With any new technology comes new opportunities and a certain number of problems that require solutions. Cryptocurrencies are no exception.
Since the boom of crypto in 2017, the world has seen the industry rise and fall with opportunities and obstacles. With each passing year, as the crypto industry becomes more established and accessible to the general public, it has also become an attractive target for cybercriminals across the internet.
The more crypto has progressed into its adoption in society, the more security breaches have occurred these past few years. In such a short span of time, the number of these hacking incidents has grown to a considerable amount that it has become an all-too-real concern for investors around the world.
In 2018, the industry has witnessed some of the most trusted crypto exchanges lose millions to billions dollars-worth of crypto from security breaches and hacks. Starting from Coincheck’s loss of over $1 billion in cryptocurrencies in 2018 to the recent $190 million-worth of clients’ coins locked away following the death of QuadrigaCX’s CEO, the numbers continue to stack up and it's becoming alarming to crypto users.
To this day, the hack on Japan’s crypto exchange Coincheck still remains as one of the biggest known crypto thefts in history. Although Coincheck is continuously compensating for their clients’ lost coins and still remains operational, it doesn’t take away from the fact that the culprits are roaming free and the threat has yet to be eliminated.
Crypto theft is becoming a more common occurrence in the industry. It’s growing into a profitable business for hackers on its own.
The recent heists on large exchanges have brought the conversation of crypto’s cybersecurity back into the limelight. Now more than ever, investors are searching for better and more effective avenues in keeping their crypto safe.
Experts are now acknowledging the urgent need of finding a remedy to the current security issues that crypto faces, otherwise, the industry will see crypto’s decentralized nature transform into a double-edged sword.
In order to figure out what needs to be done to keep your crypto safe, you must first understand how crypto transactions work. Illegal transactions can’t simply be reversed for the simple fact that crypto’s underlying blockchain simply would not allow it.
Transactions are recorded as data or ‘blocks’ onto the blockchain. Once it has been verified by a large network of computers, there is no way to manipulate it unless someone finds a way to control more than 50% of the computers recording said data. In this aspect of blockchain’s design, there is no single point of failure.
By design, crypto and blockchain are already highly secure. Transactions are recorded across thousands of computers, cross-validating every data and adhering to no single authority. The system operates based on pure equations, cryptography and keys. However, when private keys that access crypto wallets are compromised or lost, security breaches can arise.
What are Wallets and Keys?
Crypto users can access their crypto on storage systems called ‘wallets.’ Every wallet has two keys to access it: a public one and a private one. A public key is visible to anyone who wishes to make a transaction with you. It is used to encrypt and receive data from sender to receiver.
Contrarily, a private key is used to decrypt the data received. Therefore, private keys must be kept as its name suggests—private. Anyone with your private keys, which ideally should only be you, can access and decrypt the crypto stored in your wallets. They can do virtually anything to your wallet. They can transfer all coins from your wallet to theirs, change the private keys and lock you out.
Remember that every transaction made on the blockchain is irreversible. Once your crypto is stolen, there is no way to retrieve them through the blockchain’s system unless the thief transfers them back to your account—which is highly unlikely to happen. Due to crypto being a decentralized and unregulated system, there is no central authority that will be coming after your culprit. Even if there was, crypto’s public but anonymous nature can only allow you to track the money but will not disclose the identity of the instigator.
Security problems are common in any industry, not just in digital currency. Thieves go where money flows. As the crypto market continues to surge in popularity, hackers will continue to want to cash in.
Fortunately, crypto exchanges are realizing that the industry cannot thrive without proper security and risk management in place to protect the interests and assets of their clients.
So while the industry waits for the IT experts and cryptographer geniuses to develop programs and tech that further enhance crypto’s security and overall functionality, there’s a lot you can do on your own to keep your crypto investment safe from hackers and scams. Now more than ever is the most important time to ensure your crypto’s security.
Crypto wallets and exchanges can only do so much to keep your crypto safe; the rest will be up to you. Always stay vigilant and informed on the various ways you can do to further strengthen your crypto’s storage.
Here are some of the methods you can do to increase your crypto’s protection:
1. Use Wallets from Known Sources
Choose an established and regulated crypto exchange with an active community of users. The more known and trusted a crypto exchange, the more likely that they already have better safety mechanisms and risk management solutions than less reputable, startup exchanges.
Look at it in the perspective of choosing a bank to store your fiat currency. You wouldn’t and shouldn’t entrust your hard-earned cash to any building or institution just calling themselves a ‘bank’. Reputation and credibility should be the foundation of your selection process when choosing a wallet to store your coins.
2. Don’t Leave Your Funds on Exchanges
Major exchanges have large user bases that in turn attract hordes of hackers. Although crypto exchanges have safety mechanisms in place and strive to refine their systems to become as hack-proof as possible, exchanges still have a built-in weakness in their design. Crypto exchanges in its core are centralized web applications and are therefore susceptible to the same issues of hacking that torment other web applications on the internet.
The dozens of crypto exchanges that have suffered from breaches in the past two years alone should be enough proof. In conclusion, don’t leave any money on the exchange that you don’t plan on actively trading.
3. Use Cold Wallets
As long as your wealth is online, then it’s always at risk of getting snatched by thieves. It’s not a question of ‘if’ hackers strike, but ‘when’. Don’t give them the chance to spot any faults on your locks and instead, cut them off completely by using cold wallets.
Cold wallets are offline hardware devices like a hard drive or USB. These devices come with buttons that require the user’s physical confirmation before running any transaction online. You can still store funds on exchanges and hot wallets but only the amount that you are willing to lose.
4. Don’t Store All Your Crypto in One Place
As investors say, don’t put all your eggs in one basket. You’ll never know when tragedy will strike, but if you store your crypto across various secure storages then you can minimize the damage to your assets. However, make sure that you create an organized system of keeping track of all of your wallets, or else you might accidentally misplace and even forget one of them all on your own.
5. Always Have Multiple Back-Ups of Your Private Keys
In relation to the one above, always have multiple back-ups ready. However, finding a good back-up to store your crypto is slightly tricky. Obviously, you shouldn’t store your crypto in centralized services on the internet such as the cloud. Doing so would defeat the purpose of crypto’s decentralized objective. Additionally, if those services get hacked, you wouldn’t be able to do anything to keep your crypto safe.
A better method would be to keep an offline backup of your private keys and seed phrase in a safe place only you would know. Seed phrases are a string of 24 characters which you can derive your private keys from. To enhance the security of your private key, store your seed phrase across different devices and locations.
6. Use Strong Passwords
Generate strong passwords you haven’t used anywhere else and make them as unique as possible. There are random mnemonic generators online you can utilize to generate a completely unique and random password. If you use multiple exchanges, then make sure that each password is different.
If you want to keep your passwords as far away from hackers as possible, then printing it out on a piece of paper, locking it in a safe deposit and removing all traces of it on your computer is the best way to do it. With this method, you should always have more than one backup copy in case those physical copies are lost or destroyed. You should consider making multiple copies and storing them in separate and secure locations.
7. Use Secure Networks
Never do your business on public networks. When using public Wi-Fi, anyone with the ability will be able to access and monitor your activities on the internet. To ensure that your network isn’t tampered by hackers and the like, the best thing to do is to pay for a reputable and well-reviewed virtual private network or VPN and install it across all of your devices. This will add another layer of protection over your Wi-Fi by encrypting your internet connection.
8. Be Aware of Scams and Frauds
Hacking and breaches aren’t the only security issues posing a risk to your crypto investments. Investors lose hundreds up to millions of their coins every year on scams, frauds and fake ICOs. Always be wary of fake websites and applications. To ensure you always have the correct URL in place, it’s better to bookmark the sites you use for trading. Web extensions that help you spot phishing sites are also readily available for you to download.
Don’t fall for these scammers’ schemes and educate yourself on their different ploys and tricks. Before you even think about making a transaction with anybody on the internet, make sure that you do your research properly. The simplest rule to remember when someone comes to you with an offer of investing is: if it’s too good to be true, then it is.
9. Don’t Make Yourself a Target
If you dangle an apple in front of a horse, sooner or later it’s going to bite. With the boom of the crypto market, cybercrime is also at an all-time high. Like a predator stalking its prey, hackers are vigilant and actively scouring online hubs in search of their next profitable target. They lurk within the network of crypto influencers and target anyone who declares their income and profit.
In retrospect, you wouldn’t shout out to the streets all the assets you have inside your house, right? As a general rule of thumb, don’t talk about your investments or gains anywhere on the internet or you risk inviting cybercriminals to your doorstep.
Offline or online, remember that you are responsible for your own wealth. While some security breaches can happen out of your control, there are various secure risk management strategies and solutions to crypto security problems you can do to minimize damage or avoid it altogether.
Crypto still remains an industry in transition and it will continue to remain this way for more years to come. Therefore, while it progresses towards its adoption in society, it will continue to face challenges and generate its own solutions. These bumps on the road, however, do not take away from the bright and promising future of crypto once it has evolved into a refined ecosystem.