Cryptoverse: Hacking Concerns Push Bitcoin Investors Back to the Future

Cryptoverse: Hacking Concerns Push Bitcoin Investors Back to the Future

Oct 11 (Reuters) – It’s not easy being an investor in cryptocurrency.

They’ve seen the value of their holdings drop like a brick this year, and now many are fumbling about the security of their cryptocurrency after a series of hackers saw nearly $2 billion in theft.

Enter the specter of the technological past.

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Hardware wallets – old-school physical devices akin to USB drives that cache crypto-holds offline – may seem like a throwback to a more innocent digital age, but they’re proving to be a popular response to the latest mysteries.

The global hardware wallet market, valued at $245 million in 2021, is expected to swell to more than $1.7 billion by 2030, according to market research firm Straits Research.

It is fueled by a steady stream of online burglaries which, according to researcher Chainalysis, saw thieves steal $1.9 billion in cryptocurrency in the first seven months of the year, a 60% increase from the previous year. Much of this was stolen directly from “hot” blockchains or internet wallets.

It’s not just hacks that make investors nervous. Others lost access to their cryptocurrency when major lenders such as Celsius Network and Voyager Digital collapsed in July.

“We’ve certainly seen an increased interest in hardware wallets, and in self-trust in general, after several issues,” said Adam Lowe, chief product and innovation officer at US-based CompoSecure. (CMPO.O)one of the many hardware wallet makers seeking to capitalize on the rush for safety.

“The day or the day after those events, we will see a significant increase (in sales).”

There’s no such thing as a free crypto lunch, though: while hot wallets are convenient and allow for fast trading, hardware wallets are usually not appealing to first-time investors, who often buy cryptocurrencies on large exchanges and may choose to hold their assets on those platforms, Where they can simply log in with a username and password.

Reuters graphics

blowing hot and cold

Although hot wallets are usually free and provide quick access to encryption, they can be vulnerable to hacking. In August, nearly 8,000 crypto wallets on the Solana blockchain were hit by hackers who stole more than $5 million in cryptocurrency.

“We strongly encourage users to use hardware wallets,” Solana said at the time.

France’s Ledger, another hardware wallet maker, said it saw a spike in sales after Solana’s wallets were stolen.

“We are seeing a significant increase in user-based interest in some of these market stress situations,” said Alex Zehnder, global head of Ledger Enterprise.

Most hardware wallets connect to a mobile application, where the owners of the digital keys needed to access their crypto keys can control their funds. Some use Secure Enclave technology, a security feature used to store sensitive data.

Josef Tětek, a Bitcoin analyst at Czech-based hardware wallet company Trezor, says he expects better phone interaction with cold storage wallets in the future, to serve investors in places like South America and Africa, where it is more common for users to own mobile phones than personal computers.

However, companies in this bloated market may be advised to make hay while the sun is shining.

One of the long-term questions is whether phone makers will want to get in on the action, said Stan Miroshnik, co-founder and partner at 10T Holdings, who led the $380 million Series C funding round last year.

“I think one question related to the industry and where it is going and in part what will drive consumer adoption, is what if every iPhone had a Secure Enclave hardware wallet built in?”

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(Reporting by Hannah Lang in Washington.) Editing by Tom Wilson and Praveen Shar

Our criteria: Thomson Reuters Trust Principles.

The opinions expressed are those of the author. They do not reflect the views of Reuters News, which is committed under the Trust Principles to impartiality, independence, and freedom from bias.

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