Cryptocurrency

Stake on Exchanges or not?

register on a crypto exchange platform

First of all you maybe asking, What is cryptocurrency staking?

Do you stake on exchanges or not? When you hold cryptocurrency that supports staking, you will help verify transactions to support the network and reduce Sybil attacks.

In return for staking you’re cryptocurrency and strengthening the network you will receive a reward. It is kind of interest, like if you were saving your money in a bank. This enables a form of passive income for all that is involved, in addition to the potential rise of the coin.

How does staking work?

There are two types of consensus mechanisms Proof of work (POW) and Proof of stake (POS). With POW new blocks need to be mined to verify transactions on the network using powerful computers (think Bitcoin). POS is a slightly different protocol as new blocks are produced and verified by staking. The advantage with staking is that you get rewarded the more coins you have.

Why stake on an exchange?

Advantages

  • Its Easy
  • Automatic
  • Introduction to Newbies
  • Get rewards minus exchange fees
  • Helps mass adoption
  • Communities to discuss on Exchange Forums

Disadvantages

  • You do not hold your Private Keys
  • Reduction in reward fees as exchange will charge you
  • Loss of Decentralised mindset
  • Do not have custody of your assets
  • A minimum amount may be required to be eligible for staking
  • Coins in Wallet will not be transferable to external wallets
  • Exchanges can take up a huge percentage of network stake, voting rights with many stake pools in their portfolio
  • Waver responsibility of coin protocol and ethos
  • You cannot delegate to another stake pool of your choice
  • May be locked in for a certain period of time
  • Centralised Exchanges are a Honeypot for Hackers
  • Reduced control of your assets

Conclusion

Exchanges are needed for buying cryptocurrencies so they are essential to accumulate your favourite cryptocurrency. Once you have your coins its wise to send them to your own wallet. To have complete custody over them enables you to be responsible for storing, sending, and staking you’re coins. You do not require a centralised exchange service for this.

To be part of something that is decentralised and where you are in total control of your wealth is very full-filling. Not only do you reduce centralisation but you have a choice in how you wish to secure the network by choosing a stake pool of your choice.

Do not trust centralized services if you do not need to. You can be part of a decentralised future to help reshape the world by holding coins in your own wallet.

My crypto is safe on an exchange

So..we want to be part of the community, we want to be in it for the investment or maybe because we believe it’s the future of money. Regardless we know the risks right?  “My crypto is safe on an exchange” I hear you say…

Is your crypto safe

Exchange Hacks

Is it safe? Well you would hope so and we all store our assets somewhere but maybe an exchange is not as safe as you might think.

Last year Selfkey published a comprehensive list of Cryptocurrency Exchange Hacks. This included the ill fated Cryptopia who had two hacks within 15 days in 2019.
Throughout 2019 the exchanges that suffered included : CoinBin, CoinBene, Bithumb, DragonEx (over $7 million!), Binance (for 7000 BTC!), Bitrue, Bitpoint, VinDAX, Upbit and  then Altsbit who never recovered and published the results on their website and is still there to see with refunds being as low as 28% on ETH.

In the same year Reuters reported that losses had hit an incredible $4.4 billion a 150% increase on the previous year.  All of the survivors promised better security and yet in 2020 Exchange KuCoin reported a huge hack of over $280 million worth of crypto.
Hot wallets don’t fair much better whilst they improve liquidity they are still connected to the internet so ultimately they are still viable for hacking. Tech Radar reported on a EXMO’s Hot wallet hack which resulted in the loss of over $10 million lost!

Ledger Hacks

Even the Ledger is not safe. Well actually they are pretty good. However, 3 years ago a young teenager found a flaw and reported it to Ledger who issued a fix.  Ledger was recently hacked but they only got away with 270000 email addresses and Ledger assured us that “…despite the leak, your assets are safe”. Kraken also revealed that the Trezor wallets can be hacked within 15 minutes but special hardware is required with physical access to the Trezor itself. 

Side Channel Hacks 

The subject of side channel hacking is enough to send you screaming to the trees to live in isolation. There are lots of versions but an example of a side channel hack is using a microphone to listen to the keys being used on a PC. Based on the fan noise you may be able to tell if the PC is processing heavy data or not, add that to other data and you start to get a picture. In a study, Tel Aviv University found that “different RSA keys induce different sound patterns” therefore potentially revealing data.

So anything is hackable. But ‘My crypto is safe on an exchange’ No system is perfect, but you can take important steps to protect your assets. A steel wallet is a good start. Just don’t do what a friend of mine does; “I never lose my banking password” he said “I keep it on a post-it on my PC monitor” !!