Cryptocurrency Price Plummet Reminds Us Third-Party Exchange Services Aren’t Secure

This week there was a sharp drop in the price of Bitcoin and other cryptocurrencies after Coinrail, the South Korean cryptocurrency exchange, was hacked.

Yuzhe (Richard) Tang is an assistant professor at Syracuse University’s College of Engineering and Computer Science.

Tang says:

“The CoinRail incidents and many earlier exchange service hacks (e.g. NiceHash, etc) are a reminder that the practice to delegate token storage to third-party exchange services is not secure. For safety, it is suggested that coin owners should keep their tokens in local and safer wallets, such as hardware wallet.

“What happens in the CoinRail incident is that coin owners delegate the storage of their tokens to the third-party CoinRail exchange services, and the services get hacked to disclose owners’ tokens. An attacker obtaining the tokens can effectively spend the coins, ‘signed’ by the token.

“In cryptocurrency, someone owns a coin because she has a secret token bound to the coin. This is like whoever has the door key to a house is thought to be the owner of the house. In cryptography terminology, these tokens are secret key in a public-key pair. The coin token should be placed in a safe place, just like the house owner should keep her key safe and sound.”

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