Cryptocurrency trading, like any other form of investment, is a risky venture. Especially as security from crypto hackers if your sole responsibility, not the banks. For this reason alone, it is extremely unwise to invest the entirety of your savings on this budding technology, at least for now. Things are certain to change in the future, especially as the adoption of cryptos inevitably increases, but it still too early to go all in.
Before delving into the murky world of crypto trading, you need to understand the risks it involves.
Regulatory Uncertainty in Cryptocurrencies
The world might be gradually warming up to the concept of cryptocurrencies, but regulatory uncertainty remains one of the sector’s biggest challenges. The government is yet to adopt a clear stance on cryptos. Furthermore, cryptos are taxed in varying ways globally, there is no consistency and many early investors capitalised on this uncertainty as could be exploited for more profit. This, however, can cause problems if the virtual currencies were to grow to a point that they pose real competition to the fiat currency.
Fraud in Crypto
Cryptocurrencies are susceptible to fraud and cases of cyber theft. In recent years, exchange platforms have become the prime target for crypto hackers who have made away with millions worth of crypto. These cybercriminals also target hot storage wallets. Paper and hardware wallets have also fallen victim, albeit rarely.
Fraud is also highly prevalent in the crypto space. Many people rushed into crypto trading following the famous bullish run in late 2017. Scammers took full advantage of this mania and created loads of ‘pump and dump’ projects. That is where coin prices are inflated to attract uninformed investors only for the project to be abandoned without notice.
Cryptos are Easily Misplaced
Due to their electronic form, it is literally difficult to figure out where to store cryptocurrency. An ideal example is the case of James Howells, a British resident who alleges that he lost millions worth of Bitcoin after accidentally burying his hard drive.
Essentially, you are responsible for ensuring the security of your crypto holdings. Its no one’s else’s business!
High Profile Crypto Hacks
Ian Balina (April 2018)
In April 2018, popular crypto investor, Ian Balina, fell victim to a crypto hacking attack. He reportedly lost $2 million worth of digital currencies which were stolen from multiple Etherscan wallets.
Balina admitted that his main email account was backed up using an abandoned college account, which the hackers accessed and used to breach the main account.
Another mistake that Balina made was storing both his public and private keys on Evernote, a popular cloud storage service. After accessing the main email account, the criminals easily reset his Evernote password and stole the wallet addresses, which they used to steal the cryptocurrencies.
Millennial Boss (2014)
Money Corgi learned of Bitcoin in 2011 and immediately ventured into mining, although it was not as profitable as he wanted. He later bought 12 BTC at £50 from a Polish exchange. Fast-forward to 2014, the value had soared from a paltry £50 to $5,000. Luckily, Corgi managed to move the Bitcoins from the Polish site just before it shut down.
The $5,000 worth of Bitcoin was moved to an exchange platform called BTC-E. Corgi’s attempts at withdrawing the funds were unsuccessful because he didn’t have a proof of address. Later that year, Bitcoin’s value soared, and Corgi now had $12,000 worth of the cryptocurrency. He was delighted!
However, disaster struck in 2014. The BTC-E platform was hacked and Corgi lost his precious Bitcoins. Even worse, the company didn’t inform clients of the attack. After conducting a private investigation, Corgi discovered that two different IP addresses operating from the Pacific Ocean had withdrawn the BTC and converted it into fiat, respectively.
Exchange Hacks (2018)
In addition to appalling performances price-wise, 2018 was a record-breaking year with regard to the amount of money lost to hackers. The Coincheck theft case resulted in a record amount stolen from an exchange to date, as did the total number of hacking incidences.
In the entire history of crypto exchanges, hackers have made way with $1.5 billion worth of cryptocurrencies.
In 2018 alone, they stole a whopping $865 million, more than 50% of the all-time amount. This equates to a $2.7 million daily loss.
The increasing popularity of cryptocurrencies has certainly attracted more hackers. Last year, cyber-attacks were conducted using advanced techniques such as social engineering to acquire user identities and steal their digital assets.
Nik Patel (2018)
Nik Patel, a famous crypto investor, recently explained how he was hacked earlier this year in The What Bitcoin Did Podcast. Although he lost two-thirds of his crypto holdings, he has since bounced back and is using the proceeds from his crypto investment to buy Silver. Nik is now firmly back in the crypto game and a Best Selling Author with ‘An Altcoin Traders Handbook‘. Check him out on Twitter @cointradernik.
Security From Crypto Hackers – Crypto Storage
A crypto wallet is a secure storage mechanism that allows you to send and receive cryptocurrencies. Without a wallet, you cannot transact virtual currencies. Managing your wallet safely helps protect your bitcoin and alts with security from crypto hackers.
A common misconception with these wallets is the belief that they hold cryptocurrencies. Crypto wallets are essentially a mechanism that stores public and private keys and interacts with blockchain users to enable you track your assets, as well as other transactions.
When a person sends you cryptocurrencies, they transfer the ownership of the coins to your wallet address. To access the funds, your private key must match the corresponding public key. If both match, your balance will increase whereas the sender’s balance will decrease. The transaction is then recorded on the relevant blockchain ledger.
There are two main types of cryptocurrency wallets; hot wallets and cold wallets.
What is a Cryptocurrency Wallet?
A hot wallet is always connected to the internet and allows you to readily access your coins and make instant transactions. The constant connection to the internet, however, is disadvantageous because it makes the wallet more vulnerable to hacking.
Cold wallets offer more security than their hot counterparts because they operate offline. Therefore, they are the ideal choice if you prefer to hold your crypto assets for the long term. There are two cold wallet options – paper wallets and hardware wallets.
A paper wallet is similar to storing funds in a computer that has never been online. The computers used to generate the private keys are offline, making them completely safe from cyber-attacks.
A hardware wallet is a physical electronic device that secures your crypto assets by safely storing your private keys. Being offline, hardware wallets are safe from online attacks. Moreover, the offer extra security because they require a PIN code to unlock. This makes them perfect for long-term storage of digital assets.
The most common providers of hardware wallets are Trezor and Ledger. Trezor was the first-ever hardware wallet and currently supports Bitcoin, Ethereum and all ERC20 tokens, Litecoin, Dash and many others.
Ledger, on the other hand, was introduced to the market in 2016. It supports Bitcoin, Ethereum, and many other altcoins.
You can find a full comparison between Trezor and Ledger wallets here.
What Happened to Me
Ok, now let me narrate my harrowing ordeal with the BitGrail cryptocurrency exchange. On this trading platform, my asset portfolio included Bitcoin and NANO, a lesser-known altcoin – back then. I traded both and luckily got a profit, from which a transferred a considerable portion of Bitcoin into a hardware wallet. Check, security from crypto hacker was good.
For NANO, I had to leave it online because of the unavailability of a compatible hardware crypto wallet. This meant that I had some Bitcoin and some NANO held by the exchange.
Leaving money on an exchange for any length of time is a huge risk. Crypto security no no.
In February 2018, reports emerged that the BitGrail exchange had been hacked, resulting in the loss of $200 million worth of cryptocurrencies. The news was met with skepticism because the exchange had previously barred all transactions involving NANO. This was followed by the announcement that BitGrail would enforce KYC and AML regulations so as to block non-European investors. At the time, a section of users claimed that the exchange was implementing an exit strategy that typifies scamming projects.
Francesco Firano, the owner of the BitGrail exchange, was ordered by the Italian Bankruptcy Court to return the funds lost by the platform’s clients. Firano was declared bankrupt, forcing Italian authorities to seize his assets. He was also found guilty of transferring 230 BTC into his personal account just before claiming that BitGrail was hacked.
Obviously, the sentencing of Firano provides some reprieve. The problem, however, is that the victims will only receive a small portion of what was stolen, me included. Sad! My first, big, hard lesson about security in crypto and protecting your investments from hackers.
How to Stop Crypto Hackers – Keep Your Crypto Investments Safe
To protect your crypto assets against possible theft, always observe the following:
- Your financial security is your responsibility. Only invest what you can afford to lose.
- Always use a hardware wallet where possible. Hot wallets are not advisable if you intend to hold your assets for a long period.
- Secure your exchange user account using multi-factor authentication. This increases the security of your funds.
- Ensure that access to your crypto wallet is not restricted to online devices.
- Secure your hardware wallet using a PIN. It should not be easy to guess.
- Keep your 24-word recovery sheet to yourself. Avoid saving it on online platforms.
- Only trust the information that is displayed on the screen of your hardware wallet. Check addresses carefully before confirming transactions.
- Always exercise caution. Keep in mind that any software platform is vulnerable to external attacks.
- Have a said before, security from crypto hackers if your responsibility. No. One. Elses.
Phew! Hope you’ve found this useful in helping to protect your crypto assets and managing security from crypto hackers. Hope this helps in keeping your bitcoins secure and altcoins safe!
If you’d like more information on how to stay safe, check out The Ultimate Guide to Crypto Wallets.