In the wake of the recent hack on Cryptopia, a major crypto exchange in New Zealand, the CEO of Kraken has urged crypto users to avoid storing their digital assets on exchange platforms. Cryptopia earlier this week announced that they had been breached and an undisclosed amount of crypto assets had been lost.
The latest incident has raised concerns on how secure are exchange platforms when it comes to protecting the assets of their users. Jesse Powel took to Twitter to on Jan.15 to urge users to avoid keeping large amounts of crypto on exchanges.
Adding that if they choose to let it be only small amounts, they are using to trade.
In a tweet he said:
“Please do not store more coins on an exchange (including @krakenfx) than you need to actively trade. Use Ledger or Trezor. DEXes are not a panacea — look at the DAO. Open source just means exploits will be discovered sooner (probably not by good guys).”
Given that any platform or application that is connected to the internet can be hacked, it’s easy to see why storing crypto assets on centrally operated exchanges is not such a good idea. By doing so, a user gives control over their private keys to the exchange.
So, if a hacker was to gain access to the central servers or the internal management system of a crypto exchange they can easily steal private information, user funds and any other financial data.
As the Kraken CEO emphasised, the most secure way to store virtual assets is using hardware wallets or a non-custodial wallet which allows the user to control his/her private keys.
Some experts have argued that the only time it’s safe to store your private keys on the exchange is when you are new to cryptocurrencies. This is because it’s easy for a new user to mismanage their private keys and other sensitive data.
However, some exchanges have taken extra precaution to protect their users. An excellent example is Gemini which has insured itself against hacking and security breaches. Aon insures the exchange.
Also, South Korea has asked platforms operating in the country to acquire insurance to protect their investors and their assets.