Coinbase, one of the world’s largest and most widely used cryptocurrency exchanges, has made a transfer of over USD 5 billion in cryptocurrency, an amount believed to be the largest in the industry’s history.
Reports indicate that 15 million Litecoin (LTC), 8.3 million Ether (ETH), and 870,000 Bitcoin (BTC) were transferred, eclipsing what was said to be the world’s previous largest transfer of BTC 500,000 in May 2015.
The reason for the transfer was a relatively simple one, with the exchange moving its funds in cold storage to an even more secure cold storage system.
Cold storage is reputedly the safest way of storing cryptocurrency today, particularly for major high-profile investors. Typically, smaller investors continue to store their funds in offline wallets or paper wallets with access to a public and private key. Safeguarding funds has become of paramount concern after major hacking events around the globe since cryptocurrency began to gain prominence as a challenge to fiat currencies.
Hackings have seen more than USD 2 billion either stolen or mislaid. Security is the main issue with hot wallet storage which is why exchanges such as Coinbase keep the majority of their funds in cold storage with a tiny percentage in hot wallets for instant withdrawal; the Coinbase cold to hot wallet ratio is 98:2.
Coinbase maintains that the latest fourth-generation protocol is achieved by starting from a random location with two brand new laptops that have had their Wifi card and storage drives removed to a shielded power supply. Then randomly, one of the two laptops generate the private keys and Linux is booted up on the chosen laptop via a USB drive.
The private keys are generated and divided into several fragments using Shamir’s secret sharing, a method of splitting private keys that enables the full keys to be reconstructed even if some of the parts are lost. The keys are then saved as QR codes, printed, securely faulted, and subsequently, the laptops used are destroyed. Finally, the key holders are geographically dispersed until their identities are verified during the key signing protocol.
Coinbase has recently suggested it is considering adding 300 different coins to its exchange, including Ripple, but has not indicated which coins as yet, encouraging speculation that the long-awaited Ripple addition is about to happen.
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