Today Binance announced that they lost over 7,000 bitcoins to a hack. Exchanges getting hacked is unfortunately not uncommon yet there is still a misconception to what a ‘bitcoin hack’ really is.
When most people buy bitcoins or other crypto-currencies on an exchange, they don’t remove their private keys from the exchange.
Your private keys are to bitcoin what your password is to your bank account.
Though the Bitcoin block-chain is the most secure transaction and financial network ever created, leaving your private keys on an exchange is like giving someone your ATM card with you password written on it. Eventually someone will steal your funds.
We are continuously meeting with clients who say ‘I bought some bitcoins” and we ask “Where are your private keys ?” to which the inevitable response is ‘What’s a private key?’
Dr. Saifedean Ammous, author of The Bitcoin Standard wrote that “your fist investment should not be in bitcoins but time spent understanding how to buy, store and own bitcoins securely“
This statement encapsulate what we at CoinCompass do, teaching investors and businesses to manage and store their private keys securely. Because even through Binance will be covering the lost bitcoins through their insurance fund, most exchanges don’t have that safety net and there is no recourse.