How Secure is Cryptocurrency Now?
Exactly how secure are cryptocurrencies? Are they as safe as gold, silver, corn, or even US Treasury bonds? How easy is it to hack bitcoin and the other popular digital currencies? These are some of the burning questions investors ask themselves about cryptocurrencies. These assets have created many billionaires. In the same vein, they’ve also depleted many people’s funds, leaving them bankrupt.
The debate on the security and stability of cryptocurrency has raged on for years. Some people are convinced that Bitcoin and Ethereum are the future of money. Others are still sceptical about the safety of these alternative currencies.
The renowned Wall Street Hedge fund investor, Jamie Dimon, is not a fan of the cryptocurrency movement. Jamie believes that the currency will eventually flop. He argues that it's impossible to have a business model based on an assumed currency. No smart person is going to buy a currency that's materialised from thin air, according to Dimon. Soon after making this statement, bitcoin's value dropped by a whopping 6%. The value eventually rebounded as it edged to new record highs.
What is Cryptocurrency?
The name 'cryptocurrency' denotes the advanced encryption used to secure and verify transactions. Encryption serves to reinforce the payments' security.
How it Works
Cryptocurrencies are digital payments that function independently from the conventional banking systems. They’re peer-to-peer virtual currencies that enable you to send and receive money from anywhere in the world.
Cryptocurrencies threaten to replace the conventional fiat currencies we're used to (e.g. NZD, USD). Cryptocurrency users have to record their transactions in a publicly-shared online ledger. This move effectively bolsters the transparency of these transactions. You need a digital wallet to store your cryptos.
History of Cryptocurrencies
Bitcoin was the world's first cryptocurrency, launched in 2009 by the legendary Satoshi Nakamoto. Satoshi's electronic payment system is based around a complicated mathematical proof. Satoshi aimed to create an alternative payment system that operated outside central banks; a system that charged low transaction fees.
Satoshi's goal was to introduce a replacement to the traditional online commerce systems. Earlier systems were too dependent on the so-called trusted third parties.
Bitcoin's success saw the introduction of hundreds of other cryptocurrencies into the market. The new cryptocurrencies were aptly named altcoins. Altcoins include Etherum, Dogecoin, LiteCoin, Dash and many more.
Are Cryptocurrencies Hack-Proof?
Digital gold, as cryptocurrencies are often referred to, was primarily designed to promote anonymity. They also enhance security. Satoshi is credited with pioneering the security protocols known as blockchain technology. This technology ensures pseudonymous and secure transactions for all.
Blockchain is a list of entries that coincide with each cryptocurrency transaction entry in the ledgers. Each block in the chain gets secured using cryptography and the blockchain details all the transaction data and their corresponding timestamps. This data is shared and stored in a public peer to peer network, and recorded entries are not editable once posted on the ledger. That serves to promote the transparency of this payment system.
For the past couple of years, more companies have started to embrace cryptocurrencies. In 2013, a customer purchased a Tesla Model S using Bitcoin. He paid 91.4 bitcoins for the electric vehicle. Since then, establishments like Starbucks have also come on board this bandwagon. Starbucks (overseas) now accepts bitcoin payments from customers.
Banks are yet to embrace these payments entirely. Most banks have, however, started paying attention to the trend. These financial institutions realise that if they don't adapt, they'll perish. Many have had their accounts frozen after receiving Bitcoin transactions, but this is now changing. It's expected for banks to oppose the cryptocurrency movement. After all, this new payment system threatens their existing business models.
Nations are also taking notes on the cryptocurrencies. Japan has issued licenses to well over 250K stores that accept bitcoin payments. The Chinese government is still opposed to the use of these payment systems. In September 2020, the Chinese firm, NEO, released its first decentralised finance, or DeFi stack to rival Ethereum technology. Neo has pioneered a network lending platform called Flamingo.
Today, Flamingo has succeeded in locking in tokens worth an estimated $2 billion. China also has the YCC, or the Yuan Chain Coin cryptocurrency tokens still powered by Ethereum-like blockchain technologies
Investors from all over the world are rushing to add cryptocurrencies to portfolios. Some folks are not even taking the time to study the risks involved.
This peer-to-peer digital currency is heavily encrypted. That makes it difficult for hackers to penetrate the system. Supporting blockchain technology is impenetrable. No one has succeeded in cracking the encryptions behind bitcoin so far. The security risks arise when one is trading with cryptocurrencies.
Storing Cryptocurrencies
Cryptocurrencies are held in wallets. You need a digital wallet to hold your valuable cryptocurrency tokens and coins. It's important for you to know about the digital wallets accepted by your preferred exchanges. Wallets present a security loophole that hackers can exploit in hacking this system. If someone accesses your wallets, they can quickly transfer your tokens and coins.
Since the wallets issued by the exchanges are associated with an email address, it’s quite easy for you to get hacked. To mitigate the hacking risks, some people opt to store their wallets on offline platforms. This process is called cold storage.
Here are some of the most pervasive cryptocurrency hacks since 2019.
- In 2019, the New Zealand digital exchange, Cryptopia suffered a massive breach that resulted in investors losing a whopping (US) $16 million. The company eventually ceased all digital trading and on 15th May Cryptopia went into liquidation. Mad investors are still awaiting the final verdict against the collapsed Cryptopia.
- A month later, Coinmama got hacked, and over 450,000 user emails and their passwords got exposed. In March, CoinBene was hacked by unknown people.
- In that same month, Bithumb got robbed by a company insider. It lost an estimated 20 million XRP and over 3 million EOS.
- In March 2019, the Singapore exchange, DragonEx suffered a significant attack. It culminated in the loss of over $7 million worth of digital currency. This particular hack got traced back to the North Korean group Lazarus.
- In May, Binance got attacked using malware and a phishing scam. The hackers made away with close to $40 million in bitcoins. the company is still issuing a $200K bounty for anyone with information as to who robbed them.
- In November, the Vietnam-based VinDAX got hit. The hackers managed to steal half a million dollars of cryptocurrencies.
- The first reported hack in 2020 was that of the Italian crypto exchange, Altsbit. This attack led to the loss of around $70K worth of cryptocurrency.
Is it a Good Time to Invest in Cryptocurrencies?
The demand for digital payments has continued to skyrocket over the years. Experts believe that it's always a good time to make any investment, provided you have a thorough understanding of the inherent risks involved.
As is the case with other investment options, there's always a degree of risk involved. In fact, the risk factor of bitcoin and other altcoins can be more pronounced than that of other more traditional investments due to the high price volatility. In the past decade alone, bitcoin has surged an impressive 1000% to clock USD20K in Dec of 2020.
Benefits of Using Cryptocurrencies
Low Entry Threshold
Unlike with other investment options, trading cryptos doesn't need a large starting capital. For example, you can buy your digital currencies directly for as low as NZD100 from BitPrime.
Safe and Secure
Cryptocurrencies are powered by impregnable blockchain technology that's difficult to hack. The technology has advanced encryptions that act to deter any hackers. With credit cards, you can always reverse the transaction. Once a digital transaction gets filed in the public ledger, however, there's no way of undoing it.
Flexibility
There currently exist over 2000 unique cryptocurrencies in the market. A considerable proportion of these digital currencies serve specific functions.
User-Friendly
Contrary to what happens with traditional banks, cryptocurrencies give you ownership of the money. That's as opposed to you being a temporary holder of your assets as is the case with cash at the bank. Bank account holders risk losing everything if they infringe the terms and conditions. If you go against the bank's rules, you risk getting cut off from your cash. That has never happened with cryptocurrencies.
Digital currencies allow for eased international trade. These currencies are not subject to interest rates, exchange rates, and other transaction charges imposed within geographical boundaries - only a transaction fee when sending.
Confidential Transactions
The traditional banking system always leaves you exposed. You leave a clear trail when you fill out documents to complete a transaction. You leave a paper trail every time you use traditional banking services. With cryptocurrencies, however, your financial activities remain pseudonymous. The person who can access that information is the one you're doing business with.
Seamless Transactions
Transacting with cryptocurrencies saves you from many vexing issues. Many of the leading exchanges comply with the AML/CFT regulations. And, as such, you’re going to pay a fee for their services. The digital route eliminates the middleman. That leads to less confusion and improved accountability.
How Security Tokens Work
A particular cryptocurrency derivative known as a security token is quickly gaining popularity. Security tokens are virtual, liquid contracts representing fractions of assets like houses, private equity stocks, cars, and real estate. These tokens are used to preserve a portion of that asset in the secure blockchain ledger.
Tips for Secure Cryptocurrency investing
As of 2018, CNBC forecasted that the cryptocurrency market would be worth a trillion dollars. That valuation was expected to keep growing as more investors came on board. More attention translates into higher risks for investors.
Here are some tips to ensure you safely invest in cryptocurrencies.
Picking Exchanges
You should perform thorough research before deciding on a particular cryptocurrency exchange. There are currently well over 500 listed exchanges. Ensure you go over their reviews before doing business with them.
Safe Storage
Once you get your cryptocurrencies, you have the option of either storing them. A personal non-hosted wallet is strongly recommended over the standard digital wallet issued by the exchanges. Always safeguard your login keys and ensure you have strong email passwords to deter hackers.
Using Proxies
You can use SOCKS proxies to add an extra layer of security to your cryptocurrencies. This internet protocol ensures that you remain anonymous while online. The SOCKS proxies’ robust authentication methods such as GSS-API, Username/password authentication, and null authentication protocols ensure your digital currencies stay safe and secure always. This technology protects you from phishing scams as your IP addresses always remain anonymous.
Diversifying
To help mitigate the risks associated with owning and trading cryptos, make sure you have a diversified portfolio. You should leverage your portfolio and avoid putting all your cash in a specific coin or token.
Volatility
Volatility is always rife with these investments. The currencies are prone to dramatic price swings so you should always prepare for the worst. Comprehensive research will give you a heads-up on the prevailing volatility.
In Conclusion
Cryptocurrencies are poised to dominate the finance world in the coming years. Embrace this trend before it becomes the norm. Take the time to research the stability and security of the investment assets.
In the future, conventional financial institutions will have to incorporate cryptocurrencies to prosper. As governments ramp up the regulation efforts in this industry, more investors will feel safer when transacting with digital currencies.
Future cryptos will have to rely on blockchain technology to grow. That's as opposed to them depending on the quick and easy ICO fundraising routes.
If you've chosen to trade digital currencies, select a reputed broker, such as BitPrime, to avoid issues later on. To stay safe and secure, insist on doing cryptocurrency business with trusted merchants.
Stop fearing the security risks involved in owning and holding cryptocurrencies. Instead, explore means to mitigate these risks. That way, you will be able to capitalise on this lucrative market valued at over $1 trillion.
About the author:
Dan has hands-on experience in digital marketing since 2007. He has been building teams and coaching others to foster innovation and solve real-time problems. Dan also enjoys photography and travelling.
Disclaimer:
The above references an opinion and is for informational purposes only. Do not take this as personalised financial advice or investment advice. The views expressed by the author do not necessarily represent the opinion of BitPrime.
Last updated: 31/12/2020