When Satoshi Nakamoto launched Bitcoin, the first cryptocurrency, the developers and early investors were highly optimistic because they had found a way of countering distrust from centralized entities and intermediaries.
The design with highly sophisticated encryption, decentralized structure, and irreversible transactions was expected to make the system inviolable and unhackable.
However, things do not appear to follow these expectations. The system has become vulnerable to high tech criminals and even human error.
The security lapses that are emerging in the blockchain sector are subjecting the digital asset owners to serious risks;
This guide was created to provide cryptocurrency owners and enthusiasts with comprehensive answers to the above questions.
From the start, when the Bitcoin protocol was released in 2009, cryptocurrency ownership has given investors a very motivating experience.
The bulk of this motivation arises from factors like the potential for gains (or losses) in coin value or even the emerging possibility of regulation. Most of the factors affecting the value are way above investor control.
Another serious risk of the danger of security breaches. Though investors have significant control over the danger of losing coins in the event of a security breach, no guarantees are provided. To keep your coins safe, it is important to combine knowledge, vigilance, and discipline when operating in the niche.
Willie Sutton, one of the famous American robbers, was once asked why he robbed banks. He is reported to have replied, “That is where the money is?”
In the same spirit, the rate and value of security breaches against cryptocurrency owners have been going up. Why the upward trend? Because user numbers and value of the cryptocurrencies are on an upward trend.
Take the case of 2017 statistics on cryptocurrencies captured by The Telegraph.
To succeed in your cryptocurrency investment, you need to keep the coins safe.
This guide was created to help people holding crypto coins or prospective investors identify, detect, and recover (where possible) from various security vulnerabilities.
If you follow many people who promote cryptocurrencies, you will realize that they mainly focus on the positive side of owning the coins.
This guide is different.
We combined an inclusive list of key security problems that you should anticipate when investing in cryptocurrencies. We are not trying to pose the cryptocurrencies in lousy light. We will also focus on how those in cryptocurrencies can detect and even avoid related loss and crime.
The following scenarios depict the negative side of investing in cryptocurrencies that many promoters rarely tell you.
Investors often lose their coins through;
Criminals are becoming very sophisticated and are using advanced technologies.
The above security risks and misfortunes demonstrate the diverse themes of deception, theft, and use of malware.”
Before diving deeper into the methods you can use to challenge the security risks, it is prudent to take a closer look at some of the basic ideas that the cryptocurrency security is premised on. We identify the basic idea, the relation to security, and give references to other sources for additional details.
Here, we presume you are familiar with the two primary concepts. The blockchain is a digitized and decentralized public ledger of all cryptocurrency transactions. The progressively growing blocks are recorded in the public ledger chronologically. Cryptocurrency, on the other hand, is a digital currency that utilizes cryptography for security to make it difficult to counterfeit for its advanced features. If you need, consider refreshing your memory of the two concepts here and here.
In the crypto niche, protecting and storing digital coins are the core elements needed for success. The crypto networks provide users with complex codes for protection while wallets and digital exchange offer storage and facilitate transactions.
Encryption involves hiding data by converting it to a special code that can be transmitted through cryptocurrency networks without easily getting revealed. To get the encrypted data, the targeted recipient is required to have a decryption code. These decryption codes are referred to as keys.
When using two-key encryption, the security is provided on two important pieces of information referred to as the private-public key pair.
Public key gives the location where the coins are stored online. The private key helps to decrypt and reveal the information about the stored coins. The data that is stored on the blockchain includes the validation of the location, amount, and ownership.
The private keys info has become the primary target of cybercriminals. They employ various tactics such as breaking through installed security walls to gain access to the private keys. They steal the keys because digital coins lack a physical form, the way we know dollars or Euros.
The main key to understanding cryptocurrency security is this; the person with the private keys validation info is the owner of the currency. Therefore, you lose the private keys; you lose the cryptocurrency.
Irrespective of the cryptocurrency of interest, the private keys will need to be stored securely somewhere. That location where you store the coins is called a digital wallet.
The cryptocurrency wallet can be an online wallet or third-party service such as the exchanges. You can also opt to store the coins in offline storage such as hardware or paper wallets.
The level of risk security: The longer the wallet you are using to store the tokens is connected to the internet, the higher the danger of losing the coins.
If you want to store the tokens safely, you would need to use two digital wallets; hot wallet for running transactions, and cold wallet for storing the coins especially on the long-term.
NOTE: It is a security best practice to back up your private keys for all the wallets and securing them offline.
When the first system for mining was set up in 2009, the potential was only for 21 million Bitcoins. But only about 17 million Bitcoins are in use.
Crypto mining is the process of releasing new coins into the system. The process involves gathering and verifying the blockchain transactions of the respective network and releasing new blocks into the public ledger.
The procedure involves miners who are required to solve complex mathematical puzzles to get the opportunity to verify the transactions. The first one to get the puzzle right gets the chance to add the new block and gets rewarded with native coins. To remain competitive (confirm more transactions) you will need specialized hardware such as GPU and ASICs that generate a lot of hashing power.
Key attack opportunities used by fraudsters at this point include:
For people who closely follow the crypto news, the list of crimes is indeed long. They range from shady dealings to spoofs that target those with the coins. Here are some of the terms you need to know and that will help you remained informed. How many of these do you know?
Once the hackers have taken control over your number, they access your cryptocurrency exchange account, compromise the password, use the phone number for the second-factor authentication, and siphon away the coins.
In many forums, you will hear many analysts indicating that the only safe method of storing coins is through cold storage. However, this is a great option especially for those who target long-term storage. However, you will at some point need to transfer the coins to another wallet or exchange them.
The following are great tips you can use to keep the coins safe:
Isolating the investment involves using a dedicated computer for transactions to and from the wallet. The process involves creating an air gap around the computer by ensuring that it is not connected to the internet when no transactions are running.
You can also isolate the computer by ensuring it can only connect to the network through another computer (gateway).
The method is one of the simplest to use. Connect the computer when running a transaction and disconnect immediately after the transaction is completed.
Remember that the computer should not be used for any other task.
Today, Bitcoin stands out for being the oldest cryptocurrency in the blockchain niche. It is also the most successful in terms of price and adoption across the globe. Despite this success, many security issues about BTC have emerged because of its vulnerability to the rising number of illegal traders or attacks on the exchanges and storage pools.
Bitcoin protocol was created on the proof of work (PoW) consensus algorithm, which allows transactions to be run in a decentralized, secure, and peer2peer basis. Because the platform does not require a centralized organization such as a bank, the transactions reliance on mining means that they are not 100% secure.
As you peruse through the detailed how-to pieces below, make sure to pick the tactics that need technical abilities. Then, learn about such technicalities either directly on various forums or engaging a security specialist. Remember that you do not need to be a tech guru to protect your coins. Being knowledgeable helps to lower the risk of getting attacked, but there are no guarantees when it comes to cryptocurrencies.
According to Isaiah Sanju, a Cryptocurrency security expert, the risk that people will probably face depends on the total coins they hold and their daily transactions. Therefore, his advice for addressing such risks includes;
The public ledgers used in cryptocurrencies do not have centralized documentation systems. This implies that if the wallet or private keys are lost, your coins would also be lost.
Yes, You Lose the Keys, You Lose the Coins
When people wake up and find they have lost the private keys to their wallets, they are left wondering how exactly everything unfolded. But this can happen easily in the following ways.
This can be summed up as being paranoid. This means the following:
When it comes to cryptocurrencies, prevention is the only cure. Do not think of recovery because it will be too late.
In December 2017, NeceHash reported that it lost about $64 million in BTC during an attack on its system. NiceHash, a Slovenia based exchange, helps people to mine cryptocurrencies by leveraging unused CPU cycles on their computers.
Stealing computer data through ransomware has made many enterprises start installing ransomware defense systems as a priority. Cryptocurrency investors should also take note of the ransomware threat and take caution. Though the popularity of ransomware has gone down significantly in most industries, the crypto ransomware remains a serious threat especially to small businesses and individual investors.
Ransomware attack happens when a code is injected into a computer, encrypts your data, and holds it hostage until a ransom is paid. Since cryptocurrencies are unregulated, it is possible for hackers to remain completely anonymous and demands payment in cryptocurrencies that are completely anonymous such as Monero.
What is the rate of ransomware occurrence? The answer is, often. As more cryptocurrencies hit the market, and the value increases, the ransomware-as-a-service resources have become more common. This implies that more crooks are likely to make money without even investing funds into a malicious attack.
In many cases, the attacker notifies when it is very late with a frightening message that no business wants to get.
However, it is possible to recognize the exploits that make ransomware attacks possible. Get screenshots of the digital exchange accounts as well as the offline wallet files. It is crucial to learn to distinguish these two and the messages sent by Phishing attackers.
It is important to follow the rule of the thumb when trying to stay free from attacks; never follow links from emails unless you were expecting some specific communiqué. Instead, you should go directly to their website and initiate the conversation/ send a message.
There are a number of highly effective methods that people can use to stay free from ransomware attacks. Here are some of them:
Early in 2018, a cryptomining botnet referred to as Smominru was discovered. This bot had infected over 500,000 computers in Russia, Taiwan, and India. It was targeted at Windows servers used to mine Monero. Proofpoint, a Cybersecurity firm, estimated that by close of January 2018, the bot had generated approximately $3.6 million.
The cryptocurrency attackers are also employing ransomware-like methods and compromised websites to make your computer mine coins for them.
Cryptojacking mainly works as a malicious infection that steals the target CPU resources to mine crypto coins for criminals.
These criminals employ phishing strategies to load the crypto mining codes on the target computer. They could also inject scripts through ads delivered via different websites. In many cases, hackers opt for both methods to optimize returns.
Note that in some cases, you could get ransomware and cryptojacking categorized together. However, this post uses the narrower definition of cryptojacking to refer only to cryptomining. .
Unlike other attacks such as ransomware that often provide the victim with notices from hackers, you might not get any sign of cryptojacking. This is the reason you should do the following:
Note that unlike other attacks that target siphoning away your coins, cryptojacking does not have a direct impact on the cryptocurrency investment. What it does is draining the computer resources that can result to system crashes and poor performance.
Because an optimally performing IT infrastructure is crucial to managing digital currencies, cryptojacking can be very expensive.
The following are some active measures you can use to avoid cryptojacking or identify it promptly.
When you establish that your computer resources were cryptojacked, you should stop their flow. Consider using the following steps immediately.
If you find it difficult to implement these strategies, do not hesitate to use an IT expert for assistance.
Phishing is a common exploit that targets infecting mobile wallet applications and other areas where the digital coins are stored. Here, it is important to appreciate that Phishing is a means to an end that is targeted at making the target expose the sensitive info such as the private keys.
The commonest method of sending phishing scams are worms and Trojan malware. They are carefully designed to trick users into opening attachments that contain malicious codes or clicking links pointing to fake sites.
Once you open such sites or attachments, the attackers will steal your info using the malware.
Phishers are mainly interested in getting private keys and other logins that can provide them with access to investors’ wallet. These cases surge when the price of Bitcoin prices goes up.
These attacks were mainly directed at financial organizations such as online stores, banks, and payment services.
On January 28th, 2018, a hacker gained access to Coincheck exchange and made away with close to $524 million in crypto coins. This attack has made the need for regulations to go a notch higher.
The break-in brought to fore two key issues of the current crypto market; the digital wallets are not amply secure, and the exchanges across the globe are wildly when it comes to info security expertise.
Cryptocurrency investors store their tokens in encrypted storages referred to as cryptocurrency/ digital wallets. They include.
Cybercriminals target deceiving the coin owners into downloading and installing malware designed to look like wallets. Once the target opens the files, a fake registration form is used to request the user’s personal details.
Before the investor knows what has happened, the malware moves his coins to another location. Here are the main methods that the criminals use to break into wallets.
In December 2017, SEC closed down PlexCoin ICO which was thought to be a $15 million fraud.
Note that hackers can also spoof legitimate ICOs and trick investors into paying them as opposed to sending funds to the real company.
Avoiding digital wallet attacks requires the user to get obsessive with digital security. What does this mean?
In mid-2017, one of the most popular Ethereum Classic exchanges was reported to be stealing funds users. Hackers employed social engineering to convince managers they were the actual owners before they started intercepting the cash flows.
Luckily, the exchange managers noted something was wrong and halted the process immediately. Lucking, the holders got their funds back.
Note that the happy endings like the one just described above are rare. Social engineering is designed as a means to an end. Like Phishing attacks, there are a number of ways that crooks accomplish their mission.
The main method used in social engineering involves the crooks trying to convince scammers they are the legitimate owners of the wallets. Then, they divert the coins to their wallets.
Most social-engineering based exploits involve presenting investors with false identities. This implies that it is prudent to know who the parties and entities you are dealing with when buying, storing, and selling coins. To detect related scams, here are some of the tips to look for.
Take to the crypto forums, and you will hear many people indicating they sent coins to the wrong addresses. Because the private and public keys are strings of numbers and letters, getting one of the characters wrong is all that is required to send the coins to the wrong person.
Because of the built-in checking procedure when sending coins, typing the wrong characters would prevent the application from sending the cryptocurrencies into cyberspace. Well, this can be prevented but the user need to be prepared well before something wrong takes place.
Typos can be avoided by using good password management software. You should also use the copy and paste functions with a lot of care. Remember that the destination should be checked severally before hitting the send button.
Note that this loss mainly happens when sending the tokens to a wallet that holds related coins (think of a wallet that holds Bitcoin Cash and Bitcoin). Though this problem can be solved theoretically, you would probably be out of luck in reality.
Unfortunately, many people lose track of their coins by sharing their private keys with criminals without realizing. Misplaced trust results in sending coins into an unchangeable one-way route to another person’s wallet. Note that many people claim they lost their tokens via typo because it is easier to explain it compared to others such as poor human judgment.
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