Just like other valuable assets, cryptocurrencies are also open to theft, and maybe more so. This is largely due to the fact that cryptocurrencies are not monitored by a central authority like a bank. Though Blockchain is relatively secure, it can still be vulnerable to attacks by hackers.
In fact, 2022 had some of the worst crypto hacks, like the Ronin Chain Hack, which took place in March. A hacker got away with over 173,000 ETH and 25.5 million USDC worth over $600 million from Ronin, an Ethereum sidechain.
Blockchain is the technology that enables digital currencies and assets to operate. It is a decentralized ledger that records and tracks all transactions. In essence, new blocks are created when a transaction happens. Several blocks form a chain that can be invalidated if meddled with. As you can see, Blockchain technology is secure, unless it is left open to attack.
How cryptocurrencies are stored
There are two main ways you can store our cryptocurrencies.
Crypto wallets
While storing your cryptocurrencies in an exchange is a viable option, the company can seize your funds in case of bankruptcy (as seen with Coinbase Global Inc). Crypto wallets make a difference and add a layer of protection for your cryptocurrencies.
So, what exactly is a crypto wallet? A crypto wallet is a service or physical wallet (like a USB) with your public and private keys. A key is a string of random data that allows you to securely transfer and store your cryptos. When you purchase crypto, you will be issued both a private and public key, which work together as a username and password would.
There are different types of crypto wallet terms you should acquaint yourself with.
Hot wallet
A hot wallet is a virtual storage for digital assets accessible online or internet. You can get your hot wallet from a wallet app or crypto exchange.
Cold wallet
A cold wallet or cold storage is an offline storage for your cryptocurrencies, protecting them from online vulnerabilities and risks. One type of cold wallets are paper wallets. These are documents with crypto keys that can be printed and usually have a QR code to use during transactions.
Custodial wallet
A custodial wallet is a service offered by a third party that controls your private keys and cryptos. Most exchanges offer this service to buyers.
Non-custodial wallet
A non-custodial wallet is one that you own yourself. They are private wallets that no one else has access to. This means you are fully responsible for your private key security. If you forget your key, you will not be able to access your account. This type of wallet can also either be hot or cold.
Hot wallets are more convenient and generally cost more than cold wallets. However, they pose more risk because they are vulnerable to network-based thefts. To increase security, you should diversify your storage and store your cryptos in both cold and hot wallets.
Exchanges
A cryptocurrency exchange is an online platform that enables users to access cryptocurrencies. It also stores your funds and sometimes acts as your wallet. However, a crypto exchange is not the safest place to store your currencies. As seen above, they can be hacked, and you can lose your funds in the process.
How to prevent hacking
- Do not share your details with anyone. Even if you have a custodial wallet, do not share other personal details.
- Always backup your data. Do it often and store it in multiple locations.
- Use seed phrases, which will help you recover your private keys if you lose access to your device. However, do not store these words on your computer or your phone as a screenshot.
- Update your software frequently. This will help fix any bugs and solidify your security.
- Do not open emails from random sources.
- Use a reputable exchange when buying or selling online.
- Keep tabs on hacking techniques and scams.
- Avoid public wifis, which are prone to cyber security threats.
- Use a VPN. A VPN will encrypt your location and shield your online traffic from third parties.
- Do not repeat passwords. Use a unique password for your wallet. When you repeat a password, a hacker can decrypt it and access your vault.
- Add two-factor authentication in your passwords to secure your accounts. This will alert you if anyone else tries to withdraw your funds.
- Use a cold wallet.
Types of cryptocurrency theft
While focusing on safety is important, it is also wise to understand the different ways you can lose your cryptocurrency.
Spoofs
Spoofs are online scams where the hacker poses as a trusted source, such as a website or IP address to access your information.
Private key theft
This happens when your device or digital storage is hacked and your private keys stolen.
Exit scam
An exit scam happens when the exchange or custodial wallet steals your cryptocurrencies.
Phishing
Phishing happens when a hacker tries to access your private information.
Hacks
Exchanges are attractive to hackers because they store funds for many users.
Finally
Whether you are a seasoned crypto investor or are new in the game, your digital assets are at risk if you are unaware of how it can happen and how to better protect yourself. No security is 100 percent, and you will need to be vigilant at all times.
Disclaimer: Investing can be quite a wild ride – especially when you don’t know the terrain! To keep things from getting too rocky, take some time beforehand to get familiar with all of the risks involved. Our site is here to up your investor game by providing all available intel about platforms and trends, but we don’t take responsibility nor can we be held accountable as advisors. That being said, it’s still important for you to make educated decisions that match what works best for YOU – just remember: no amount of savvy will guarantee success or protect against loss so invest money you can spare.
