Why Do These Crypto-Exchanges Keep Getting Hacked?
✳️ What Exactly is a Cryptocurrency Exchange?
In the simplest of terms, a cryptocurrency exchange is a Marketplace or a Bazaar (if you prefer exotic words). In a Marketplace, buyers can come and buy whatever the sellers are selling. Right? That's exactly what a cryptocurrency exchange is...with a small difference: there's no food or clothes etc being sold/exchanged by giving money. Thus, in a cryptocurrency exchange, buyers buy cryptocurrency A from the sellers by paying cryptocurrency B.
✳️ So, Why Don't Marketplaces Get Hacked?
When we buy items such as food and clothes at the marketplace, we usually do not buy it with the intent of reselling it. We buy it for the purpose of consuming it or wearing it. Therefore, the transactions conducted at a marketplace keep adding and removing value on a daily basis. This means that even though the marketplace might be worth millions of dollars, its value is dynamic and basically cannot be stolen.
✳️ Why Can’t Cryptocurrency Exchanges Do That?
On these crypto-exchanges, the buyers and sellers both, keep buying and selling items multiple times during the day (sometimes even within seconds via algorithmic automated trading bots) to make money on the difference of the buying and selling prices. This means that a lot of value accumulates in the marketplace (in our analogy) and is not taken away in the form of consumed goods or money transferred to bank accounts. This value accumulates into millions of dollars which makes crypto-exchanges a very lucrative hacking option for hackers. Here’s some context. The largest bank robbery ever in history is valued at $29 Million in today’s terms. By comparison, when the UpBit Exchange got hacked this week, hackers walked away with $49 Million in untraceable cryptocurrencies.
✳️ Why Can’t Cryptocurrency Exchanges get Better Security in place?
It is a common saying - What can be built can be unbuilt. Given enough time and resources, anything can be hacked. A comparison with traditional stock markets would be highly unfair because stolen securities can be reversed. Stealing crypto, on the other hand, is like robbing a bank. Everyone knows that someone stole $X,XXX,XXX but no one knows who did it.
✳️ What Can We Do to Protect Our Cryptocurrencies?
The simplest answer is also the safest - do not keep your crypto on the exchanges for extended durations. Keep them in your Trezors or your Nanos or your papers but get them off the marketplace so that there’s no red target on the back of the marketplace in the first place, because -
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