Basics of Crypto Safety

Almost as important as choosing the right vehicle for your crypto adventure, is being aware of the various risks and threats associated with the journey. Nothing could be worse than watching your digital fortune slip through your fingers because of an avoidable catastrophe. Let’s take a look at the common problems facing our community:

Exchange Drama: Lessons from FTX and Beyond

Exchanges can be convenient and are a necessary part of the cryptocurrency ecosystem, but they come with serious risks. The FTX collapse is a cautionary tale:

FTX, once one of the largest and most reputable cryptocurrency exchanges, collapsed in late 2022 in a stunning financial scandal that shook the crypto world. Founded by Sam Bankman-Fried (SBF), FTX gained massive popularity for its user-friendly interface and extensive trading options, quickly becoming a go-to platform for millions of users worldwide.

The collapse began when reports surfaced about questionable financial practices involving FTX and its sister company, Alameda Research. It was revealed that FTX had allegedly used customer funds to cover Alameda's trading losses, a practice that violates basic financial ethics. A leaked balance sheet showed a massive hole in FTX's finances, sparking a liquidity crisis.

As panic spread, users rushed to withdraw their funds, overwhelming FTX's reserves and forcing the exchange to suspend withdrawals. In November 2022, FTX filed for bankruptcy, leaving billions of dollars in customer assets unaccounted for.

The fallout was severe: Investors, including high-profile figures like Tom Brady and Kevin O’Leary, suffered significant losses. Sam Bankman-Fried was arrested and is facing charges of fraud, conspiracy, and money laundering.

The scandal highlighted the risks of centralized exchanges and the importance of transparency and accountability in crypto. While recovery efforts continue, many users have yet to see their funds returned, and FTX’s collapse remains a cautionary tale for the crypto industry.

Exchanges are frequent targets for hacks, resulting in stolen funds. Take the potential example of Mt. Gox: 

Mt. Gox, once the world’s largest Bitcoin exchange, was at the center of one of the most infamous events in cryptocurrency history. Founded in 2010, Mt. Gox handled over 70% of Bitcoin transactions worldwide at its peak. However, it collapsed in 2014 amid allegations of hacking, fraud, and gross mismanagement.

The trouble began when Mt. Gox reported the theft of 850,000 Bitcoins (worth over $450 million at the time and billions today). The exchange claimed the funds were stolen through a years-long hack exploiting vulnerabilities in its system. Critics, however, argued that the loss stemmed from internal mismanagement and possible foul play by insiders, as Mt. Gox’s security practices were notoriously lax.

As the story unfolded, it became clear that Mt. Gox had been insolvent for years, hiding its losses while continuing to operate. In February 2014, the exchange froze withdrawals, filed for bankruptcy, and left users without access to their funds.

The collapse devastated early adopters and eroded trust in cryptocurrency exchanges. While some stolen Bitcoin was later recovered, most users received only a fraction of their original holdings after years of legal battles.

Another issue is KYC (Know Your Customer) compliance. Exchanges often require you to share personal information, and if they flag "suspicious activity," they can freeze your account, leaving you powerless. This was one of the many original benefits of decentralized currency, where you get to act as your own bank and control your own funds, without worry of someone like PayPal or a bank locking your account and preventing access to your money.

If you trust someone else to hold your crypto, they control your funds. Keeping your assets on a Cold Storage Coin gives you complete control and removes this risk entirely.

Man-in-the-Middle Attacks: Beware of Intercepted Transactions

A man-in-the-middle attack occurs when someone intercepts your transaction, tricking you into sending your crypto to their wallet instead of the intended address. Here’s how to detect and avoid this:

• Always double-check wallet addresses before sending. A single typo could send your funds to the wrong place, often irreversibly.

• When copying and pasting wallet addresses, verify the pasted address matches the original. Some malware can secretly replace the copied address with the attacker’s.

• Use QR codes where possible, as they reduce the chances of manual errors.

Spoofing and Phishing: Stay Skeptical

Phishing scams are rampant in the crypto space. Here’s how they work:

You receive an email, text, or message claiming to be from a trusted source (like us), asking you to send TXC or share your private keys. The scammer often creates a sense of urgency, like claiming your funds are at risk unless you act quickly. Here are a few key tips:

• We’ll never ask you to send TXC or share your private keys or seed phrase.

• Be skeptical of unsolicited requests, especially if they involve sensitive information.

• Look for typos, generic greetings, or suspicious email addresses—common indicators of phishing.

• Other common scams include fake websites, impersonation on social media, and “investment opportunities” promising unrealistic returns. Even if someone you know asks you to help them out or send them something, it’s possible their account may have been hacked and you’re actually talking to someone completely different.

User Error

While hackers and scammers are real threats, the most common issue in crypto is user error.

Losing your password or recovery key can result in permanent loss of your funds. Writing it down on paper helps, but losing that paper defeats the purpose. We recommend a secure password manager like LastPass to safely store your credentials. Be sure to test your recovery process periodically to ensure you can access your wallet if needed.

One of the most infamous examples of user error in cryptocurrency history is the story of James Howells, a British IT worker who accidentally discarded a hard drive containing 7,500 Bitcoins in 2013. At the time, Bitcoin was still relatively obscure, and those coins were worth a few hundred thousand dollars. Today, they’re valued at hundreds of millions of dollars.

Howells was an early Bitcoin miner who began mining in 2009. By 2013, he had stopped mining and stored his Bitcoin wallet on an old laptop hard drive. During a routine cleanup, Howells mistakenly threw the drive away, not realizing its value.

The hard drive ended up in a landfill in Newport, Wales. By the time Howells realized his mistake, it was too late—the landfill covered an area the size of several football fields, with the hard drive buried under thousands of tons of garbage.

Howells has spent years lobbying the local council for permission to excavate the landfill, offering millions of dollars in rewards to anyone who helps recover the drive. Despite his persistence, the council has denied his requests, citing environmental and logistical concerns.

Howells’ story highlights the importance of securely storing private keys and wallet backups. Unlike traditional banking, where a lost password can often be reset, cryptocurrency operates on a self-custody model. If you lose access to your wallet, your funds are gone forever.

If you’re not actively trading, keeping your TXC on a Cold Storage Coin is the safest option. Cold Storage Coins require no passwords, private keys, or recovery phrases—just keep them physically secure, and your funds are safe. The coins are designed to be redeemed ONCE - they’re inexpensive enough so that you can get a new one if you choose to unload and start again!

When you’re ready to trade or spend, we recommend leaving your cold storage coin untouched. Instead, modify your mine output to your phone’s TXC Wallet. This keeps your long-term holdings safe while giving you access to new funds for trading.

By understanding and preparing for these risks, you can enjoy the benefits of cryptocurrency while keeping your hard-earned assets safe. Crypto can feel like the Wild West at times, but with the right precautions, you’ll always have the upper hand. Stay vigilant, stay secure, and happy mining!