Tokyo-based Coincheck exchange lost US$533m worth of virtual currencies on Tuesday, making it the largest cyber heists ever recorded. Citing the incident as a proof that cryptocurrencies are volatile by nature, an expert says investors and organizations should be prudent when tapping on opportunities in cryptocurrency.
According to Rick McElroy, security strategist at Carbon Black, the history of exchanges and hosting sites absconding with cryptocurrency entices cybercriminals. Add to that the rising popularity and the ballooning number of investors in cryptocurrencies.
"The history of exchanges and hosting sites absconding with cryptocurrency combined with the number of 'new consumers' jumping into the market presents a huge target for cybercriminals," says McElroy in a statement to IBTimes Singapore, noting that "people should take precautions when protecting and using cryptocurrency".
"If you think of cryptocurrency as a commodity, such as gold, you wouldn't just leave it in the hands of a fly-by-night vendor, but rather one that has strong physical security controls over it."
Unlike the physical money, virtual currencies cannot be kept hidden securely in a bank or a deposit box. Thus, he reminds all players in the field to invest time in implementing a proper cybersecurity strategy.
In contrast to electronic data, losing cryptocurrencies like bitcoin, ethereum, ripple, and litecoin has significant financial implications.
"At worst, losing photos is an inconvenience and embarrassment but in the case of cryptocurrency, a loss could financially eliminate you or your organization," adds McElroy.
How to protect digital currencies
He caps off his warnings to treat cryptocurrencies like none other things in the digital world.
"The golden rule is: When it comes to cryptocurrencies, trust no one. Leaving your cryptocurrency in a hot wallet that is online and connected to the internet, increases your vulnerabilities and almost ensures a loss when hacked."
To protect digital currencies, McElroy says people can do better with a cold wallet, such as storing them in a USB stick, with at least one backup.
"The power is in the hands of consumers to take the necessary steps to protect individual currencies."
As for Coincheck's case, Japan's Financial Services Agency has already taken immediate action to inspect all cryptocurrency exchanges. Coincheck itself vowed to reimburse customers for 80 percent of the stolen digital coins.