Well, it happened again. Another hack was performed on-chain that has caused a number of users to lose significant amounts of liquidity, this time involving the Algorand blockchain. After months of difficulty in the web3 industry, it appears that these issues are still occurring no matter how much warning is given to users and begs the question - is cryptocurrency truly a viable product for investors and consumers alike?

The hot wallet hack

According to the MyAlgo Twitter account, a hack was executed during the final week of February that targeted a number of high-profile wallets on the Algorand which all contained significant amounts of liquidity. The tweets specified that the wallets affected were hot wallets with their private keys stored in the browser. 

Unfortunately, while we know what happened, no one appears to know how the hack occurred which is a major issue because developers are unsure about what security measures are needed to prevent this from happening again. 

Further, because the hacked wallets were all hot wallets with their private keys stored within the browsers, it’s difficult to determine whether this was an issue with the browser itself, the wallets in question, or the Algorand network. 

Enough is enough

As usual, MyAlgo gave the same generic advice that is given after every hack - use a cold wallet. However, this suggestion is not a cure-all method, doing little to solve the real problem. 

The suggestion to use a cold wallet, while normally the safest option, is just a blatant attempt by major networks to blame the victim instead of looking at the bigger issue - cryptocurrency is not safe enough for investors. 

When 2021 came around, cryptocurrency looked like a miracle to many who rushed into web3 hoping to find generational wealth through NFTs and altcoins that were exploding in value.  

Instead, newcomers were greeted with a cascade of scams, fraud, hacks, and fake value that caused many to lose all of their investments and dismiss cryptocurrencies as a terrible joke that only fools were willing to continue partaking in, which was compounded by massive failures in 2022. 

A Better Solution is Needed

Also, just because cold wallets offer better security doesn’t mean they are the best option, nor should they be considered the only safe option. Cold wallets require an upfront cost to purchase that many newcomers might not be willing to pay when first looking into buying cryptocurrency. 

Moreover, cold wallets are largely inconvenient compared to hot wallets and slow down the transaction process in many situations which can cause challenges in certain markets like NFTs where timing is incredibly important. 

In fact, the bigger question should be - why are cold wallets considered the only safe option in an industry that is touted as financially revolutionary? If cryptocurrency is expected to redefine wealth management and asset ownership, then there needs a stronger emphasis on security in every aspect of web3, not just the mindless belief that only cold wallets can assure one’s liquidity is safe.  

Even still, cold wallets also have their vulnerabilities. They are not 100% safe as they can still be physically stolen. To expand further, the private keys are not locked to a cold wallet either. If a bad actor is able to discover one’s private keys, that wallet can still be accessed from other computers. 

This belief that cold wallets are the only way to keep crypto safe is short-sided and needs to end because the frequency of hacks on the blockchain is reaching a point that is no longer tolerable in an environment that has already been destroyed by significant fraud and failures during 2022.