The emergence of cryptocurrency — decentralized, digital alternatives to fiat money ― is changing the ways in which we perform financial transactions. Yet through the proliferation of cryptocurrencies, come greater than ever security concerns. With the invention of cryptocurrencies, cyber-related incidents such as hacking, and fraud have also become commonplace. To anticipate these security issues, we need to understand some crypto security related challenges, an example of a crypto heist, and best practices to protect digital assets.
The Security Challenges of Cryptocurrency
Hacking is perhaps the greatest threat to cryptocurrency. Criminals steal cryptocurrencies from exchanges, wallets, and individual accounts. Larger attacks can be devastating – and very costly. Several major exchanges have been hacked, with millions of dollars’ worth of crypto stolen. Strictly speaking, these attacks aren’t even that sophisticated or surprising – criminals take advantage of known software, network, or human behavior vulnerabilities to seize funds. Decentralization and pseudonymity make cryptocurrencies an easy target.
Every week, new bogus schemes – known as ‘pump and dumps’, phishing, Ponzi schemes or ICOs (fake Initial Coin Offerings) – crop up and trick naive investors into handing over their bitcoins. Using cryptocurrencies, it can be quite easy for scammers to attract pseudonymous investors to shady schemes because, at the moment, no legislation governs and helps to regulate this. Not infrequently, these schemes have been constructed to a seemingly artful level of complexity – it can be difficult for even more seasoned investors to identify what’s a legitimate investment opportunity, and what’s simply a scam.
Other cybercriminals employ malware and ransomware to infect devices and steal cryptocurrency. When a device has been infected, the private keys can be used to empty an account. Ransomware attacks – where the victim must pay in cryptocurrency to recover their systems – have also become more frequent. In addition, malware aimed at specific vulnerabilities in code or circuitry to access and steal cryptocurrency continues to increase.
If smart contracts are ones whose terms are encoded directly into computer code – the terms are digitized – then bugs in the code could be exploited. It’s not hard to imagine how smart contracts, embedded in the blockchain, could lead to massive financial losses. Poorly written ones could be hacked to divert funds or make other erroneous moves. The more we incorporate such contracts into our decentralized world, the more important thorough security audits and testing are going to become.
The regulatory landscape for cryptocurrencies is still developing. Regulatory changes may make some transactions more or less secure or legal; and they may increase compliance risk, either for specific transactions or more broadly. Such changes may also limit the role of exchanges and may even affect the value of cryptocurrencies. It is therefore important to monitor developments in regulation and the implications they have.
Revisiting the DMM Bitcoin Crypto Exchange Heist
The breach of the DMM Bitcoin Crypto Exchange comes to mind, if we include recent history. Japan’s largest Bitcoin exchange, DMM, was publicly hacked after an automatic attacker managed to penetrate the cryptocurrency exchange’s security architecture to drain about $308 million through unknown means in various cryptocurrencies over a short span of time. This was a textbook hack of a classic kind and reveals the imperviousness of much of the ‘web of crypto’ to current market regulations. Exchange they must, of course, to guarantee ongoing security and vigilance in the face of ever-evolving malicious agents.
The DMM Bitcoin breach within such a large, highly regulated, and well-established exchange illustrates that all centralized exchanges can still be vulnerable and that security protocols can always improve. As a result, the cryptocurrency community is more vigilant today, and many exchanges have become much safer for their users than before. DMM Bitcoin is not an isolated incident, and the threats are constantly evolving.
Best Practices for Securing Digital Assets
Moreover, to avoid the risks, use trustworthy exchanges with a strong security program behind them. Stick to well-established, reputable cryptocurrency exchanges that have MFA (multi-factor authentication). This is a second form of verification that you enter on top of your password, that the attacker can’t know merely having got hold of your password. Lastly, have a good track record of providing fast responses to security breaches.
Securing your wallet is another key step in securing your safety. Hardware wallets (reusable physical devices that store your private keys offline) are less susceptible to hacking than software wallets or exchange-hosted wallets, as are frequently updated software wallets, exchange apps, and other such software. Updates often include security patches against known threats. These patches are usually released in response to new vulnerabilities discovered since your last upgrade.
Steer clear of phishing by crosschecking the URLs and email addresses of all communications related to your cryptocurrency accounts. Phishing attacks replicate the style of trustworthy sites, with the intent of pilfering your credentials. Secondly, back up your private keys in several different secure locations that are undisclosed to others so that you don’t lose or have those keys stolen. Make sure these backups are safeguarded from unauthorized access and stored accordingly.
And if you’re engaged in DeFi or other smart-contract projects, have yourself checked regularly by a well-known cybersecurity agency – that way, they can find (and plug) the vulnerabilities before hackers do. You also have to cultivate your own knowledge by keeping up with the latest news and developments. At a minimum, read about the latest security threats and responses for cryptocurrency users. You might consider joining some forums and reading industry news while also taking cybersecurity courses to make sure you’re kept in the loop.
Another step you can take to ensure safety is to look into taking out insurance on your digital assets. Certain insurers offer policies that can cover losses from theft and hacking, giving you another layer of protection, and potentially some peace of mind, in the volatile world of cryptocurrency.
Conclusion
The bigger cryptocurrencies get – both in popularity and value – the more likely hacks of the highest magnitude are to occur. It means being proactive about risk identification and mitigation – using hardware wallets, two-factor authentication, locking down your software, and keeping an eye out for phishing attempts. Those are just some of the tools that security-minded individuals can use to up their game in protecting crypto. Taken together, we can start to defend against the emergent threats that cryptocurrency poses, and we can keep ourselves reasonably safe from the kinds of actors it will keep attracting. Whatever it takes, keep up to date on the threats, and be vigilant.