As cryptocurrencies are still a relatively new introduction to the world, concerns about security introduce a degree of risk into this payment system.
Cybercriminals are working relentlessly to find ways to take advantage of this new technology and exploit cryptocurrencies for their own financial gain and to access and acquire the data flowing through this newer payment system. For this reason, you might be thinking, “is cryptocurrency safe?” And, “what can I do to protect my investment?”
Since the introduction of Bitcoin in 2009, which is generally considered the first decentralized cryptocurrency, over 4,000 variations of cryptocurrency have been created worldwide. Bitcoin itself has never been compromised to date, so the coins themselves and the Bitcoin alternatives are considered safe and secure. However, cryptocurrency exchanges have been hacked and individuals’ accounts have been compromised –resulting in hundreds of millions of dollars in cryptocurrency being stolen.
Phishing, malware and ransomware are common tactics used by cybercriminals to mine for cryptocurrency. These tactics exploit vulnerabilities in the exchanges, access cryptocurrency wallets and exploit third-parties that are connected to this payment system.
There are four ways to protect your cryptocurrency investment and enhance security by using features built into the currencies or the networks they run on.
- Avoid Cryptocurrency Scams
There are currently over a 1,000 Active Cryptocurrencies on the market, and many come and go each month. Some of these are nothing more than just an online Bitcoin scam used as a way to pilfer coins from unsuspecting investors.
One of the common ways fraudsters scam cryptocurrency users is by advertising a new coin and building up interest. Next, they offer an initial coin offering (ICO). Before users notice something has gone wrong, the fraudsters have pocketed the cryptocurrencies, and the site and the coin have vanished. Because of these scams, a great deal of research should be done to find a currency with a solid background.
- Secure Crypto Wallets
When investing or applying cryptocurrencies for use, it is necessary to store cryptocurrencies in a secure wallet.
Although there are hot wallets which are ideal for usability, hot wallets can be hacked. Cold wallets are the most secure.
There are two types of cold storage wallets to choose from: paper and hardware. A paper wallet may be one of the simplest, but your keys are printed to paper, which is not the safest medium.
The hardware wallet, which is much the same as a USB drive, is the more secure cold storage option. Not only is it more secure, it can also support many varying types of cryptocurrency. A prime example of the best is the Trezor hardware wallet. This comes with 2-factor authentication, and password manager –should the device be damaged, lost or stolen.
- Cryptocurrency Exchange Theft
Cryptocurrency exchanges exist around the globe, though many of these are not the ideal places to leave your coins. When looking at which cryptocurrency to invest in the chosen must be considered.
Up until recently, Mt. Gox was the most well-known exchange to be hacked. Over $450 million worth of Bitcoin was stolen from their Hot Wallet over a period of time. This shows how crucial it is to conduct due diligence on the exchange, and never leave your coins in any one exchange for any length of time.
- How Crypto Coins Help Secure Your Investment
Many security weaknesses and fraudulent breaches happen at the exchange level, the wallet level, or other third-party level. Many cryptocurrencies themselves aim to make their own security tighter to help protect your investment, including:
With the peer-to-peer network and the 4,500 plus nodes, Dash utilizes 200 TerraHash of X11 ASIC of processing power to confirm transactions.
The miners are rewarded for securing the network while validating, storing and distributing the Blockchain to users.
The master-node of servers form Quorums to enhance privacy and governance while eliminating threats of low-cost network attacks.
This coin enforces security by not re-using addresses. Ring signatures allow private transactions as any user on the ring can be a sender or receiver of a transaction.
Monero also uses CryptoNight as their proof-of-work algorithm which was designed to reduce the gap in performance between GPU and CPU mining. Compared to BTC, the block-time is reduced to 2 minutes rather than 10.
A crypto wallet for this crypto also uses mnemonic seeds. Here you are given a list of 25 words which are the only ones that can be used to restore a wallet.
This coin uses what they call the TANGLE which is a blockless distributed ledger. When the IOTA network has more users, and the number of transactions is increased the more efficient and secure the Tangle becomes.
The wonder of the pack is Skycoin, as it totally decouples any of its coins from the mining process.
As a way of doing this, they use their new Obelisk algorithm that rids the need for POW and POS in transactions. A web of trust is created, and decisions are decided upon through network consensus.
The network it runs on is called Skywire. Skywire is built with nodes, so there is no one point of failure. Data is broken into chunks so only the application and the P2P network knows where it is.
Using a proven and reliable exchange, a secure network and a coin like Bitcoin (or another that mitigates flaws by using Blockchain), you can conduct business with cryptocurrency while knowing that your investment is safe.
Henry Benjamin is an online privacy and security advocate and has worked in the tech space for over 10 years. He currently works with the Skycoin team. Outside of online technologies he enjoys hiking and spending time with his family.