We need to educate people so that they don’t trust a stranger with their crypto keys any more than they do with their house keys.
Fortunately, it seems people are starting to get the message. Since March 2020, the value is
of bitcoin on the exchange decreased by about 10 percent or $ 2.85 billion after high-profile hacks on exchanges and trading platforms, including KuCoin, Eterbase, Cashaa and many others.
While hackers weren’t to blame for the debuffs at BitMEX and OKEx, they still served to emphasize how vulnerable your coins are if you don’t have the keys yourself.
In view of these repeated coinage catastrophes, it is difficult to see how exchanges and other Bitcoin platforms can continue to ignore user education. And since anything that hurts adoption or hurts consumer confidence is bad for everyone in the wider Bitcoin ecosystem, I believe this effort is everyone’s business.
Frankly, there are exchanges that really do a good job of promoting self-care
to their customers, with Crack is just an example. But this commitment to user education should become the rule rather than the exception.
Remember, Bitcoin was never intended to be just a competitor to fiat currency, but a revolution in our relationship with money. If we want people to embrace the ethos of decentralization that allows everyone to be their own bank, let’s help them avoid the biggest mistake they can make, and instead make sure they take full responsibility for securing their Bitcoin.
This is a guest post from Ron Stoner. The opinions expressed are entirely his own opinion and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.