Crypto enthusiasts unite! You can almost hear a rebellion a foot in the crypto world of “Hodlers”, jargon for anyone holding cryptocurrency for the long term. These folks are tired of hearing of exchange compromises and do not want to take it anymore. To raise public awareness of the issue and to determine if specific exchanges are hiding undisclosed losses, a Bitcoin community group has proposed an ultimate type of stress test for exchanges.
Per one report: “A Bitcoin (BTC) community group is encouraging investors to temporarily remove all of their assets from any and all third party services – from centralized exchanges to custodial wallets. It’s the crypto equivalent of a run on the banks. Known as “Hodlers of Last Resort”, they have asked users to withdraw their cryptocurrencies on January 3rd, the tenth anniversary of Bitcoin’s Genesis block.”
From “Day One” in the crypto space, exchanges have evolved independently on thin margins. Many of these entities have not devoted the necessary resources to developing secure operating protocols to prevent professional hacking teams from penetrating their firewalls and stealing customer deposits. Regulatory oversight would have forced corrective actions to take place, but none of these companies are regulated. The result has been catastrophic attacks, where millions have disappeared from the ledgers of exchanges. The largest theft involved Mt. Gox, which had to declare bankruptcy after $473 million in Bitcoins vanished in 2014.
Over the last few years, wallet technology, independent of the primary exchange operating system, has provided one more level of encryption to protect the private “keys” of account holders. An accepted adage in this space is that. “If you do not control your keys, you do not control your coins.” Wallets at exchanges are called “Hot” because they have immediate access to the Internet and the blockchain.
An even safer route is to use a “Cold” wallet, a physical piece of hardware and software that will take your keys and coins offline, until the point when you wish to trade. You simply plug in the device in a standard USB port to become active. In other words, you have the utmost control of your keys. A compromise of a cold wallet can only happen under very rare conditions. A cottage industry has developed about this security method, where nearly a dozen firms compete for an estimated $95 million in annual revenue turnover. Hodlers of Last Resort want coin holders to employ cold wallets in January.
The movement has chosen to call their test “Proof of Keys”. According to Trace Mayer, host of the Bitcoin knowledge podcast and one of the main advocates for Proof of Keys: “The idea of Proof of Keys is to show to the [crypto] community that there is still control of our funds. Lots of new people have come into the community… I think it’s important for us to declare and re-declare our monetary sovereignty on a regular basis. These threats of monetary slavery are often wound around us and they’re too thin to be felt until they’re too strong to be broken.”
Private keys are a cryptographic technique, using a string of letters and numbers that can indicate ownership and authorize transactions. If crooks can access these keys, they literally can open the door to your coin deposits and wreak havoc. Exchanges have come a long way since the Mt. Gox compromise in 2014, but as one insider noted: “There’s no way of telling which exchanges are holding full reserves. If enough users withdraw their cryptocurrency, some exchanges may face severe liquidity issues.”