Bitcoin Investors Susceptible to Hacks and Stalking by leaving funds on Crypto Exchanges
Participants on cryptocurrency exchanges can make a lot of money when they pay attention to trends and make smart investments.
However, even with all the security in the world, these platforms have no major regulations that they have to abide by, which puts them at a high risk for being hacked and losing their hard-earned funds. One such victim is Dan Wasyluk.
Wasyluk and several colleagues decided to make an investment on a cryptocurrency platform called Moolah. Though they had raised many Bitcoins that they set up an escrow, the platform forcibly shut down only a few months after their initial investment. The group will the later find that the creator of this platform has ended up on trial in Britain for potential fraud, though the creator has pleaded not guilty.
His loss was that if 750 Bitcoins, which comes out to $3000000 USD. Due to the circumstances, the most realistic outcome is that Wasyluk will end up having to take the hit for the loss, rather than having it recovered.
In a statement from Wasyluk, he said, “It really was kind of a kneecapping of the prophetic. If you are starting an exchange and you lose clients’ money, you or your company should be 100 percent accountable for that loss. And right now, there is nothing like that in place.”
When cryptocurrencies originally came into being, much of the role was supposed to be a more secure way to protect funds and make investments. Unfortunately, it has become fairly common place for these platforms to focus primarily on rising in value before the eventual crash in their prices. The biggest risks that consumers take is when did they trade with a platform that connects the seller and the buyer. These platforms are often more prone to fraudulent transactions, as the sellers are rarely vetted.
Bitcoin is extremely valuable right now, reaching values of over $7,000 on average. With this type of value, individuals should be able to expect that their funds will be well protected, but that is often not the case. Exchanges constantly handle billions of dollars of transactions regularly, and so many of these cryptocurrency tokens are brand new, possessing no longevity or securities to make them more reputable.
David L. Yermack, who plays a major role as the chairman of finance at New York University’s Stern School of Business, released his own statement on the matter. “These are new assets. No one really knows what to make of them. If you’re a consumer, there’s nothing to protect you.”
With the lack of security in the lack of Regulation, it is apparent that the only way that any of these problems will cease or slow down will be with involvement from the US government and Congress.
When it comes to the losses that the cryptocurrency market has sustained, the statistics are staggering. Since 2011 alone, there has been over three dozen significant hacking issues on several major platforms. Close to 1 million Bitcoins have been stolen at this point, which is a value of approximately 4 billion dollars.
Once a highly sought-after exchange platform, Mt. Gox filed for bankruptcy 3 years ago due to the loss of their funds, and the 25,000 customers they served have not seen a refund. In the legal documentation, the amount lost between those customers amounts to about $400 million at the time.
Cryptsy is another such platform that has had an unfortunate demise. Paul Vernon, who is well known as the person who drove that platform into the ground, recently received an order from a judge in July. That order commanded that he pay out the customers from his platform a total sum of $8.2 million, which is the result of ignoring a class action lawsuit against the project. Though the fact that the Bitcoins were stolen was validated, the thief was not named, and the creator was left entirely responsible for the money to pay out.
Another major threat in the crypto world that can take away the profits that customers work so hard for is the potential for a “flash crash.” While the stock market with fiat currency has certain circuit breakers in place that prevent a major loss, cryptocurrency is not provided with the same securities. To make matters worse, any down time that the market experiences is more prone to attacks from hackers, which can result in millions of dollars of loss for any person that is on the exchange.
A recent case of this issue was on May 7th, when crypto exchange Kraken list at least $5 million during a hacker which locked out programmers. Two additional crashes happened within the last year alone on GDAX, though a spokesperson reports that the investors were compensated for the loss.
There are many banks that will outright refuse to work with cryptocurrency exchanges, like JP Morgan Chase and Wells Fargo. By being boycotted at this important time, exchanges find themselves in the difficult situation of being unable to buy or sell tokens with fiat currency. This challenge has not let up in the entire time that the cryptocurrency industry has been in existence, which some banks say are due to the lack of protection from hacks. Furthermore, the location of the user can make a difference, with American restrictions against using Iran and North Korea as sources being the most prominent.
Due to the way that the bitcoin is not really being accepted as part of the rest of the financial world at the moment, PayPal Chief Executive Dan Schulman says that they are “commodities” more than anything. The only real value they hold is the value that investors place on them, though the big appeal of crypto seems to continue to be anonymity. Unfortunately, both investors and hackers find that appeal, and that seems to be the biggest issue.
Somehow, traders have still managed to keep multiple platforms afloat with trading volume, since the ability to connect between buyers and sellers needs to be as fast as possible for optimal trading. However, some of the volume reported is not as fast as it appears, which could result in the overall loss of value for Bitcoin and everyone else.
Regardless of how some consumers feel about the crypto community, the war between fiat and crypto currency will continue as long as Bitcoin’s lifespan allows it. Just like any other stock, the value is what investors place on it, though the biggest variables for that value seem to be security and accessibility. For investors that want to get in at any level, the question remains – is the reward big enough for the risk that they put themselves through?
Thanks to Reuters for the inspiration and story behind this post! Stay secure hodlers and investors and traders!