Cryptocurrencies aren’t called “crypto” for nothing.
A large part of the attraction of bitcoin, ethereum and other digital currencies for investors is that the blockchain transactions through which they function are anonymous and decentralized.
But from a security standpoint, that leaves participants in the crypto market vulnerable.
Once a bitcoin is stolen from your “wallet” — or an entire exchange suffers a similar hack — it is already too late, so kiss it goodbye.
Investor concern about this vulnerability spiked last week, with bitcoin again descending below the $9,000 level following rumors that crypto-exchange Binance had been hacked.
If confirmed, that hack would be the latest in a recent string of incidents that saw more than $30,000 stolen from one investor’s hardware wallet — wiping out his life savings — and digital platform Coincheck reporting $530 million stolen, according to BitIRA.
Paul Brody, global innovation blockchain leader at Ernst & Young, said he looked at 372 initial coin offerings from 2015 through 2017 and concluded that about 10 percent of the proceeds may have been stolen.
“The nature of bitcoin and ethereum is that there is no central authority you can appeal to in the event of theft or fraud,” he said. “Nobody can step in to reverse transactions.”
“That’s just scratching the surface,” said BitIRA currency specialist Jay Blaskey, who points out that hacks of cyptocurrency are underreported largely because so many of the wounded parties are flying under the radar.
His company has just started to offer Lloyd’s of London insurance policies that protect BitIRA holders against up to $1 million of theft, which the Burbank, Calif.-based firm has been able to secure by maintaining client holdings in a separate facility under armed guard, unplugged from the internet.
It costs $400 per year to insure a wallet valued at $50,000 or less. Transactions also take an extra business day to clear due to the security setup.
“Of course there’s market risk, but if you bought bitcoin at the beginning of last year you are still way ahead, and it’s up to our clients to determine the appropriate level of risk,” Blaskey argued.
“Our product can help our clients move into the best performing asset class of 2017.”
John Marchesini, a 39-year-old living in Santa Monica, Calif., said he first opened an IRA soon after graduating from college.
Last year, he noticed that about 10 percent of his IRA was sitting in cash, so he moved the money into an IRA allowing bitcoin as an investment.
He said he now pays 15 percent on incoming transactions into his BitIRA, where he holds both bitcoin and ethereum.
Marchesini, co-founder of Blockchain Beach, a media website providing cryptocurrency content, said he has an investment portfolio both in and out of retirement accounts, including stocks and cryptos, and said he doesn’t mind paying the premium for “peace of mind” on his BitIRA.
“Actually, I still have a number of transactions I can make on the account this year without paying extra, and it’s possible I might use these to sell off on the next runup,” he said.