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April Fools, Hacks and an Alternative to Exchanges?

         April begins, like all months with the first day which I will agree is hardly a groundbreaking revelation nor worthy of awards and adulation, however unlike other months- April Fools Day conspires to throw untold spurious articles across many media platforms in all directions in order to raise a wry smile or perhaps deceive the more gullible among us (i’m telling you there really is a horse who can play the accordian!)

However, the story I read yesterday morning related to events that took place over the weekend and more specifically, reports of another exchange hack- an event that unfortunately cannot be shrugged off or consigned as an attempt to fool us all.

The apparent $20 million dollar hack of South Koreas largest Bitcoin exchange Bitthumb sits alongside the other 17 exchange hacks that have taken place since 2014 (Details of which can been seen at the bottom of this article).  This news along with the other historical hacks does little in the way to inspire confidence for those who are either new to the marketplace or have limited knowledge of cryptocurrency and blockchain.  As I have mentioned before and will continue to pontificate about, adoption (as with any new product or technology) is absolutely key to the future success of blockchain and cryptocurrency and continued negative coverage (even justifyably so in these cases) does little to sway the willfully ignorant or cynics from changing their opinion.

It would appear that in the case of a number of these hacks, size and reputation does not always constitute safety when it comes to trading.  However, there are now some excellent websites that take a granular look at exchanges and score them according to a number of factors, all of which can assist in determining whether you should trust them with your funds.   After all when you place funds on exchange, you no longer have the private key to those funds, which fundamentally means you are entrusting them to others for sometimes prolonged periods of time.

Despite the threat of hacking, exchanges are still the preferred route for individuals and parties to buy and sell cryptocurrencies globally, but is there an alternative method of trading and if so- how does it differ in terms of features and does it reduce the risk in any way of having funds hacked?

Whilst GlobalBlock has relationships with exchanges, our preferred method of working with our clients relies on our ability to trade direct with market makers  i.e. Large global liquidity providers that the average small-medium sized investor or organisation are unable to directly face.  These market-makers provide a fast settlement of funds once trades are conducted, all of which means that client monies are not out of there own wallets/ storage solutions or bank accounts for any prolonged period of time.  In fact, our processes mean that clients can buy, sell and settle on a same day basis across multiple fiat/ crypto trading pairs.  This means that whilst clients need to remit fiat/ coin to us to settle trades, the speed of execution means that in some cases they are able to have coin safely stored in cold wallets or storage before close of each business day, thus eliminating their funds being hacked on a particular exchange.

One reason why individuals tend to leave their funds on exchange aside from the ease of access to trade is that it removes the regular charges incurred for taking funds off exchange, something that can acculmulate if you were to do so on a daily basis in order to move them to a safer cold storage solution.  This, along with additional FX charges where applicable can mean that associated fees with dealing with certain exchanges can often become prohibitive.  Our service here at GlobalBlock eschews any form of charges to move funds meaning clients can move fiat and coin as little or as much as they would like.

There are other additional benefits to trading via brokers such as ourselves versus trading on exchanges- such as the depth of liquidity (far lower depth of liquidity on exchanges in relation to what we have access to.) Customer support  (for the most part online with exchanges versus our phone based service with supporting online trading platform), not to mention the comfort that tends to come with transacting with a business like ours which is an Appointed Representative of a UK based authorised and regulated entity.

There are various sources on the internet highlighting the number of exchanges that currently exist with numbers varying in and around the 250 mark, which inevitably means a broad range of quality and legitimacy when it comes to the service that they provide.  However it is important to recognise that until such time that a solution is created to ensure hacks and breaches are impossible (which seems unlikely), it is only reasonable that those using these exchanges acknowledge and accept the risks trading with them involves, or have the knowledge that there is another way which gives some of the control back to the individual or company in question with regards to how safely their coins or funds are secured.

If you would like to find out more about how GlobalBlock can help you do this, or to find out more about our services and how they might assist you either as an experienced or indeed first time investor, please get in touch with me directly on david@globalblock.co.uk
Recent Exchange Hack Details

Jan’18- Coincheck: NEM was hacked with a value of $534m

Feb’18- Bitgrail:  A small centralized exchange that had NANO hacked ($195m).

Apr’18- Coinsecure:  438 BTC hacked with the exchange owners claiming an inside job.

Jun’18- Coinrail:  small Korean exchange $40m in various tokens.

Sept’18- Zaif: Japanese exchange- $60m in BTC in hot wallets compromised.

Oct’18- Maplechange: $6m of BTC in what is claimed to be an exit scam by the exchange.

Nov’18- PureBit: $30m of ICO funds to create an exchange in South Korea.

Jan’19- HitBTC (repeated freezing and blocking of withdrawls. Not a hack but not great practice!

Jan’19- Cryptopia: New Zealand exchange  had 20,000 ETH stolen.

Jan’19- Cryptopia:15 days later another 2,000 ETH stolen!

Feb’19- Coinmama: 450,000 emails and passwords stolen.

 

 

This is not designated investment activity and physical cryptocurrency clients do not have access to either the FOS or the FSCS compensation schemes.