Reposted from our company's blog here.
Cryptocurrencies like Bitcoin have gained exponentially since their inception over a decade ago.
With the demand for cryptocurrency soaring to new heights, the asset becomes increasingly lucrative to anyone.
As with any valuable assets, the risks of falling into the wrong hands are plausible.
Especially in the modern technology era where hackers, spammers, and phishers are getting sophisticated in their efforts to steal digital assets from users, it’s good to know how to increase the security of your crypto assets.
It’s helpful to be aware that cryptocurrency is built with anonymity and immutability in mind. Although all Bitcoin transactions and wallet addresses are recorded in the public blockchain, the addresses themselves don’t reveal private information about the owner.
This also means that wallet owners cannot be identified, and furthermore, transactions are irreversible.
So, if one gains access to your crypto wallet and transfers cryptocurrencies from your wallet to theirs, it will be impossible to retrieve the cryptocurrencies from them.
How to Secure Your Bitcoin: Understanding the Threats
Although the blockchain network is applauded for its transparency, the framework that supports the entire crypto industry is online.
Therefore, crypto assets are constantly exposed to these threats as more threat actors exploit online infrastructure vulnerabilities.
In 2020 alone, over $1.4 billion of cryptocurrencies were lost due to cybercrime. This was a significant drop from 2019’s $4.5 billion loss, indicating an industry’s responsiveness to emerging cyber threats.
However, cyber threats are continually evolving, demanding a proactive response in protecting digital frameworks against attacks. There are multiple security layers for a crypto wallet, and all these layers are susceptible to vulnerabilities and exposures. Here are some common ways that hackers execute attacks:
Exchange and Wallet Hacks
There have been massive cyber-attacks on cryptocurrency exchange platforms. These exchanges are often centrally governed, forming a desirable target for hackers. Many exchanges and their customers have suffered losses amounting to billions of dollars worth of cryptocurrencies.
In a recent case, a hacker remotely hacked a MetaMask wallet belonging to Hugh Karp, CEO of DeFi Insurer, Nexus Mutual. The hacker diverted up to $8 million of Karp’s funds to his wallet. Also, bugs in a project’s code could hit any crypto project hard since hackers who infiltrate the system can mint tokens infinitely, as it was recently for Cover Protocol.
Scams & Phishing
Social media scams, especially on Twitter, have been a recent favourite for hackers. These hackers infiltrate verified accounts and post fake giveaways using celebrities’ names (for example Tesla CEO Elon Musk), promising to double their cryptocurrencies when they deposit to the hackers’ wallets.
A Twitter account named Malware Hunter Team often tracks and alerts users of these scams. The team has reported that the hackers sometimes receive up to millions of dollars in weeks. Social engineering scams often involve manipulative or deceitful tactics that lure users into giving up their crucial information like wallet addresses, passphrases, passwords.
With these details, hackers can drain your wallet of all assets. The phishing tactics deployed include malicious emails and links that claim users require to login into their accounts. By clicking on such links, you are led to a fake website that collects the login credentials you put in, which hackers then use to infiltrate your account.
Phishing attacks mimicking popular crypto websites such as Binance, CoinMarketCap or CoinGecko are also rising. Hackers would use sophisticated credentials to represent the popular websites and prompt users to pay for advertising or listing services.
Securing Your Crypto Assets
Crypto asset security is successful when security is multi-layered and proactive.
First, multi-layered security is when you have multiple frameworks for securing your account so that hackers need more than one login credential to gain access to an account. Frequently, it is practically impossible for hackers to access accounts with such a security framework.
Secondly, proactive security is where the user remains vigilant and is careful never to give up any credentials that would otherwise expose their wallets to hackers. Instead of reacting to ‘cure’ the breach, why not prevent it, so it doesn’t occur.
Securing your crypto assets does not have to be left to your crypto exchange alone. Users hold a crucial role in securing their crypto assets. Here are precautions you should deploy to secure your crypto assets:
Use Multiple Wallets
There are various types of wallets in the crypto market – hot wallet, cold wallet, and those that are built on the Ethereum network (known as the ETH smart contract wallets.)
Like their names suggest, hot wallets are always connected to the internet and are suitable for those who do crypto transactions frequently. A good example of a hot wallet is the free wallet that the exchange Coinbase offers when you purchase crypto from them.
Cold wallets are the better option for long-term crypto storage; they are physical wallets and do not connect to the internet. Some examples include Trezor and Ledger Nano. However, storing your crypto assets into different wallets is not a guarantee that your assets will be completely safe, though the risks are mitigated. And these wallets are not completely foolproof either, proven from the recent Ledger hacks that happened in December 2020 where the hacker got hold of personal information from over 1 million of Ledger’s users.
Deploy Safe Cybersecurity Practices
In many cyber-attacks, users are often the weakest link in the security chain. This explains the growing number of crypto scams that target individuals. Ensure you have multi-factor authentication (MFA) to add additional security to your wallet. Change your passwords regularly. Use secure internet (do not connect to public Wi-Fi). Remember, if it seems too good to be true, then it probably is. So do not open links that promise to double your crypto asset or anything of that kind. Be careful and contact official exchange support if you have any issues.
Centralized Finance (CeFi) Platforms
You could also hold your crypto assets in a CeFi platform like Hodlnaut, YouHodler, or Celsius Network. CeFi platforms adopted principles from the decentralized exchanges and added the custodial element into them. Your funds are safeguarded by the company or group of people behind the platform and usually insured against hacks. Putting your crypto into a CeFi platform also comes with an added benefit in the form of high interest rates.
Diversify Your Crypto Assets
Total security is impracticable. In the worst case, if a hacker successfully breaches your wallet, the least possible damage is preferable. That’s why it’s not a bad idea to also diversify your digital assets.
If you only buy one type of crypto, for example, Bitcoin, and store all of it in one wallet, the damage could be more significant compared to distributing different cryptocurrencies into different wallets. Diversifying your crypto assets not only dilutes the risks but also could help you earn the highest plausible returns on the assets.
With the rapid growth of cryptocurrency, the need for its security is increasing. Hodlers can’t afford to have their digital assets stolen because it would be practically impossible to retrieve.
Preventing these hacks are the most sensible thing that you can do to safeguard your crypto. Being aware of how the cyberthreats are evolving is a good starting point. The next thing to do is to apply preventive measures such as storing assets in different wallets while following the best security practices such as enabling multi-factor authentication.
Even out-of-the-box methods such as entrusting your assets to CeFi platforms while earning interest from it and diversifying your digital assets could mitigate the security risks. Despite the ever-present threats, deploying these methods will add more security layers to your crypto assets and ultimately enabling you to enjoy the yield that these assets bring.