The rate by which bitcoin has been surging in popularity, has spurred further advancements in other crypto-supported economies, including bitcoin gambling. However, while the use of bitcoin is deemed as a secure method of shielding one’s assets and related financial transactions in moving such assets, this is not always the case; especially when cryptocurrency transactions are coursed through Internet networks. .
Recent News that Revealed the Vulnerability of Crypto Assets in Internet Networks
Recently, the US Department of Treasury penalized cryptocurrency wallet provider Bitgo, for processing cryptocurrency transactions involving digital assets maintained in locations sanctioned by the U.S. governments. The Treasury Department’s Office of Foreigh Asses Control (OFAC) were able to track 183 cryptocurrency transactions that Bitgo processed for cryptocurrency assets of individuals located in Syria, Sudan, Crimea, Cuba and Iran using Bitgo’s non-custodial digital wallet services.
While the transactions, which transpired between March 10, 2015, and December 11, 2019 totaled only $9,127.79, Bitgo was constrained to pay $98,830 as settlement for non-compliance with multiple sanction programs of the U.S. government. Bitgo initially contended that they had no way of knowing that said 183 transactions came from cryptocurrency assets maintained in the sanctioned regions
The OFAC disputed Bitgo’s claim, saying that the digital wallet provider had every means of determining the locations of the 183 transactions. The Internet Protocol (IP) addresses linked to the devices used by the Bitgo customers who logged in to their hot wallet accounts, were traceable as coming from the sanctioned jurisdictions. .
The mention of hot wallet accounts raised questions among numerous cryptocurrency owners, as the OFAC’s statement revealed that their digital assets are still vulnerable to scrutiny by government regulators.
What is a Hot Wallet Account
Basically, cryptocurrency assets kept in a hot wallet account is advantageous because it allows the crypto money owners to make payment for transactions via the Internet. Examples of such as payments are for online purchases, or in some cases, in placing deposits at licensed Bitcoin Casinos operating in another country.
The drawback to the hot wallet system is that the accounts and its transactions are visible in the Internet. Even if transactions are encrypted, the security keys and codes are also stored in online servers. That being the case, many prefer to use cold wallets, in order to prevent their digital currency accounts from becoming subjects of regulatory scrutiny and mainly to keep their cold wallet assets protected against hackers. .
What is a Cold Wallet?
Cold wallets are asset storage solutions that do not require the use of Internet networks, as they are supported by proprietary software or application that uses private keys and codes accessible only to the user of a cold wallet device.
The main drawback of a cold wallet storage is that it is costly, while hot wallets can be used and acquired as part of the services offered by digital wallet providers.