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The first cryptocurrency, Bitcoin, was launched in 2009. 15 years later there are over 22,000 different types of cryptocurrency on the market. The digital currency is popular among investors because it’s immune to inflation, quick, easy, and free to transfer, accessible, and decentralized with no government interference or regulation. What makes the currency popular, however, also makes it prone to abuse and security risks. 

 

Let’s take a look at the risks of using cryptocurrency and how to use it safely. 

 

Cryptocurrency risks 

With thousands of cryptocurrencies on the market, and none of them regulated by the government, cryptocurrency exchanges have become a popular target for phishing scams and other types of cyberattacks. While the rewards of investing in crypto can be high, the risks are plentiful so it’s important to stay aware of all emerging threats. 

 

Below we highlight some of the top threats you face when investing or conducting transactions with cryptocurrency.    

 

1. Transactions are final 

Crypto doesn't offer the same security features that paying with a debit or credit card does. If someone gets a hold of your crypto wallet and makes a fraudulent transaction, you can’t call your bank and reverse the transaction. Similarly, once you make a payment using crypto, you can’t reverse it if the product or service you receive doesn’t meet expectations. 

 

2. Phishing scams are prevalent

Phishing scams involving crypto are also prevalent, so it’s important to be on the lookout for malicious actors requesting large sums of crypto or promising to deposit a large sum of crypto if you provide them with your account details. The most prevalent and insidious form of phishing scam involving cryptocurrency is pig butchering. This type of scam cons targeted individuals into investing in a fraudulent cryptocurrency exchange. After the victim invests a large sum of money, the scammer drains the money from the account. 

 

3. Cryptocurrency companies don’t prioritize security  

Cryptocurrency is still a hot new market which means new companies in the space are focused on quickly launching their website rather than ensuring the backend has the necessary security features to prevent a cyberattack. Luke Wilmott, co-founder and COO of crypto-based car marketplace AutoCoinCars doesn’t find it surprising that cybersecurity is often overlooked in this space.   

 

"Even some of the larger cryptocurrency companies likely do not have sophisticated enough cyber defenses to outsmart hackers. With the cryptocurrency industry growing at such a rapid rate it is understandable why this may be difficult to keep up with. Add on top of that the rate at which both hackers and technology grow in intelligence, you would need a full-time person to deploy a strong cyber defense strategy and infrastructure,” says Wilmott. 

 

Any new technology also inherently comes with more risk because it simply hasn’t been around long enough yet for developers to identify all the vulnerabilities. This gives hackers a leg up, as they are able to find and exploit the technology’s security flaws before developers find a way to resolve the issue. 

 

How to protect yourself when using cryptocurrency

Fortunately, there are steps you can take to protect yourself if you decide to invest in cryptocurrency and/or conduct transactions using cryptocurrency. 

 

1. Do your research first 

Before investing in a cryptocurrency, research the currency thoroughly from its blockchain to the type of software it uses. Also do a search for scams using the currency. Cryptocurrency forums have a wealth of information about the latest scams and where it’s safe to invest. 

 

2. Use only VPNs 

Never use public Wi-Fi when conducting cryptocurrency transactions (or any type of transaction for that matter). Instead use a secure VPN to create an encrypted tunnel between your local network and an exit node in another location. A VPN prevents a bad actor from intercepting your connection with their own device between you and the website you’re visiting. This allows the bad actor to covertly monitor your online activity, either giving them direct access to your cryptocurrency wallet or your account on an open exchange or just tipping them off that you have cryptocurrency investments, leading to phishing scams in order to grant them access. 

 

3. Secure your account with 2FA

Always use 2FA to secure your account on your cryptocurrency exchange of choice. This way if a hacker gets a hold of your password, they still need at least one other piece of identifying information to gain access to your account. You should also use a strong password, preferably auto generated by a password management service like Passportal by N-Able. 

 

4. Consider a crypto wallet

Rather than storing all your assets on a cryptocurrency exchange like Coinbase, you may want to withdraw at least some of your crypto and store it in a crypto wallet. While keeping your crypto in a centralized exchange offers greater liquidity and accessibility, a crypto wallet prioritizes security and control over your assets. 

 

A crypto wallet can either be a software product or a physical device. If you choose to use a software for your wallet, before downloading the wallet, be sure to first verify the website. You should only ever download a wallet directly from the developer's website rather than through an advertisement on social media or Google or by downloading it from a mobile app store. 

 

5. Protect your seed words

Seed words act like a master password for your crypto wallet. Your wallet can contain an infinite number of private keys (an alphanumeric code like a password) that gives its owner access to cryptocurrency on a specific blockchain address. For a more detailed explanation of the difference between seed words and private keys check out this post from tastycrypto. 

 

Just like your master password for a password management service, your seed words should be stored in a safe, physical place to ensure they are secure and always accessible. It’s best to write down your seed words on a physical piece of paper that you then store inside a locked safe. Some people even go so far as to use a fireproof, waterproof safe for optimal security. 

 

The most important thing is that you never enter your seed words on a website. Browser-extension wallets will ask you for your seed words only the first time you download the wallet. After that, you should not be asked to reenter the seed words. If a webpage that looks like your crypto wallet asks for your seed words, try closing the tab and clearing your browser’s cache. 

 

Cryptocurrency requires vigilance and cybersecurity smarts

When dealing with cryptocurrencies, it’s important to always be vigilant around your account’s activity and to always use cybersecurity best practices to secure those accounts. Stay abreast of the latest cryptocurrency threats and do your research before trying a new type of currency, a new exchange, or downloading a crypto wallet. 

Did you miss the first post in this two-part series on how to use cryptocurrency safely? Read it on our website or in our weekly LinkedIn newsletter, IT Enlightenment for SMBs. 

 

Feature photo by Austin Distel on Unsplash

 

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About Pagoda Technologies IT services

Based in Santa Cruz, California, Pagoda Technologies provides trusted IT support to businesses and IT departments throughout Silicon Valley, the San Francisco Bay Area and across the globe. To learn how Pagoda Technologies can help your business, email us at support@pagoda-tech.com to schedule a complimentary IT consultation.