Security in Crypto: A Complete Guide | by Abiodun Ajayi | The Dark Side | Oct, 2023

Imagine losing your hard-earned money to a hacker who stole your crypto assets. This is not a hypothetical scenario but a harsh reality for many crypto investors. Crypto hacking is a nightmare that haunts many investors who entrust their digital assets to online platforms. Exchanges provide a secure and convenient way to buy, sell, and store cryptocurrencies. However, they are also vulnerable to cyberattacks that can result in massive losses for their users.

Chris, a taxi driver from Austria, had saved up 2,500 euros (£2,100) worth of cryptocurrency coins on Liquid Global, a Japanese exchange. He was planning to buy a new, used car with that money, but his dreams were shattered when hackers stole $100 million (£72.8 million) from the exchange in August 20231. He is still waiting for the company to reimburse him and other victims.

Dina, a housewife from Indonesia, had invested $30,000 in crypto on BitMart, another exchange based in Seychelles. She hoped to earn some income from her investments, but she was shocked when she discovered that hackers had looted $200 million from the platform in December 20222. She has not received any compensation from BitMart yet and is considering joining a class-action lawsuit against the exchange.

James, a student from Sydney, had gifted his parents one Bitcoin on friend.tech, a social media platform that integrates crypto features. His parents had seen their Bitcoin grow in value to 70,000 Australian dollars (£37,000), but they panicked when they heard that friend.tech had suffered a SIM-swap attack that cost its users $385,000 in Ether in October 20233. They managed to sell their Bitcoin at a loss and withdraw their money before the platform froze all transactions.

These are just some examples of the real victims of mass crypto-hacks that keep happening around the world. According to Chainalysis, which tracks illegal activities on blockchains, 2022 was the biggest year ever for crypto hacking, with $3.8 billion stolen from cryptocurrency businesses. The report also revealed that October was the most devastating month ever for crypto hacking, with 32 attacks costing $775.7 million.

Crypto hacking is not only a threat to individual investors but also to the security and stability of the crypto ecosystem. It undermines the trust and confidence that are essential for the adoption and growth of cryptocurrencies.

Many investors are concerned about the security of investing in crypto. This is because crypto assets, such as bitcoin, are digital assets that can be transferred without intermediaries and have different levels of privacy.

There are four other factors affecting adoption:

1. The education curve for crypto can be steep
2. Most investment advisors and brokerages do not yet offer crypto investing support, forcing the “crypto curious” to validate investment opportunities, identify trading platforms, and manage assets on their own
3. The exuberance that can come from the volatile nature of the space may lead to FOMO (fear of missing out) in opportunistic investors, which could lead them to drop their guard when it comes to trusting platforms and “helpful hands.”
4. As more decentralized applications emerge, 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.

Traditional Web2 platforms, such as banks, store your data in one place. You trust them for safe transactions. But if hackers breach that place, your sensitive information is at risk. Plus, you pass the responsibility of safety to them. If you forget your password, the bank will reset it for you.

Crypto security is different. Data is scattered, so an attacker won’t steal all of your data. Projects are built with security and privacy at the core. This allows for a safer experience online. However, this increased security demands more responsibility. Your seed phrase is like the key to your vault. Lose it and you lose access forever. Projects cannot reset your keys as they never had control.

We all know about passwords. Those special characters, capital letters, and more help secure our data. It’s a great start. But with crypto, there are layers of security. Adding an extra layer of security is like a second lock on your vault. When you log in, you get a unique code. Without this code, no one can get in.

Imagine a physical safe deposit box for your digital assets. That’s a hardware wallet. Unlike wallet apps on your computer or mobile device, hardware wallet has only one function- safekeeping your crypto. It ensures an extra layer of security, making it difficult for hackers to gain access to your crypto. Hardware wallets let you confirm transactions on the device. As a result, even if someone gains access to your computer or mobile device, they can’t approve transactions.

As crypto continues to go mainstream, one can bet that scammers, thieves, and fraudsters will continue looking for ways to misappropriate funds.

However, there are ways to protect yourself. Here are some key items to keep in mind.

1. Remember, 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.
2. Do your own research — never take anyone’s word at face value.
3. Be skeptical of new token projects, especially if they are being led by unknown or unproven individuals.
4. Be suspicious of emails or solicitations that you did not request.
5. Resist the urge to publicize 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.
6. Never click on any links or attachments from an email if they appear suspicious.
7. Never share or reuse passwords, especially for your crypto or online banking accounts. Additionally, make sure that you enable two-factor authentication (2FA) for all accounts.
8. Do not give any person or organization unilateral control over your account.
9. If you plan to trade directly on an exchange, make sure it is one with legitimate trade volumes and a strong reputation for security. Less-popular exchanges have been known to inflate their volumes by 100%. A selected list of reputable exchanges includes Coinbase, Kraken, Bitstamp, and Gemini.
10. Don’t keep all your eggs in one basket. You don’t keep all your cash underneath your mattress; don’t make the equivalent mistake with crypto. In fact, once you start to build up your positions, you may want to think about taking funds off of exchanges to keep them in hardware wallets or cold storage.

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Disclaimer: This content is for educational purposes only and should not be considered financial or other advice. Always do your due diligence before investing.