Cryptocurrency has earned a reputation as a “safe” alternative to the traditional currency. In many respects, it is well deserved – cryptography allows for safer operations, and its decentralized nature minimizes the risk of corruption.
However, you should remember that nothing is truly secure, and users of Bitcoin and other cryptographic courses should be careful not to fall prey to cybercriminals.
You may even lose money by sending it to the wrong address without being able to cancel the transaction and get it back. Therefore, dealing with cybercriminals who have many sophisticated tools and schemes to steal your money is a dead-end road.
As Bitcoin, Ethereum, and a few others take off in price, this also requires caution. Being robbed by one Bitcoin two years ago would have meant losing several hundred dollars today. That figure would have been over $6,000.
The cryptocurrency market is filled with new people. They often have little experience of trading cryptocurrency and a poor understanding of the risks involved and how to avoid them.
As a result, everyone involved in cryptography should be aware of the risks associated with it and protect themselves against them.
1. What Is Cryptocurrency And How It Works?
Cryptocurrency is a digital payment system that does not rely on banks to verify transactions. It’s a peer-to-peer system that can allow anyone anywhere to either send or receive payments. It is instead of physical money being carried and exchanged in the real world.
Cryptocurrency payments exist purely as digital records on an online database that describes specific transactions. When you transfer funds in cryptology, transactions are recorded in a publicly available ledger. You keep your crypto in your digital wallet.
The cryptocurrency is named because it uses encryption to verify transactions. It means that when you store and transfer data, cryptocurrency between wallets and public ledgers use advanced encryption. The purpose of encryption is to ensure security and integrity.
The miners are trying to solve mathematical puzzles to place the next blockchain and demand a reward.
Exchange is a business (usually a website) where you can sell, buy, or trade cryptocurrencies.
Crypto wallets is a software that stores public and private keys and allows users to send and receive digital currency and monitor their balance.
2. Elements Of Cryptocurrency
Below is a list of elements that should be in each cryptocurrency to be considered a cryptocurrency.
Cryptocurrency only exists on computers. There are no coins or banknotes. There are no reserves for cryptography at Fort Knox or the Bank of England!
Cryptocurrencies have no central computer or server. They are distributed over a network consisting of (usually) thousands of computers. Networks without a central server are called decentralized networks.
Cryptocurrency is transmitted online from person to person. Users do not deal with each other through banks, PayPal, or Facebook. They deal with each other directly. Banks, PayPal, and Facebook are all trusted third parties.
Note: They are called trusted third parties because users should trust them with their personal information to use their services. For example, we charge the bank with our money, and we trust Facebook with our holiday photos!
It means that you do not have to provide personal information to own and use cryptocurrency. There are no rules about who can keep or use cryptocurrency. It is like posting a 4chan on a website, for example.
The absence of trusted third parties means that users should not trust the system to make it work. Users can always have full control over their money and information.
Each user has special codes that stop access to their information for other users. It is called cryptography, and it is almost impossible to crack it.
It is also where the cryptographic part of the cryptographic definition comes from. Cryptography means hidden. When information is hidden by cryptography, it is encrypted.
Countries have their currencies, called fiat currencies. Sending different currencies around the world is dangerous. Cryptocurrencies can easily be sent around the world. Cryptocurrency is currencies without borders!
This crypto-detection is a great start, but you are still far from understanding cryptocurrency.
3. What Are The Risks?
The risks associated with owning cryptography are mostly similar to those of any cybersecurity.
Phishing is one example. These are emails supposedly coming from a legitimate source, such as your bank (or crypto wallet), which require some confidential information, such as your login details.
Unfortunately, they are not from a trusted source, and the information will go straight to the opportunistic hacker.
It is estimated that in 2017 alone, $225 million worth of Ethereum was stolen through various phishing scams.
Some of the more traditional threats include computer viruses such as Trojan horses. These are malicious programs that infiltrate your computer as a harmless download similar to a movie.
One example of using a Trojan horse as a target for cryptography is the case of CryptoShuffler. This sneaky thing lurks on the victim’s computer and spies on their details.
For example, they were stealing the wallet addresses from the copy/paste clipboard. This method allowed criminals behind CryptoShuffler to steal a Bitcoin worth about $150,000 during 2016.
A writer, Adam Dachis, lost $10,000 worth of cryptocurrency after hackers gained access to his computer. Events like this, where hackers have access to personal computers to steal data, are too regular.
Some hackers seek the network to find the cryptographic device owners’ phone records and then use them to present themselves as their victims and gain access to their accounts.
Another unfortunate example of this is Cody Brown, who lost $8,000 worth of crypto in this type of attack.
Cheating with ICO is another risk waiting for newcomers and even more experienced traders. However, there is a huge number of absolutely legal and reliable ICOs, but as always, there are also a handful of bad apples.
These cowboy ICO projects deceive investors by plunging money into them and then only taking off with them, leaving them without their money or any way to get it back.
There are many other ways to steal crypto, and a whole bunch of high-profile disasters, like when Bitcoin was stolen for 460 million dollars.
With all these threats lying and waiting just below the cryptographic world’s surface, it is essential to take precautions.
These risks can, fortunately, be drastically reduced or even eliminated with just a few simple steps.
4. A Few Tips On How To Invest In Cryptocurrency Safely
According to Consumer Reports, investments are always risky, but some experts argue that cryptocurrency is one of the most dangerous investment options.
However, digital currencies are also among the hottest commodities. This year, CNBC predicted that the cryptocurrency market would reach $1 trillion by the end of 2018. If you plan to invest in cryptocurrency, these tips should help you make an informed choice.
a. Research Exchanges
Before you invest one dollar, learn about the exchange of cryptocurrencies. These platforms provide ways to buy and sell digital currencies; however, according to Bitcoin.com, there are 500 exchanges.
Before you go any further, conduct research, read reviews, and communicate with more experienced investors.
b. Know-How To Store Your Digital Currency
If you’re buying cryptocurrency, you should keep it. You can store it on the stock exchange or in a digital “wallet.” You should consider carefully which crypto wallet to choose.
Although there is a variety of wallets, each has its advantages, technical requirements, and security. As with stock exchanges, you should explore storage options before investing.
As much as possible, you should use offline wallets more than online wallets. These are wallets stored on removable devices such as USB, or even paper wallets where information is printed on a physical sheet of paper.
c. Diversify Your Investments
Diversification is a key to any sound investment strategy, and this is true when you invest in cryptocurrency.
It is recommended not to put all your money in Bitcoin, for example, because that name is familiar to you.
There are thousands of options, and it is best to spread your investment around several currencies.
d. Prepare For Volatility
The cryptocurrency market is volatile, so be prepared for ups and downs. You will see dramatic price fluctuations. If your investment portfolio or mental wellbeing is unable to cope with it, then cryptocurrency may not be the wisest choice that is suitable for you.
Cryptocurrency is quite a craze right now, but remember, it’s still in its infancy. Investing in something new comes with challenges, so be prepared.
If you plan to participate, do research and invest conservatively to get started.
e. Keep Your Computer And Information Safe.
Simple things like good antivirus software, a reliable firewall, and regular scanning can significantly reduce the likelihood of hackers and Trojan horses getting into your device and online data. Stay on top of your essential security, and half the battle should already be over.
If you receive an email that looks suspicious and comes from an address that doesn’t look official, it could be phishing. NEVER give out confidential information via email.
You should use two-factor authentication to ensure that your cryptocurrency is not available to unauthorized users.
Two-factor authentication protects you by ensuring that a hacker has to check not only your password but also your time-sensitive code.
f. Use A VPN For Maximum Security
Virtual private networks (VPNs) are the pinnacle of digital security. Using first-class VPN services is a great way to keep your digital currency safe.
These services encrypt your data, ensure anonymity, and create a secure tunnel for all your data.
Store And Backup Your Cryptocurrency Private Keys And Passwords.
“Investors should avoid the same common passwords that are reused on social networking sites,” says Chris Morales. He is Vectra’s (a technology provider based in San Jose, Calif) head of security analytics.
Instead, you should use strong two-factor authentication methods. It’s essential to use at least a multi-digit signature or multiple keys to authorize a Bitcoin transaction.
“It should significantly reduce the chances of fraud,” said Michael Borohovski, co-founder and chief technology officer of Tinfoil Security, a California-based cybersecurity company.
Think of it as multi-factor authentication for an email or bank account. “In the same spirit of using a standalone wallet, a backup of your private keys is necessary in case your keys are lost,” Morales says.
“Back up: It’s better to play safely and have access. Back up your cryptocurrency stashes as often as possible, especially anytime a deal happens,” Borokhovsky says.
“Store them both locally in your hardware wallet and the cloud, so that if one service or hard drive dies, you don’t lose all your money in cryptocurrency,” he says.
5. To Sum Up
The trick with cryptology is not to worry if you don’t understand it first. Every new video, explanation, or article you learn from will clarify cryptology until it finally clicks. Even when you feel like being ready to deal with cryptocurrency, make sure you read honest crypto broker’s reviews.
Hopefully, the information mentioned above would help any novice trader avoid getting into trouble.