Earlier this month, news broke that New Zealand-based Cryptopia exchange had been subject to a security breach. We at Digitex are truly sorry to hear this, particularly for those Cryptopia users who are unable to access their accounts. However, we also believe there are some important takeaways from this incident. Here, we take a look at recent developments, and how using non-custodial services can help crypto users avoid falling victim to theft.
What Happened at Cryptopia?
At the time of writing, the details of what actually occurred are still unclear. However, we do know that the Cryptopia site was down from January 13, with the team issuing a tweet citing “unscheduled maintenance” as the reason.
Two days and several similar tweets later, the Cryptopia account tweeted the below statement:
— Cryptopia Exchange (@Cryptopia_NZ) January 15, 2019
Since January 16, the matter has been in the hands of the New Zealand Police, who have issued a press release stating that the investigation is underway.
So far, this summarizes all the official news covering what happened. Sources seem unable to agree on a value of the losses, with some reports estimating as much as $16 million.
Eagle-eyed observers have been watching wallet movements and reported that some of the Cryptopia funds were moved into a Binance account. Binance CEO CZ was quick to freeze the funds.
Exchange Hacks – Uncomfortably Commonplace
Unfortunately, Cryptopia is far from alone. Intelligence firm CipherTrace reports that $927 million worth of cryptocurrency was stolen in the first three quarters of 2018. Bithumb lost $31 million, while earlier in the year the management at Japanese exchange Coincheck suffered a theft of NEM tokens worth around $500 million at the time.
These kinds of attacks are obviously terrible news for the people who’ve been holding funds on the hacked exchange. Many of them suffer unrecoverable losses, as the exchanges are often uninsured and unable to refund customers. However, it’s also bad news for the rest of the crypto community holding the tokens that were the subject of the attack.
If someone steals a large volume of any given token, they can become a whale for that token. As explained in our article about why whales are dangerous within the crypto community, if they liquidate all their funds in one go, the price of the token could tank as a result. This is essentially what happened with the Mt. Gox exchange attack in 2014, which occurred at a time of lower liquidity for Bitcoin.
The Case for Non-Custodial Accounts
At Digitex, we firmly believe that the future of cryptocurrency exchanges is not centralized. The Cryptopia case proves yet again that centralized exchanges are vulnerable.
Some are speculating that the attack may be a ruse, and an exit scam is at play instead. While this is only pure speculation, it doesn’t matter whether the funds have been stolen by an external attacker or as a result of an internal scam. The point is that storing funds on a centralized exchange means your crypto holdings are not in your control.
This risk is why one of our most critical milestones for this year is the implementation of the Plasma protocol to the Digitex platform. Using the Plasma protocol will mean our users benefit from the trust and security of non-custodial accounts.
Once the implementation is complete, all funds deposited with Digitex Futures will be locked up in a smart contract which communicates with a Plasma side chain. The smart contract can never be tampered with, switched off or edited in any way for as long as the Ethereum blockchain is in existence.
Unlike a centralized exchange, nobody at Digitex will have access to your private keys so your funds can never be withheld by us. Even if a hacker ever managed to infiltrate the Digitex systems, there are no funds there for them to steal.
Using a Plasma side chain also provides the benefit of lightning-fast trades, operating at 1500 times faster than the Ethereum blockchain itself.
Keeping Your Crypto Safe
Because the Plasma implementation is scheduled for Q3 of this year, in the meantime, we urge all our users to make sure they have adequate measures in place to protect their DGTX and other digital assets.
One way to do this is by using a secure wallet service. Not just any wallet services – many wallets are also dependent on a centralized entity. Yes, they get hacked too, as in the case of the blockchain.info user who had 9 BTC stolen from his wallet.
We recently announced our partnership with Atomic Wallet, the first non-custodial wallet. It uses a mnemonic seed to keep your cryptocurrencies, including DGTX, secure on your device. It also has a slick and easy to use interface, making it a standout choice for storing your DGTX tokens.
Otherwise, a hardware wallet that supports Ethereum tokens is also a great option, provided you keep your access keys safe and keep your devices free for viruses and malware.
We are working hard this year on the full Digitex Futures exchange launch in Q2, soon to be followed by the Plasma protocol in Q3. You can check out all our updates and news by joining our community on Telegram or following us on Twitter.