Crypto Security: A Beginner’s Guide
One of crypto investing’s biggest hurdles is convincing investors that it’s safe.
Security is particularly relevant to investing in bitcoin and other crypto-assets, which by nature are carriers with varying degrees of anonymity. There are four other complicating factors:
- The learning curve for crypto can be steep
- Most investment advisors and brokerages do not yet offer crypto investment support, forcing the “crypto-curious” to validate investment opportunities, identify trading platforms and manage assets on their own
- The exuberance that can come from the volatile nature of the space can lead to FOMO (fear of missing out) in opportunistic investors, causing them to let their guard down when it comes to trusted platforms and “helping hands”
- As more decentralized applications come into being, opportunities abound for bad actors to either manipulate these protocols or take advantage of security vulnerabilities in the form of bugs to siphon or steal funds.
According to a February 2023 report by Chainalysis, a crypto-forensics firm that tracks illegal activity on blockchains, 2022 was the biggest year ever for crypto-hacking, with $3.8 billion stolen from cryptocurrency businesses. In fact, October became the biggest single month ever for cryptocurrency hacking, as $775.7 million was stolen in 32 separate attacks.
Total value of stolen crypto
Chainalaysis
The report points out that decentralized finance (DeFi) targets such as exchanges, lending protocols and bridges (used to transfer assets from one protocol to another) were the biggest targets. Many of the largest bridges can house hundreds of millions of billions of dollars in assets.
Cryptocurrency stolen in platform hacks
Chainalaysis
But that doesn’t mean everyone else is immune. Even in this market downturn, when naive investors are less likely to fall victim to bogus investment schemes, the scammers still came out well. The chart below shows that around $5 billion was taken by fraudsters and many billions were also stolen.
As crypto continues to become mainstream, you can bet that scammers, thieves, and fraudsters will continue to look for ways to misuse funds.
However, there are ways to protect yourself. Here are some important elements to keep in mind.
Crypto Security Checklist
- Remember that if an investment opportunity appears “too good to be true”—it probably is. There are no such things as “guaranteed returns” or “risk-free” strategies when it comes to investing.
- Do your own research—never take someone’s word at face value.
- Be skeptical of new token projects, especially if they are led by unknown or unproven individuals.
- Be suspicious of unsolicited emails or solicitations.
- Resist the urge to post a profitable crypto trade on social media or at a party—scammers and criminals can’t target you if they don’t know you exist.
- Never click on any links or attachments from an email if they seem suspicious.
- Never share or reuse passwords, especially for your crypto or online banking accounts. Additionally, make sure you enable two-factor authentication (2FA) for all accounts.
- Do not give any person or organization unilateral control of your account.
- If you plan to trade directly on an exchange, make sure it’s one with legitimate trading volumes and a strong reputation for safety. Less popular exchanges have been known to inflate their volume by 100%. A select list of reputable exchanges includes Coinbase, Kraken, Bitstamp and Gemini.
- Don’t keep all your eggs in one basket. You don’t keep all your money under your mattress, don’t make similar mistakes with crypto. In fact, when you start building your positions, you may want to think about taking funds from exchanges to keep them in hardware wallets or cold storage.
Follow me on Twitter or LinkedIn. check out my website. Send me a safe tip.
