Companies losing value within days and investors losing money overnight have become the norm in the extremely volatile world of cryptos. What is more concerning is that investors are left with no recourse if the exchanges where their funds are held fail. In such a case, the value of all their crypto assets will be reduced to zero.
While no formal declaration has been made by Indian crypto exchanges in this regard, Coinbase, one of the largest international exchanges, recently gave investors a scare by declaring that their cryptocurrency assets may not be their own in the event of bankruptcy.
Investors are at the mercy of the CEX.
Generally, investors keep their funds in custodial wallets provided by various centralized cryptocurrency exchanges (CEX). They do this to gain quick access to their funds for trading and to avoid the various fees associated with transferring money from bank accounts to exchange wallets. However, unlike bank deposits, which are guaranteed, these exchanges are not legally required to return investors’ funds.
Regardless of the lofty claims made by these exchanges about the security of assets stored in their wallets, it has been repeatedly demonstrated that investors are at the mercy of these CEXs. The most recent example is the delisting of Terra (LUNA) by a number of exchanges.
What should clients do?
According to Seinberg, it is always safe to keep cryptocurrency in hardware wallets or decentralized exchanges that are not controlled by central authorities. “For example, if you had LUNA in your wallet, it would not be delisted; it would simply show the value as zero.” But it never goes away.
If it returns to its system, you will be able to swap or access Luna without anyone’s permission,” he says.
Since the creation of Bitcoin in 2009, the global cryptocurrency market has expanded at a breakneck pace, attracting investors from all walks of life. However, the crypto markets are still in their infancy, with little regulation, high volatility, and a perfect breeding ground for scammers and cybercriminals.
As any serious trader understands, securing your cryptocurrency is critical. So, what are the best ways to protect your cryptocurrency?
Trade on Trustworthy and Secure Exchanges
Cryptocurrency is typically bought and sold on exchanges, just like stocks. There are hundreds of cryptocurrency exchanges, with dozens of them having significant trading volume. However, only a few are truly safe: Kraken, Gemini, Coinbase, Crypto.com, and Binance are arguably the best and safest crypto platforms available.
Kraken is available in nearly every country and is supported by a dedicated team of cybersecurity researchers. Gemini is regulated by the New York State Department of Financial Services and is hyper-focused on security, whereas Coinbase and Crypto.com both demonstrated exceptional transparency when breaches occurred.
All of the cryptocurrency exchanges mentioned above are secure, have solid cybersecurity infrastructures, and store user crypto in dedicated facilities that are geographically distributed and heavily monitored, some by armed guards.
Keep your cryptocurrency in multiple cold wallets.
If you trade cryptocurrency rather than simply holding it, keeping the majority of it in exchange may appear to be the best option, but it is not a good idea from a cybersecurity standpoint. While there are safe exchanges, breaches do occur, and some platforms halt withdrawals on the spur of the moment, especially during downturns.
Clearly, the best option is to keep your cryptocurrency separate from exchanges: in multiple wallets, preferably cold or hardware wallets.
As secure as some software wallets are, cold wallets are superior in almost every way, especially in terms of cybersecurity, because they are not even accessible via the internet. Ideally, you should spread the majority of your cryptocurrency across multiple cold wallets, with only a small portion in a software wallet or on an exchange if you are a trader.
Use a Secure Internet Connection
This may appear to be a no-brainer, but using secure internet to log into your crypto accounts goes beyond avoiding public Wi-Fi networks and suspicious websites.
Assuming you will do the majority of your crypto trading from home, you should at the very least set up a basic security infrastructure. To begin, determine whether your internet is secure by testing your firewall for flaws and ensuring that your anti-malware software is properly configured and up to date.
Then, for your wireless router, create a strong password—most of them come with default passwords. Enable network encryption, disable network name broadcasting, and keep your router software up to date at all times.
Consider investing in a Virtual Private Network for maximum security (VPN). A good VPN will encrypt your communications and conceal your online activities from potential intruders, while also concealing all cryptographic activities from your ISP.
Finally, if possible, access your cryptocurrency assets online using a single dedicated device to reduce the chances of a breach.
Two-factor authentication and multiple passwords are recommended.
According to a 2020 poll conducted by the American cybersecurity firm Digital Guardian, 61% of respondents use the same password across multiple websites, though one in every five has experienced an online account compromise.
Simultaneously, 89 percent of poll respondents said they were confident in their password management practices. Using the same password on multiple platforms, on the other hand, is a no-no and the worst thing you can do for your online account security in general. If you want to keep your crypto safe, use complex, one-of-a-kind passwords that you change at least once a year.
If you have trouble remembering your passwords, don’t keep them in plain text.
The good news is that two-factor authentication, or even multi-factor authentication, is now available on the vast majority of cryptocurrency exchanges and other similar platforms.
These authentication methods require the user to provide at least two verification factors (for example, an SMS code) in order to gain access to their account, which obviously reduces the likelihood of a breach.
Scams to Be Avoided
In fact, according to data from blockchain analytics firm Chainalysis, victims lost $7.7 billion in cryptocurrency in 2021 alone. This represents an astounding 81 percent increase over the previous year. Scammers use a variety of methods to steal money, including rug-pulls and Ponzi schemes, as well as promoting fake cryptocurrency giveaways and setting up fraudulent websites.
Phishing attacks (in which a cybercriminal dupes a person into disclosing sensitive information) are also fairly common, so one can never be too cautious. To avoid these scams, never click on suspicious links, avoid phony giveaways on social media, and always double-check any cryptocurrency website or app.
