The Cybersecurity Risks of Cryptocurrency
The evolution of cryptocurrency has taken the world by storm in the past decade. In 2013, there were only 66 types of cryptocurrency worldwide. In February 2022, Statista reports around 10,397 cryptocurrencies that people can invest in.
Cryptocurrency, often referred to as just crypto, is a form of digital money. This electronic currency uses blockchain technology, a secure, digital ledger containing crypto transactions.
While many investors are keen on learning about crypto, following the latest crypto trends and making a profit, it’s critical to weigh the risks associated with trading cryptocurrency.
Below, we’re going to discuss some of the cybersecurity risks associated with investing in crypto, as well as some ways to protect yourself when investing your hard-earned money into digital tokens.
Major Cybersecurity Risks Associated With Cryptocurrency
Crypto has the potential to yield significant returns for users, especially because exchange rates are so volatile. However, investing in crypto can be potentially dangerous for those who fail to research or exercise best cybersecurity practices.
As crypto grows and becomes more widely used, the easier it becomes for hackers to use various methods to steal sensitive information and investor assets. In one case, the website crypto.com reported that it lost over $30 million in Ethereum and Bitcoin when hackers made unauthorized withdrawals.
To avoid facing any cybersecurity issues, it’s critical to know how investing in crypto can get you into murky waters. Below are some common cybersecurity risks that come with investing in crypto that you should know.
1. Phishing Attacks
Phishing attacks are so common, even outside of the crypto world. Essentially, phishing is a method used by hackers to make it seem as if they’re representing a reputable company, such as a crypto trading platform, to email users and get them to perform some action. Sometimes, it’s clicking on a suspicious link or having them forward their login credentials.
Hackers rely on phishing scams to have crypto users turn over their digital assets. Spear phishing, DNS hacking, phishing bots and fake browser extensions are examples of common phishing attacks hackers will use to take advantage of crypto investors.
2. Illegitimate Trading Platforms
Because cryptocurrency is still evolving, new trading platforms are emerging, hoping to gain the trust of people interested in investing in crypto. However, not all of these platforms are legitimate.
Consider One Coin, for example. One Coin was a seemingly reputable cryptocurrency company that lured users in by promising big returns, but the entire currency system ended up being a scam. It was found to be a multi-level marketing scam that ended up costing people a lot of money. Not every risk associated with crypto comes in the form of a hack or data breach. Sometimes, the fraudulent activity is happening in plain sight.
3. Using Third-Party Applications
In some cases, crypto investors will rely on third-party applications or software to manage their digital assets. For example, it’s common for investors to use crypto tax reporting services, but this can open them up to more cybersecurity risks.
It was reported that a hacker was able to steal data from over 1,000 users after breaking into CryptoTrader.Tax. The hacker gained access by entering a marketing and customer service representative’s account, which displayed all kinds of sensitive information that put users at risk.
Essentially, crypto-malware is a form of malware that allows unauthorized users to mine cryptocurrencies using someone else’s computer or server. Hackers will use one of two methods to infect someone’s computer:
- Victims are tricked into installing malware code onto their computers using phishing-like tactics.
- Cybercriminals inject malicious code into websites or ads. When victims interact with them, the code runs and gives hackers access.
In 2018, Forbes reported that crypto-malware had grown by 4,000%.
5. Cryptocurrency Account Security
It’s critical to understand that users access their digital assets by using a “private key,” which is essentially a complex password code. Many users will store their private keys on their computers, but that comes with risk. If hackers gain access to your computer, they’ll also be able to use that private key to log in to your digital account.
Once a private key is stolen, there’s no way of getting it back because cryptocurrency is not highly regulated. Investors are the only ones responsible for keeping their private keys out of the hands of hackers, which makes crypto investing riskier compared to traditional investments.
6. Unregulated Cryptocurrency Exchanges
As mentioned above, crypto is almost like the Wild West because it’s unregulated and a bit of a free for all. Cryptocurrency is decentralized, meaning that no agency, organization or governing body oversees the creation, management or movement of cryptocurrencies.
While some believe the lack of regulation is beneficial, it can have its downsides. China even outlawed cryptocurrency transactions in 2019. More countries will likely crackdown on cryptocurrency regulations because they can breed hackers and scammers.
7. User Confusion
Because cryptocurrency is not yet widely understood, it can lead to detrimental outcomes for unbeknownst investors. The very nature of cryptocurrency, crypto exchanges and blockchain technology are complex. It can be challenging to understand, even for seasoned investors.
Crypto only exists on the ether of the internet. Unlike traditional assets, like money in your savings account, cryptocurrency is generally less secure, making it riskier for investors.
How to Mitigate Cybersecurity Risks When Investing in Cryptocurrency
Above, we’ve identified some of the major cybersecurity risks related to cryptocurrency investments. However, how can you protect yourself when investing in crypto, and what are some of the best cybersecurity practices you can employ?
Here are some specific steps you can take:
- Never share your private key or login credentials with anyone, regardless of if they claim to represent a reputable cryptocurrency company. Consider keeping your key stored on an external device, such as a USB.
- Do your due diligence and research companies and their tokens before investing.
- Don’t respond to unsolicited offers to invest in crypto. Avoid clicking on any suspicious links or ads — this could open you up to more cybersecurity risks.
- Keep an eye on the latest crypto trends, news stories and any announcements related to cryptocurrencies you invest in.
- Use strong, unique passwords at all times to make your online accounts more secure and keep hackers at bay.
Keep all of these risks and cybersecurity practices in mind when investing in cryptocurrency. We’re still learning more about digital money, but it’s always wise to be on the lookout for cybersecurity threats so you can protect yourself and your assets.
Make Cybersecurity a Top Priority When Investing in Crypto
There are no signs of cryptocurrency slowing down. As it becomes more mainstream, hackers will use all the tools in their arsenal to target unsuspecting victims.
By understanding the risks that come with investing in cryptocurrency, you are better prepared to fend off hackers and keep your assets safe. Consider using some of the tips above to protect yourself and avoid losing out on any significant investments in the future.
Zac Amos writes about AI, cybersecurity and other trending technology topics, and he works as the Features Editor at ReHack.