Earlier this month, the U.S. Department of Justice (DOJ) recovered $3.6 billion of Bitcoin (BTC 0.72%) stolen in a 2016 hack of a Hong Kong-based cryptocurrency exchange. Two people were charged in what the DOJ says was the largest financial seizure in its history. In this episode of "The Crypto Show" on Motley Fool Live, recorded on Feb. 9, Fool.com contributors Jon Quast, Chris MacDonald, and Travis Hoium discuss the case and ways you can store your crypto to keep it safe from hackers.
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Jon Quast: Did you guys see this yesterday? Department of Justice recovering 3.6 billion in Bitcoin. About 220,000 Bitcoins, by my math, were hacked in 2016 from Bitfinex, a cryptocurrency exchange. Apparently, the Department of Justice has not given up the search for these over these past five years, and yesterday, able to actually bring to justice the two people accuse of stealing these Bitcoins. It's the largest financial seizure in history, they're saying.
Chris MacDonald: My Twitter feed was blowing up yesterday with videos of the lady [laughs] involved and the gentleman as well there. It is pretty funny looking at it from just at a high level, that these two folks were able to do this. But I know we're going to talk a little bit about rug pulls later and I don't want to step on Travis's toes with that. There's a lot of risk in the crypto world. With Bitcoin, one of the things that's interesting about this is that when you put your keys out there, basically anyone, especially when the FBI goes looking for your stuff, it's not as anonymous as people think it is. That's one thing we've touched on previous shows, but this is certainly an interesting recovery and the story behind it is fantastic.
Quast: Go ahead.
Travis Hoium: No, it goes to show, too, that when things are on the blockchain, it may take time, but it's far easier to track money in the blockchain than it is in any other medium. As we've seen, some of these hacks happen even over the last year, I wouldn't be surprised if a few years from now we see similar arrests as investigators figure out how to track people.
Quast: Yeah, very good point there. Chris, I was wondering if you could just go back and circle back to something that you just said, you talked about keys. When you think about keeping your Bitcoin safe, what are the two main things that you need to have?
MacDonald: There are hard wallets and soft wallets. There's different methodologies for how people can store their crypto. Personally, I do it via Coinbase, so that's their custodian. Essentially, I leave my crypto with them. There's a saying in crypto that if it's not your key, it's not your crypto. So when you have a custodian, how those keys are stored are a little bit different. When you have your own wallet, you have a private key in addition to the public key. The public key is your wallet address, generally speaking, and your private key is what you use to access the Bitcoin. In this case, I think they had stored their private key on the cloud and so it was discoverable. Otherwise, generally speaking, there are other ways that you can secure your crypto if you're holding it in a hard wallet there. I know, Travis, you brought your, I think it was, ledger. You can have your crypto storage essentially on a USB stick, and there are other ways of securing it further in terms of your keys. Personally, I just own it on Coinbase. I don't have a ledger, but I've seen them and I'm interested in it just to, maybe I'll put some on an actual hard wallet to see how it works. But, Travis, you can probably speak more to that, I know you're more of the expert.
Hoium: Yeah, I actually just got my ledger last week and put some of my stuff on it over the weekend. It's also called cold storage. Hot and cold storage is another terminology, so if you have like an Ethereum, if you use MetaMask and you're using a browser, that would be your hot wallet, where you can just go and buy things fairly easily. Then cold storage, this is my keys are sitting. They never actually leave the ledger, the USB drive, if you will. They're safe there and you have to keep track of them. Look, if you ever lose your ledger, you can still get your stuff if you have, in this case, it's 24 keywords for a ledger wallet, so it's just another level of security. But again, you're putting the security on yourselves rather than on a bank or an institution. I think, long term, the idea of [laughs] having a safe or whatever in your home with potentially hundreds of thousands of dollars of cryptocurrency is probably not where we're headed, but that's where we are right now, so we'll see. And I think you're right, Chris. A really good way to do it is just to have Coinbase handle that for you and have them be custodian. But there are other options if you don't want to do that.