The cryptocurrency industry has had its share of exit scams. For an ecosystem that deals with a new system of money, many people have fallen victim of insincere practitioners. This scenario was more popular in the early days of Bitcoin and cryptocurrencies. At that time, a lot of people who got involved did not have adequate knowledge of what they were going into. Therefore, they were easily deceived, and their money stolen.
Exit scams have not been completely eradicated from the cryptocurrency industry. These days they come in more sophisticated ways, like exchanges shutting down and the owners vanishing into thin air. Such scenarios are more rampant whenever there is an increased level of dynamism in the market, as crypto price usually reflects.
From all indications, the market will likely experience such increased dynamism in the coming months and crypto users must be careful with their dealings in order not to fall victim to bad actors. To do this requires a lot of individual effort, and possibly some form of regulation or adjustments from the larger system.
Bitcoin Users Learned the Hard Way
The rampant cases of unwelcomed events was corroborated by Michael Vogel, CEO of Coinstream and founder of Netcoins. Vogel acknowledged the fact that most of these occurrences happened before the Bitcoin community matured. Here is how he put it:
Since I first went down the bitcoin “rabbit hole” in 2014, the Bitcoin community has gone through considerable growth in maturity. Frequent episodes of exchanges being hacked, exit scams, ICO pump-and-dumps, and even blatant fraud have left early Bitcoin users much more hardened and less naive.
According to him, while these things happened, Bitcoin users learned how to protect themselves. They became “more hardened and less naive”. Perhaps, this is why the frequency of such occurrences has reduced significantly.
The Thin Line Between Crypto Strength and Weakness
In order to protect one’s self from the bad actors, Vogel pointed out the importance of understanding the technicalities involved in storing Bitcoin. According to him, even on the storage side, it’s important for Bitcoin users to understand cryptocurrency’s biggest strength and weakness. He noted that these strengths and weaknesses are in fact the exact same thing: when holding cryptocurrency, you become your own bank.
In other words, storing coins securely and safely are ultimately the responsibility of the holders. “It’s easy to forget to backup your wallet, or store your backup credentials in a safe place, or to set up two factor authentication where possible, he said. “When using an exchange, the best practice is to only keep funds loaded on an exchange for the purpose of trading and subsequently withdrawing to a wallet of which you have full control.”
Along with that, Vogel noted that this freedom to be your own bank is a paradigm shift in the right direction.
You only need to ask those in Greece and Cyprus, plus many other examples, that have had their bank accounts held hostage by failed governments by freezing accounts or raiding balances.
Why Users Store Funds on Exchanges
On the part of institutional intervention, Vogel identifies a major reason why many cryptocurrency holders are exposed to bad actors. He noted that the bigger problem is banks making it difficult for individual citizens to fund and withdraw fiat funds on crypto exchanges. According to him, this only forces users to be more likely to store funds long term on a crypto exchange, where it is vulnerable.
Even when certain governments claim to be pro-bitcoin and pro-innovation, Vogel insists that when they allow banks to its dirty work of preventing regular people from participating in the crypto economy, it’s a pathetic double standard. Instead of that, allowing free and open trading of cryptocurrency makes things much safer and simpler for everyone.
The popular saying goes – “A problem identified is half solved”. Perhaps, the knowledge that individual funds can be taken away either as a result of inadequate wallet protection or too much exposure on exchanges means that we can device precautions.
The Private Business of Wealth Protection
Protecting individual wallets is the more easily achievable procedure, since the user appears to have more control over the process, especially for offline wallets. This is an opinion that was supported by Nathaniel Luz, Lead, Dash Nigeria. Luz believes that with freedom comes responsibilities, hence, as cryptocurrency affords us to be the holders bank, such holders must also be prepared for the responsibility it brings especially in the areas of security.
However, when exchanges are involved, where third-party custody implies, things become a bit complicated. In such cases, just like Vogel already advised, the best approach is to minimize exposure. This same opinion was supported by Luz, who noted that the ownership of cryptocurrencies depends on who holds the keys to the wallet. He said;
Whosoever possesses the keys possesses the coins. Users should therefore be wary about leaving their funds on exchanges, wallets, and other platforms that are custodial.
As a Bitcoin and cryptocurrency user, ensure that you do not leave more than the amount that you are trading on an exchange per time. This is the best way to minimize the risk of losing your funds, peradventure the exchange gets hacked or disappears. This is the most appropriate risk avoiding measure for now until the situation in the industry improves.
All Hands on the Deck
To fight Bitcoin and cryptocurrency theft, Luz advised that every user should get on board. To do so, he suggested that users can assist with blacklisting funds that have been marked as stolen, and work with security agencies to fish out bad actors.
In a nutshell, in the cryptocurrency marketplace there are risks. It is an ecosystem that is based on the internet, with a lot of bad actors trying to steal other people’s money. The good thing here is that you as a user, to a large extent can determine the safety of your funds. Therefore, by following the simple steps mentioned above, users can preserve their funds, keeping them away from thieves and scammers.
Iyke Aru is a seasoned author and educator in the blockchain and cryptocurrency industry. He has been in the business of crypto content writing for many years with thousands of his articles across several platforms on the internet. Iyke is based in Nigeria where he stands out as one of the most informed and credible figures in the cryptocurrency industry. Outside blockchain and crypto, you will most likely catch Iyke playing or discussing football with friends and family.