Understanding the risks of Cryptocurrency and protecting yourself
Since roughly 2010, cryptocurrency (crypto) has become a popular investment alternative to traditional financial avenues such as stocks, bonds, mutual funds, or real estate. Much of its appeal stems from optimism that it will become a more standardized currency in the future for institutions and governments — increasing the overall value. As a result, new types of cryptocurrencies are developed each day, trying to get a piece of this pie.
The issue, however, is becoming security for both the consumers doing the trades and the exchanges administering them. Just earlier this year, for instance, Crypto.com, one of the largest cryptocurrency exchanges in the world, admitted to over $30 million in digital currency being stolen by hackers due to a basic security vulnerability.
Furthermore, it is estimated that 2021 had over 20 incidents of crypto exchange hacks exceeding at least $10 million and six hacking cases that exceeded $100 million. With the exchanges and their traders becoming solid targets for cybercriminals, it’s essential to be careful when getting into cryptocurrency.
Much of this starts with understanding the security challenges faced in blockchain technology — the component that powers cryptocurrency. Additionally, you want to ensure you select the most secure exchange services provider and follow some best practices for managing your cryptocurrency portfolio.
Challenges in Cryptocurrency Security
The environment in which crypto operates as well as its relationships with users and institutions yields some unique challenges to its security that you wouldn’t see in other investment channels. Because it’s not recognized as an official currency in any country except El Salvador, and only a handful of businesses actually accept it for transactions, there are minimal regulation standards for user security, trading requirements, and reporting.
Therefore, developers have no actual guidelines or structures to follow when creating their own cryptocurrency, nor are there mandatory security controls required by the exchanges to protect their users. There are also shared concerns about the scalability of blockchain ecosystems because many are considered untested and expect to find new exploitable system vulnerabilities as they continue to grow.
Another major challenge is endpoint security for the users. While blockchain’s primary attribute is security in that it’s difficult to alter a “block” and easy to trace transactions, it’s the endpoint “wallets” that are vulnerable. These “wallets” are where users can store their digital currency from the exchange either online (called a hot wallet) or on a hard drive (cold wallet). Wallets, particularly the online ones, tend to have weaker application and website security.
Crypto Security Starts with Selecting the Right Exchange
None of the challenges stated should necessarily deter you from investing in cryptocurrency — but make you aware of the risks. Protection from some of these risks starts with selecting the right exchange which is notorious for its security posture. Numerous crypto exchange options are available, including highly credentialed ones like Coinbase, Robinhood, Kraken, Bitmart, Gemini, Cash App, and even Venmo.
With the plethora of options, if you’re going to invest in crypto, you should make sure there are specific functions and controls your exchange is providing such as identity & access management processes like multi-factor authentication (MFA) for their users. An excellent resource for this kind of information is SecurityScorecard or Bitsight.
This platform evaluates and scores a vast range of businesses, including financial services and crypto exchanges — taking into account security posture factors such as network security, endpoint security, and their implementation of best organizational security practices. There’s also a separate measurement of the organization’s vulnerabilities in terms of open ports, website security gaps, potential malware, and if any information processed by the firm has been leaked.
For a real-world example, based on our research, discovery, and personal experience with the platform, Kraken is one of the top five ranked crypto exchanges per the critical-security factors and vulnerabilities that were evaluated.
Crypto Trading Best Security Practices
In addition to selecting a solid provider that takes their customers’ data and financial security seriously, there are some other things that you can be doing to protect your account and the digital currencies you trade. Some of these best practices include:
Make Sure MFA is Enabled
Enabling multi-factor authentication or two-factor authentication (2FA) adds an additional layer of security to access your cryptocurrency exchange. Even if a hacker were to obtain your primary credentials through phishing or keystroke logging, they would still need that additional factor such as a one-time password texted to a mobile device or stored on an authentication app to gain access and cause any damage.
If, for whatever reason, the exchange you use does not offer any form of MFA, that in itself is a red flag and you should switch to a different provider. MFA is a core tool for identity and access management — ultimately making it crucial for your personal security.
Utilize “Cold” or “Hardware” Wallets
While it may be less convenient, using a “cold” wallet to store currency is far more secure than a “hot” wallet or leaving your coins in the default wallet on the exchange. A cold wallet is physical hardware that keeps your currency securely stored offline. So if any breach were to occur to an exchange from online hacking, only the hot wallets would be compromised.
While cold wallets are great for security purposes, they tend to be pretty expensive to purchase. Plus, even though online attacks can’t access a cold wallet, you still risk losing your crypto value if you misplace the hardware.
Turn on Notifications
Simply knowing if something is happening is a great security practice in any environment. By turning on notifications, you can get updates anytime withdrawals occur or deposits are made — letting you spot actions that you didn’t take. Some exchanges will allow you to cancel a transaction or even freeze your account anytime an anomalous event took place that you reported from the notification message.
Be Aware of Crypto-Exchange Phishing
Email phishing is the top method used to steal account information and deliver malware. Because of the popularity of trading cryptocurrency, scammers are taking advantage and sending mass emails that appear to be from the exchanges to see if they can obtain some user credentials.
Always double-check urgent email notifications allegedly from your exchange by logging into your account or calling the help desk. Never click on links sent in the message and be on the lookout for oddly-designed email addresses from the sender.
Practice Contextual Account Security
Contextual security simply refers to managing account access or actions based on other events that occur. For instance, some exchanges will let you block fund withdrawals for a certain number of days after account data is changed. Hackers typically change something in an account such as identifiable information (phone number or email address) or passwords before stealing its funds.
You can also link an account to a specific IP address or geographic location and require additional verification if there’s a login attempt from outside your linked address. This can also be used to set parameters for notification requirements.
Stay Ahead with Ascension Global Technology
Want to learn more about the best cybersecurity solutions to protect yourself and your business? Contact us today to speak to an expert and get started. Also, stay up-to-date with news and content on all things cybersecurity by checking out our blog. There you’ll gain insights on common threats, the best security controls, and today’s events that might be pertinent to your organization.
