Data: How secure are cryptocurrency wallets?
March 7, 2018 11:24 AM
With the massive influx of cryptocurrency prospectors aiming to get rich quick, there has been no shortage of companies providing the requisite tools of the trade — cryptocurrency exchanges and wallets.
Additionally, as both the volume and value of digital currencies increase, so will inevitable attempts to commit fraud and theft. In this nascent stage, what is protecting cryptocurrency buyers and sellers?
Additionally, as both the volume and value of digital currencies increase, so will inevitable attempts to commit fraud and theft. In this nascent stage, what is protecting cryptocurrency buyers and sellers?
In a 2017 survey conducted by Cambridge University in the U.K., by far the most widely supported cryptocurrency was Bitcoin, with 98% of exchanges, wallets and payment companies supporting the currency. Far behind was Ether (33%), Litecoin (26%) and Ripple (12%), reflecting the longevity of Bitcoin as well as its soaring popularity as prices skyrocketed in late 2017.
Other cryptocurrencies, however, became more popular as buyers attempted to catch (and cash in on) the next “big thing” in crypto.
Other cryptocurrencies, however, became more popular as buyers attempted to catch (and cash in on) the next “big thing” in crypto.
While Bitcoin is still the most popular of cryptocurrencies, it has ceded share considerably over the past three years, mostly to Ether.
In 2015, Bitcoin had an 86% share of market cap value for cryptocurrencies. In 2017, this had dropped to 72%. Correspondingly, Ether increased its market cap share from less than 1% in 2015 to 16% in 2017.
Much of this growth comes not just from crypto traders hedging their investments across multiple currencies, but the significant growth in ICO activity between 2015 and 2017.
According to Coindesk, there were three ICOs in October 2016 which cumulatively raised $13.4 million. In September 2017, there were 35 ICOs that raised a total of $534 million. The majority of these ICO sales were based on Ether.
In 2015, Bitcoin had an 86% share of market cap value for cryptocurrencies. In 2017, this had dropped to 72%. Correspondingly, Ether increased its market cap share from less than 1% in 2015 to 16% in 2017.
Much of this growth comes not just from crypto traders hedging their investments across multiple currencies, but the significant growth in ICO activity between 2015 and 2017.
According to Coindesk, there were three ICOs in October 2016 which cumulatively raised $13.4 million. In September 2017, there were 35 ICOs that raised a total of $534 million. The majority of these ICO sales were based on Ether.
Reflecting the growing demand for cryptocurrencies, there has been a steep demand for cryptocurrency wallets, which have increased to 8.7 million in 2017 from 1.6 million in 2013.
There are two important things to note — first, the Cambridge University study does not reflect the entire year for 2017, so the total could be significantly higher. Second, given the number of wallet vendors in existence and a lack of coherent reporting of usage metrics, the total for 2017 wallets could be as high as 11.5 million at the time of publication.
There are two important things to note — first, the Cambridge University study does not reflect the entire year for 2017, so the total could be significantly higher. Second, given the number of wallet vendors in existence and a lack of coherent reporting of usage metrics, the total for 2017 wallets could be as high as 11.5 million at the time of publication.
The Cambridge University study also included some qualitative data on the perceptions of threats to digital exchanges and wallets from 150 companies in the field.
When asked to rate on a one-to-five scale (five being highest) what the most significant threats were to crypto wallets and exchanges, IT security and hacking came out on top, with an average score of 3.7.
Other responses reflect the friction between incumbent FIs and cryptocurrency players, as well as shifting sands on regulation, AML / KYC and reputational risk. Deteriorating bank relationships scored 3.5 — one of the highest areas of risk for cryptocurrency exchanges and wallets.
That said, confidence was high regarding talent and demand for their offerings — insufficient demand scored 2.6 and lack of talent scored 2.5.
When asked to rate on a one-to-five scale (five being highest) what the most significant threats were to crypto wallets and exchanges, IT security and hacking came out on top, with an average score of 3.7.
Other responses reflect the friction between incumbent FIs and cryptocurrency players, as well as shifting sands on regulation, AML / KYC and reputational risk. Deteriorating bank relationships scored 3.5 — one of the highest areas of risk for cryptocurrency exchanges and wallets.
That said, confidence was high regarding talent and demand for their offerings — insufficient demand scored 2.6 and lack of talent scored 2.5.
There are significant differences in the types of authentication available between mobile and desktop / browser based wallets, reflecting the divergent paths of these technologies and the evolution of more robust forms of authentication such as biometrics and one-time passwords.
Fingerprint and user-defined PINs were the most frequently used by mobile wallets for authentication, while desktop solutions rely heavily on username / password and one-time password apps.
“Wallets with online platforms have largely moved past one-time passwords delivered by SMS and typically offer support for standalone code-generator apps,” says Kyle Marchini, senior analyst at Javelin Strategy and Research. “Beyond support for touch ID and user-defined PINs, mobile-oriented wallets offer a more limited set of authentication features, which partly arises from these wallets being cryptographically tethered to a single device.”
Fingerprint and user-defined PINs were the most frequently used by mobile wallets for authentication, while desktop solutions rely heavily on username / password and one-time password apps.
“Wallets with online platforms have largely moved past one-time passwords delivered by SMS and typically offer support for standalone code-generator apps,” says Kyle Marchini, senior analyst at Javelin Strategy and Research. “Beyond support for touch ID and user-defined PINs, mobile-oriented wallets offer a more limited set of authentication features, which partly arises from these wallets being cryptographically tethered to a single device.”
