Every journey through the burgeoning cryptocurrency ecosystem is unique. For many, it can be the catalyst for an astounding personal transformation. However, the crypto space can also be riddled with pitfalls and hazards.
In 2021, a staggering $14 billion was reportedly lost to hacks and scams. As this industry continues to grow at an unprecedented rate, new participants will continue to join and bad actors will look to take advantage. Security is paramount in crypto, and regardless if you are a new user or a seasoned veteran, the information in this article will be beneficial to you.
CEX.IO aims to be your guide through the crypto ecosystem by providing the knowledge we have amassed over our decade-long history. This article will dive into some of the most important aspects of crypto security, as well as scams that are now commonplace.
Account Security
Your online accounts are at risk. Whenever you interact with your crypto wallets or have personal information stored in these accounts, you should make security a foundational priority. Here, we have laid out some important steps to safeguard your online accounts.
Protect Yourself
The more depth to your account security, the better. While it may feel unnecessary in the moment, going the extra mile with your security can make the difference when an unknown party attempts to gain access to your account.
Two factor authentication (2FA) has become a fundamental, often valuable process for account security. With 2FA, you’re adding another method of verification to account login credentials, normally a short code from another device that is perpetually changing to stay ahead of fraudsters. This means that just your username and password will not be enough for a hacker to get into your account. We covered 2FA and other security tips in greater detail here.
You may also want to use a password generator that will create a randomized password that cannot be easily guessed or brute force attacked. And generally speaking, you should always make sure to keep your personal information safe, because another individual may be able to steal your identity to gain access to your account.
Understand That Attacks Can Come From Anywhere
Proper security is a mindset. It should permeate through everything you do online. An important thing to keep in mind is that a hacker may choose to attack some surprising places. If someone is dedicated to gaining access to your crypto, they may attempt to first gain access to your email account, phone number, social media accounts, or your messaging apps like Telegram, Discord and others.
Select the Right Company Before You Decide to Open a New Account
Whenever you are deciding to utilize a new product, service, platform, or software, be mindful of the candidates you are choosing to do business with. While you are often entrusting these organizations with your personal information or funds, not all companies prioritize security. Selecting the best, safest option can save you immense trouble later.
At CEX.IO, security is something that we hold in the highest regard. We have demonstrated our dedication to operate in a 100% legal and transparent framework by registering with the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury, among other global regulatory bodies.
Wallet Security
Your crypto wallet is essentially your bank account within the crypto ecosystem. In this sense, managing your own crypto wallet is the same as holding your fiat currency outside of the bank in that you are responsible for the security of these funds. Historically, people have always used bank accounts for safekeeping, but there are many people that are not prepared for the responsibility of maintaining the continued security of their crypto wallets. This is an important decision that you must make for yourself.
Cold Storage vs. Hot Wallets
Choosing between a cold storage wallet or hot wallet is a critical decision. Hot wallets are connected to the internet to easily transfer your funds whenever you want. Cold storage wallets are generally long-term solutions that are hardware based, and are often heralded as the most secure option, though you have a physical device that needs to be protected.
Which option you choose depends entirely on your personal goals, though cold wallets are generally regarded as the safer solution. But no matter which option you choose, make sure to use a wallet from a trusted, proven source. We discuss more about the differences between wallet types here.
Custodial Wallets and What They Offer
With a custodial wallet, you are trusting another entity to hold your crypto assets while providing the necessary security. For those that want to interact with unique products and services, but do not want the responsibility of managing their own wallet, this is an attractive option. Any time you interact with a centralized exchange or similar service, you are likely using a custodial wallet.
Depending on your level of expertise, custodial wallets can provide numerous benefits. For instance, if you forget the passwords to your account, you can normally contact support officials to regain access. If you manage your own wallet and lose your private keys, there is no way to access the funds in that wallet.
Sending and Receiving Crypto
Whenever you are sending or receiving crypto, you should be mindful of where these funds are traveling. If you publicly mention your address, or interact with a service or product from a wallet that is linked to your personal information, understand that this wallet can now be tracked. While this warning may sound more privacy minded than focused on outright security, when you consider the larger network of addresses intermingling, keeping your information private becomes an important matter.
Learning Opportunities From Past Scams and Attacks
Like any industry, security is important in crypto to defend yourself from hacks. However, social engineering and rampant scams have proven to be concerning. Learning from history will prepare you to fend off scams if a bad actor attempts to deceive you. After all, the best security in the world won’t stop a person from regretfully giving their account login information to someone pretending to be a representative of that company. While we wrote about some of these scams at greater length here, this is a quick guide to a few of them.
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Phishing Emails:
A phishing email attempts to convince you to click malicious links by appearing to be from legitimate sources. Though prevalent in many industries, phishing emails are especially common in crypto.
Sim Card Swaps:
Because many people rely on their phone number for verification purposes, this is a common attack vector. Scammers will get your phone number transferred to a phone they control, often by calling the service provider and pretending to be you. This is just one example of why protecting your personal information is so important.
Trading Bot Scams:
Trading bot scams are outright Ponzi schemes that were especially popular around 2017, with Bitconnect being one the most “successful” examples. An organization or individual will pretend they have a successful trading bot and offer you guaranteed returns in exchange for a monthly fee. In the end, these services are short-lived schemes that soon collapse.
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Scam Bots and Fake Giveaways:
You may have encountered scam bots on social media. These fake accounts are automated and pretend to be real users, including recognizable celebrities. They advertise in the comments of a popular user, reply to your comments, or message you directly. The usual modus operandi revolves around hosting a fake “crypto giveaway.”
With these crypto giveaway scams, the bot requests that you send your crypto to an address it controls, while promising to send multiples of the amount back to you in return. Strangely, this convoluted scam seems to work often as unfortunate newcomers fall prey.
Closing Thoughts
The cryptocurrency ecosystem has already provided many exceptional developments and new technology over its now 13-year history. This is an exciting space to be a part of, and it often captures our full attention. By familiarizing yourself with these common scams and security best practices, you can proceed on your crypto journey with confidence.
Disclaimer: For information purposes only. Not investment or financial advice. Seek professional advice. Digital assets involve risk. Do your own research.
