According to security-focused researcher Kim In-soon at South Korea’s ETNews, the demand for bitcoin hardware wallets is increasing rapidly in South Korea, as users have started to avoid local cryptocurrency exchanges to store their funds.
Exchanges Are Not Secure
Over the past two years, even the largest cryptocurrency trading platforms in South Korea including Bithumb have suffered several data breaches and hacking attacks. In other regions like the US and Europe, only a handful of exchanges have not experienced major hacks to date.
Centralized cryptocurrency exchanges and wallet platforms are vulnerable to hacking attacks and many kinds of cyber attack methods because of their reliance on a single point of failure. Since cryptocurrency exchanges are managed by a group of administrators or a company, their servers, databases, and infrastructures are all managed centrally.
The centralization of various components of trading platforms provide an opportunity for hackers to break into the system and potentially steal user data, sensitive financial information, and in the worst scenario, reallocate user funds.
An easy alternative to cryptocurrency exchanges is non-custodial cryptocurrency wallet that allows users to remain in full control of their funds. Non-custodial wallets do not store or protect private keys and back up codes on behalf of users. Users are provided with their private keys and 12-word passphrases that can be utilized to backup or recover their funds, in case users cannot access their accounts of the platform is compromised by hackers.
Web-based wallets can be a target of DDoS attacks or server outages, that may significantly slow down the process of checking balance, withdrawing funds, and sending transactions. Last year, in November 2017, Blockchain, the second most widely utilized cryptocurrency wallet behind Coinbase, experienced a server outage that briefly disabled customers from viewing their balance on the wallet.
We are experiencing an outage of our internal database. Your funds are safe. We’ve identified the issue and are working on a resolution. Stay updated at https://t.co/LS19nVQs3M
— Blockchain (@blockchain) November 20, 2017
Non-custodial wallets like Blockchain do not store or manage user funds and private keys but provide full access to funds to their users. But, because of their reliance on centralized servers, occasionally, server outages could cause inconveniences.
Due to the limitations and weaknesses of centralized wallets and cryptocurrency exchanges, many users in South Korea have started to prefer hardware wallets and cold wallets over centralized hot wallets.
Over the past year, at least three major cryptocurrency hardware wallets targeting the local market have launched, including Penta Cryptowallet, KeyPair, and TouchxWallet. In acknowledgement of the rising demand for hardware wallets, Ledger, the largest cryptocurrency hardware wallet manufacturer based in France, has decided to enter the South Korean market.
In a highly volatile and rapidly growing market in cryptocurrency, the shift in trend from easy-to-use centralized wallets to secure hardware wallets can be considered as an optimistic indicator, as it demonstrates the willingness of users to develop awareness of security.