The cryptocurrency market has seen a massive rise in value over the past year or so. While this has yielded massive gains for several traders, especially early adopters, it’s also been cause for concern. The spike in interest has resulted in poor, impulsive investments and fears of a bursting bubble.
Less immediately frightening but equally dangerous is the possibility of losing money not because of financial fluctuations, but because of poor security practices. While blockchain, cryptocurrency’s underlying technology, is quite secure, some people misinterpret that to mean that their coins are free from the usual threats of theft, fraud, and other cybercrimes.
Being the hot topic that it is, cryptocurrencies have attracted a lot of attention from bad actors—and they can be quite inventive when it comes to taking what they want. Trading in cryptocurrency requires as much, if not more attention to security than other forms of investment. It’s important to take steps in information security, device safety, and trading practices.
Privacy and Anonymity in Cryptocurrency
Cryptocurrencies have gained a reputation for their supposed anonymity in transactions. This comes, in part, from the absence of formal supervision (e.g. by banks or government) and its use in black market trades.
It’s important to note, however, that cryptocurrencies are not anonymous. Bitcoin, the leading cryptocurrency, has said so itself. Properly speaking, cryptocurrencies are pseudonymous. They provide each user an address (or more), which is used for carrying out transactions. If another party can connect personal details to that address, they could figure out who owns it.
There are a number of ways someone could do this:
- They access to the personal information you provide for a transaction
- They trace the IP address you used in a transaction
- They gain access to your electronic wallet or cryptocurrency address
To prevent this, it’s important to maintain high standards of online privacy. Your best option is to use a trustworthy virtual private network (VPN) service. This would provide you with reliable encryption anywhere you go, even on public networks. It also conceals your IP address, making it difficult for third parties to track you. (Bonus, the ability to connect to servers in various regions is useful for trading cryptocurrency while traveling.)
Even with reliable encryption, however, your information is at risk if your devices are compromised. Some cryptocurrency traders advise purchasing a new computer for cryptocurrency transactions, especially if you intend to trade at high volumes: outfit it with up-to-date antivirus and antimalware programs and use a VPN to keep your vulnerabilities to a minimum. This holds true for mobile phones, as well, especially since mobile apps tend to vary widely in their encryption standards and security features.
If you’re interested in high-frequency trading, you should also invest in a hardware wallet. This lets you apply two-factor authentication (2FA) to all your cryptocurrency access and transactions.
In addition to surveillance and tampering, criminals also employ shady cryptocurrency exchanges to swindle users out of their hard-earned coins. The sophistication in these schemes can vary, but usually, you can get a good picture of an exchange’s reliability by watching other people.
Look out for these red flags when choosing an exchange:
- They don’t participate in the wider cryptocurrency community (e.g. discussions, events, commentary)
- Customer service takes unreasonably long to respond
- High-profile officers or users have left the exchange
That said, you should take care even on exchanges that appear to be above board. Don’t put all your coins into one exchange and if you’re not looking to keep trading, don’t store them there either. Consider alternative investment options when you’re not looking to actively trade cryptocurrency.
The absence of centralized oversight in cryptocurrency markets is a boon but also a vulnerability. No one will look out for your security if you don’t do so yourself. Blockchain provides a good baseline for security features, so make sure to do your part in making the most of it.
Of course, all of this could change as time goes on. Criminals will expand their arsenals and new security measures will have to be developed to counteract them. The best way to stay secure is to keep abreast of these developments and adjust your security measures to match.
About the Author
Chris San Filippo is a part of the marketing team at Hotspot Shield, one of the top ranked VPNs in the world. Hotspot Shield has over 500 million downloads and has helped users from over 200 countries fight for net neutrality and against censorship. Chris’s work has helped Hotspot Shield earn features in publications like Forbes, Bloomberg, and The Wall Street Journal. In addition to his job with Hotspot Shield, Chris also blogs about web security, cryptocurrencies, and social media trends.