What You Need to Know When It Comes to Cryptocurrencies and Cybersecurity
The main allure of bitcoin and similar cryptocurrencies is a decentralized system, where no single entity or party has control over the currency and related interactions. This means that unlike fiat currencies, when you have cryptocurrencies stored away in what’s referred to as a wallet, only you have access to those funds.
To keep things secure, every wallet is given a key or seed, which can be used for access. Generally, this includes anywhere from 12 to 24 randomized words that can be entered collectively. If you lose your recovery seed, however, you are out of luck should you ever lose access to your wallet.
That highlights one of the biggest risks when dealing with cryptocurrencies. No matter how much funds you have stored in your wallet, it’s incredibly easy to lose access and as a result, lose all your accrued money.
Furthermore, the recovery seed — if not stored properly and securely on its own — can be used to gain access to your wallet and drain funds. Many recommend storing your recovery seed locally, on an offline backup device away from open connections. There are also online services that will help you securely store this information.
Another concern, especially lately, is that as the value of cryptocurrencies like bitcoin rise, they become more lucrative targets for the unscrupulous. In 2017 alone, the total value of cryptocurrencies or digital currency increased by 2,700 percent.
That growth has also sparked an increase in risk, specifically when it comes to hackers and cyberthieves.
The $530 Million Cyber Heist
On Jan. 26, 2018, a Tokyo-based company called Coincheck announced someone had gained access to its digital wallet and stolen $520 million units of a digital currency called XEM. This affected over 260,000 customers that had entrusted the provider with their funds.
Coincheck, if you’re not aware, is an online exchange service that allows you to buy and sell various cryptocurrencies online.
There is speculation that North Korea was behind the massive theft. It’s not an unwarranted claim, especially since the country is no stranger to crypto-theft, but it does reveal the intrusive vulnerabilities of investing in crypto.
After acquiring cryptocurrencies, you must often exchange them for fiat currencies if you want to purchase goods and services or even store them using traditional means. Unfortunately, this also means you must go through a handful of third-party exchange services and markets, much like Coincheck. One of the ways to protect yourself when making an exchange is to deposit the funds, make your exchange and then withdraw them as soon as possible. Some providers allow you to store funds in your account, which makes them more susceptible to hackers.
The Coincheck heist is currently the biggest cryptocurrency theft to have ever happened, but it’s not the only high-profile attack that’s ever occurred. Another Tokyo-based firm called Mt. Gox lost over $480 million during a similar hack, which held the largest heist record until recently.
The Ever-Popular Crypto-Scams
When it comes to value or currency, there are always others trying to take what you have, particularly through shady means. While fiat currencies are no stranger to scams, neither are cryptocurrencies. About $9.1 million in cryptocurrencies are lost per day to successful scams.
One of the most popular scams is the emergence of a new, unknown coin exchange. This is particularly common with altcoins — other than the most popular and valued ones. With an exchange, they reap the rewards of every transaction thanks to fees and commission. To do business on these platforms you must first deposit funds, which means trusting those handling the currency in the first place.
Other scams include Ponzi and pyramid schemes — which work exactly as they do with real currencies — nonexistent or fraudulent coins, as well as unsuccessful or shady ICOs.
As secure as cryptocurrencies may be, they are still vulnerable to severe loss and theft. It shows that no matter what currency you’re talking about, you’ll want to adhere to strict security and protection protocols to keep your funds safe.
How to Be Safe With Cryptocurrencies
Step one is always to protect oneself. In the case of cryptocurrencies, that means storing your recovery seed somewhere safe, and also making a secure backup.
Then there’s the matter of dealing with transactions and other individuals in the community. Never make a trade with someone you don’t know you can trust. There are many communities and online rating systems used to detect legit buyers and sellers. Use these to your advantage to find the most trusted community members. Keep in mind that these systems only serve as a guideline, not a guarantee.
Finally, think about working with exchanges, various tools and even cryptocurrencies that are more secure than others. Aureus, one of the first of its kind, is a cryptocurrency based on the real-world economy. Simply put, it’s backed by a bitcoin reserve — similar to fiat — that makes it more secure, and also less volatile in terms of value. It also happens to the first exchange that will issue monthly dividends in bitcoin to major supporters.
Remain vigilant and aware of your own use and vulnerabilities, particularly when it comes to the storage and use of your currencies, and you should lower the overall risks. If you are careless with your funds, you can expect a reasonable amount of shady activities like scams or theft.
The post is by Nathan Sykes is a business writer with a passion for tech and IT. To see more posts by Nathan, you can read his blog, Finding An Outlet, or follow him on Twitter.
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