How Secure Is Cryptocurrency?
Cryptocurrency Security Is Going Down
The excitement around decentralized finance services has led to an increase in fraud in the crypto sphere. This is due to the fact that people have become more willing to use less secure systems.
Since 2020, the volume of stolen cryptocurrencies has increased by 516% to $3.2 billion, 72% of which is stolen cash via DeFi protocols. Most of this money was made through the rug pull scheme, a type of crypto scam that is fairly new but very popular.
If you store your crypto investments on an exchange, this can attract the attention of intruders. If your account is hacked or you fall for the bait of attackers and give access to it yourself, it will be very difficult (almost impossible) to return all the stolen cryptocurrencies.
Most often, the exchange is responsible for security problems, sometimes the crypto safety problem is not in it, but in the cryptocurrency infrastructure itself. It has several holes and encryption shortcomings that hackers and scammers use to deceive crypto traders and investors:
1. Almost identical coin names
Listing tokens with names that almost completely match existing popular coins is a difficult way to steal cryptocurrencies, but nevertheless quite common. For example, scammers can create an ETH+ token to scam people who have little understanding of cryptocurrency trading.
2. “Social engineering”
With Deep Fake technology, scammers can impersonate crypto celebrities in Telegram channels or even by recording videos on YouTube. Due to the fame of a person, scammers can force crypto traders and investors to tell them their passwords/secret phrases.
Fraudsters create a phishing site that spreads a virus that changes the recipient's address when sending a transaction. The scheme begins with an email containing a link to a phishing site that looks exactly like the original site, such as any exchange.
This is a classic scam: “your” wallet or exchange sends a message that in order to complete the transaction, you need to log into your account or install a new program to ensure the security of your wallet. And you log in on the site or in the scammers' application, which declassifies all your passwords and accesses.
3. Use of malware/viruses
Fraudsters sometimes use malware to change the recipient's wallet address right before the user sends cryptocurrency to that person. During the transaction, the user enters the recipient's address, but the malware changes it to the scammer's wallet address. Coins will end up in the hands of scammers if the sender does not verify the recipient's address before sending.
In other cases, investors receive an email or private message containing a link. After pressing the button, a malicious program called a "keylogger" will be placed on the computer. This malware can record passwords, clipboard history, and other credentials.
Is Cryptocurrency Secure?
How secure is cryptocurrency? Quite secure, but on the condition that we are trying to avoid mistakes.
1. Rug Pull
Recognizing a rug pull is quite simple: scammers create a fake token, which is then exchanged for a valuable cryptocurrency. Most rug pull scams are accompanied by a lot of advertising, creating hype around themselves to get money from investors. The currency creators will then disappear as soon as they receive an impressive amount of valuable crypto.
The key signs of a rug pull:
Suspiciously large amount of liquidity.
Liquidity at the disposal of developers.
Sharp price jumps in a short time.
Influx of influencers and promotions.
White paper looks like an advertisement.
Malicious or copied codes.
2. Boasting on social media
No one should know how much crypto you have.The fact that cryptocurrency is a digital currency does not mean that attackers will not try to deceive you in non-digital ways. After your privacy in the crypto world is violated, all possible threats (including physical ones) against you, in order to get your finances, are not excluded.
3. Storing private keys online
Cloud providers have their own servers that provide you with an interface to interact with your data. So their server might be down and you won't be able to access your private keys. When they get hacked, you get hacked too. One successful attack can also destroy millions of records in one go, including your valuable data.
Pro tip: Write down your private keys and passphrases in a notepad, then keep that notepad in a safe or secure place.
4. Chatting with strangers on social media
Cybercriminals prey on unsuspecting traders. Fake Telegram or Discord group admins will send you a private message pretending to be one of the admins of the group you are a member of. After a short conversation, it seems to you that you can trust the "experienced" member, and they can easily ask for your private keys or seed phrase, or use a phishing platform.
Pro Tip: If someone you don't know at all wants to "chat" with you about cryptocurrencies, or worse, asks for any of your personal details, block them immediately – no questions asked! Remember: the crypto world is anonymous!
5. Ignoring layered security
Due to too many threats in the crypto universe, financial platforms must use many layers of security. Layered security provides a comprehensive approach to cyber defense, taking into account the variety of channels into which each malware can be injected. In other words, always use two-factor authentication and other additional levels of crypto security protection available on the exchange.
Crypto Security Tips
1. Secure your wallet
Beginners, as a rule, keep their Bitcoins on the exchange – in the same place where they received them. But by trusting the exchange to store the coins, you give up control over your cryptocurrency. Such a “wallet” is called a custodial wallet, and this is not the most secure storage option.
A non-custodial wallet is the best place to store your assets. Such a wallet can be installed on a mobile phone or your PC. However, the most secure option is a hardware wallet. Usually, a specific wallet is required for each cryptocurrency, although most wallets can handle a variety of coins.
2. Crypto security on your PC
Most often, hackers attack vulnerable targets. Many hackers don't go after specific people. Instead, they create huge networks of computers infected with viruses. Thus, before you start working with cryptocurrency from your PC, you should make sure that there are no viruses on it that can be used to monitor keystrokes, credentials or download other malware.
Pro tip: Don't use the same password for important accounts like bank accounts, cryptocurrency trading accounts, and Wi-Fi credentials. Perform full scans of all your devices regularly. Also, consider installing a browser plugin that blocks malware and phishing websites.
3. Crypto security on exchanges
Centralized exchanges are much more vulnerable to hacking and data leakage. In order for hackers to gain access to users' assets, financial information and other potentially dangerous data, they simply need to bypass the security measures of the exchange operator.
In contrast, a decentralized exchange is hard to hack. Hackers will have to hack every single user. The system's peer-to-peer approach leaves little room for intrusion or manipulation.
Tip for professionals: use several authoritative crypto exchanges for buying and trading at once. Thus, even if one exchange goes down or is attacked, you will not be left with nothing.
4. Crypto security of P2P transactions
Peer-to-peer transactions are highly vulnerable in terms of security. The anonymity and decentralization of P2P transactions are the root causes of most problems: malware that changes your address, software that hijacks your clipboard, and P2P scams.
While an antivirus can easily solve software-related problems, P2P scammers can be too cunning. Fortunately, some crypto exchanges such as Binance, Bybit, and Gemini have security measures in place for their P2P transactions. Thus, it is much safer to limit your transfers within reputable exchanges, rather than looking for some unknown people in groups on social networks.
However, the security of your P2P transactions is in your hands. Therefore, you should avoid transferring with anyone you do not know or trust.
5. Keeping your emotions in check
Beginners often succumb to FOMO (fear of missing out) and FUD (fear, uncertainty, and doubt). Always keep your emotions in check when you start trading cryptocurrencies. Here are some tips on how to do this:
1. Fundamental and technical analysis
When developing a trading strategy, a trader should not rely solely on technical analysis. You also need to familiarize yourself with tokenomics, utilities and other macro indicators, as well as the founders and the team that created the project. Remember that each cryptocurrency requires a specific combination of fundamental and technical analysis.
2. Risk management:
Proper distribution of your position is a key element of risk management. You can make too many big trades if you don't know how to allocate your positions properly. Thus, when the market moves against you even by a few points, you become very vulnerable.
Stop Loss and Take Profit
A stop loss is an execution order that closes an open position when the price falls below a predetermined level. A stop loss protects you from losing money on bad trades.
Take profit is a programmable order that closes open positions when the price reaches a certain threshold. Take profit allows you to close a deal before the market goes in the opposite direction.
This ratio shows how big the risk is in relation to the possible gain. The riskier the trade, the more profitable it can be. To determine when to enter and exit a trade, you must understand the risk/reward ratio. You can calculate this ratio using the formula:
Risk Reward Ratio = (Target Price - Entry Price) / (Entry Price - Stop Loss)
Using a Crypto Trading Journal
When you keep a trading journal, also known as a trading diary, you document all of your trades and any ideas or emotions that influenced your actions. Trading becomes a gamble if you don't use analytical tools.
The popularity of cryptocurrency has flooded the world with crypto scammers. Be vigilant, follow the simple cryptocurrency security rules listed in this article, and most importantly, control yourself in order to make money on crypto trading and ensure its safety!