What Are the Current Security Risks of Storing and Trading Cryptocurrencies?
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Cryptocurrencies offer security advantages due to the deregulated, semi-anonymous nature of the system. Digital currencies are attractive to Nigerians due to the cheap, accessible means of transferring and handling funds.
Unfortunately, cryptocurrencies are far from infallible: fraud, the lack of industry regulation, and opportunistic hackers pose risks to current and prospective investors.
Financial gain is the most popular motivation for cybercriminals—the burgeoning coronavirus pandemic has not changed this. Cyberattacks on banks skyrocketed by 238 percent as COVID-19 took center stage as a worldwide crisis.
Cryptocurrencies may not share the same vulnerabilities as established financial entities, but fraudsters are an ever-present menace. Established scams such as ransomware and spoofing have been adapted to the current climate of economic uncertainty and virus-inspired fear.
Hackers have been soliciting cryptocurrency donations under the guise of renowned charity organizations such as the World Health Organization (WHO). Malicious threats of blackmail if a bitcoin ransom is not paid now include warnings that the victim and their relatives will be infected with the deadly coronavirus. The desperate need for jobs and commodities such as personal protective equipment (PPE) are being exploited to acquire cryptocurrency funds from unsuspecting individuals.
Lack of Regulation
One of the significant appeals of cryptocurrencies is that trade is deregulated, in sharp contrast to the highly centralized, regulated nature of standard financial institutions. Nonetheless, the privacy afforded by this type of tender comes at a cost. In the event that something goes wrong—for example, human error or technical mishaps—there is no customer service line to contact for assistance. Unlike with credit card or bank account fraud or theft, recuperating lost capital is usually a fruitless venture.
If you fall prey to a fraudulent scheme and conduct a transaction to avoid extortion, make a donation, or otherwise pay for something under false pretenses, there is no administrative or legal body that can intervene on your behalf.
It’s critical to dispel the myth that crypto currencies are “unhackable.” As long as the potential for illicit profits exists, cybercriminals will work to uncover security holes. Exchanges are a prime point of vulnerability: hackers, including sophisticated criminal organizations, have successfully stolen over $1 billion worth of bitcoin since 2017. In 2019 alone, twelve exchanges were hacked.
Supposedly impenetrable blockchains are not exempt from attacks either. Digital currency Zcash revealed a counterfeiting flaw due to a cryptography error that had been discovered and repaired. Although Zcash users were unaffected, the incident highlighted that such oversights could have grave ramifications if discovered by the wrong individuals.
Defensive Measures to Take
There is a range of strategies to implement to protect yourself from cryptocurrency fraud and theft. First and foremost, allowing your finances to sit on your exchange of choice indefinitely is unwise. Bitcoin wallets are safer alternatives, and there are various ways to secure your bitcoin wallet based on the volume (number) and value of the transactions you make. For example, users who tend to perform high-value, low-volume transactions can opt for a paper wallet, whereas those who perform high-value, high-volume transactions, or Mine Cryptocurrencies should use a hardware wallet.
It’s worth examining the reputation of your exchange as well. Better-known, highly-reviewed exchanges are always a safer bet than obscure platforms. In terms of trading cryptocurrency, MultiSig (multisignature) keys are superior to single signature keys. Use a decentralized email address, and ensure you enable multi-factor authentication.
Next, investors must abide by foundational cybersecurity principles. Account details and holdings should be kept private and off shared devices. Securing all of your electronics with strong passwords and up-to-date antivirus software is vital. Installing a VPN can shield your cryptocurrency activities from snoops and allow for secure connectivity to open public networks.
These techniques, combined with awareness, are invaluable to defend against theft. Make it a priority to keep educated on current and novel fraud techniques. If Nigeria is to transition to digital currency, understanding the inherent risks, and how to combat them, is paramount.