Cryptocurrency refers to an internet-based medium of exchange which uses strong cryptography to facilitate financial transactions and secure transaction records. These digital decentralized currencies only exist as computer code. The most popular cryptocurrency is Bitcoin, you’ve probably heard of it. In 2017, Bitcoin was all over the news because its value exploded from $1000 at the beginning of the year to $9000 by November and nearly $20,000 by December.
Even though the price of Bitcoin has dropped nearly 50 percent since December 2017, cryptocurrencies continue to generate a lot of excitement and curiosity among the public. Driven by the fear of missing out (FOMO), a lot of people are rushing to invest in cryptocurrencies. While cryptocurrency is very interesting as a concept, there are still some complicated technical issues to work out before it can become an everyday usable currency. One of them is security. We’ve already touched on a few security pitfalls last year in a 2019 guide to safeguarding cryptocurrencies, now let’s do a quick refresher.
How Safe are Cryptocurrencies?
Cryptocurrencies are built on an innovative technology known as blockchain. Blockchain is a decentralized, distributed record-keeping technology (ledger) that allows a record of every cryptocurrency transaction to be stored across a vast network of computers. Any changes to the ledger are being recorded in real-time hence completely transparent. That’s what ‘decentralized’ means. Decentralization has a lot of benefits, including speed and security.
Because of the complicated process the blockchain network uses to verify records, it is highly secure. Unlike banks, digital currencies don’t exist in a central server. A decentralized ledger resides on thousands of computers, there is no one point of attack. While crypto is a more secure way of transaction, it is not without risks. Here are 3 major risks of using cryptocurrencies.
Fraud
According to the FBI, cryptocurrency-related fraud schemes could gain unprecedented power due to anxiety and uncertainty caused by the Covid-19 pandemic. Fraudsters are posing as charitable organizations and pretending to collect money for people and communities affected by Covid-19. Others are selling non-existent treatments and drugs such as chloroquine to unaware consumers. Covid-19 related money laundering schemes and financial crimes are mostly being orchestrated via cryptocurrency.
Theft
Despite the complexity and decentralized nature of cryptocurrencies such as Bitcoin, digital coins can still be stolen. In the past, there have been hacks that have resulted in substantial losses. Hackers can break into digital currency exchanges, drain cryptocurrency wallets, and infect PCs with crypto stealing malware. Cybercriminals can also use methods such as phishing to target individuals, service handlers, and storage areas on the internet.
Lack of Regulation
One of the biggest selling points of cryptocurrency is that it’s not government-controlled. But when it comes to security, that’s also a major drawback. The very existence of cryptocurrencies is dependent on unregulated entities, most of which may lack the necessary internal controls and are more vulnerable to theft and fraud than regulated institutions have. This puts your digital assets at risk of third-party exposure.
Ways to Stay Protected
There are a lot of security vulnerabilities when you create a crypto account. Cybercriminals are increasingly targeting cryptocurrency wallets. Unlike data, hackers don’t need a broker to help them sell stolen cryptocurrencies since it’s already money. Some crypto investors have had their digital currencies stolen. Others seem to have just lost inexplicably. Here are a few tips to help you hold on to your cryptocurrency.
- Secure email service. Hackers often use phishing emails to target crypto investors and take control of their accounts. Using a secure email service with a strong set of anti-phishing protection is an effective way to protect your crypto wallet from cybercriminals.
- Use VPN. Hackers can use trackers to monitor your online activity, putting your cryptocurrency at risk of theft. Using a Virtual Private Network (VPN) is one of the best ways to prevent this kind of spying. What a VPN does is that it encrypts your web traffic and hides your IP address making your online presence invisible to other parties.
- Multisig wallet. Multi-signature is a wallet configuration that requires a group of users to authorize a transaction. Multisig wallets require at least 2 signatures to access funds stored in a crypto wallet. Multisig wallets help investors add an extra layer of security to the accounts.
- Offline storage. Nothing can be 100% safe on the internet. According to experts, you shouldn’t store your digital assets on an exchange like Coinbase especially if you have a significant amount. Transfer your digital coins and private keys to a hardware wallet such as Trezor and Ledger Nano S instead.
- Avoid Ponzi Schemes. When it comes to cryptocurrencies, you should be careful where you do business. Security experts claim that there have been a series of Ponzi Schemes targeting crypto investors. Stick to well-known exchanges such as Coinbase even with your buying and selling transactions.
Cryptocurrencies such as Bitcoin are powered by a decentralized, distributed record-keeping technology known as blockchain. The decentralized platform makes cryptocurrencies very secure, almost impossible to hack. While crypto is a relatively more secure way of transaction, it is not without risks. Threats such as theft and fraud are common. Use the above tips to protect your crypto wallet from cybercriminals.
