Fortifying Your Crypto Assets: Proven Strategies to Safeguard Against Hacks and Scams
How To Stay Safe When Using Crypto
- Crypto users lost nearly $4 billion to hacks in 2022.
- Users must remain vigilant by treating all crypto projects and token sales with a healthy amount of caution.
- Private keys must be guarded with as much caution as possible.
- A hardware wallet is the best way to keep funds safe.
The crypto industry’s popularity has caught the attention of regulators and government agencies in many countries. These authorities continuously design rules to govern the sector and provide much-needed clarity and guidance. Crypto laws are generally designed to protect consumers and keep the market safe. However, these laws are usually not all the protection the average crypto user needs.
According to reports, there were 198 crypto thefts reported in 2022, a 45% increase from the 136 reported in 2021. In October alone, there were at least 32 attacks, resulting in a loss of $775 million. According to a Chainalysis report, 2022 was the biggest year ever for crypto hacking, as hackers stole $3.8 billion worth of digital assets. In the first quarter of 2023 alone, there were 57 crypto thefts, projected to hit 228 by the end of the year at the same rate.
Although blockchain technology is known for its inherent security and immutability, hackers can still compromise networks, sometimes by directly targeting smart contracts. Last March, hackers exploited a vulnerability in the Axie Infinity Ronin Bridge smart contract, resulting in the loss of more than $615 million worth of ETH and USDC.
How to Stay Safe Using Crypto
Crypto holders must learn how to trade safely to minimize the risk of losing their funds. Here are some of the most common ways holders and investors may protect their assets:
Find Trusted Merchants and Service Providers
Users should restrict their interactions to trusted merchants and service providers. Even though several merchants accept cryptocurrency payments for goods and services, users should ensure they only connect their crypto wallets to credible platforms.
For instance, crypto holders interested in online casinos should only deposit funds and place wagers on dependable platforms. Some of the best Bitcoin casinos allow users to make direct crypto deposits by connecting their private wallets instead of collecting a user’s payment details (source: https://www.business2community.com/cryptocurrency/best-bitcoin-casinos-uk).
Learn About Crypto Scams and Exploits
Investors must learn about the various scams and exploits common in crypto (which we’ll discuss below). This helps to stay alert and keep funds safe while trading, investing, staking, or otherwise using digital assets. In addition to frontend attacks and fake token sales, there are several other methods through which hackers target unsuspecting crypto holders. They include fake crypto giveaway scams, phishing emails, trading bot scams, malware, and ransomware.
Use Two-Factor Authentication
All users with crypto accounts should enable two-factor authentication (2FA). It is a simple process that requires more than one piece of data for access to an account. In most cases, an SMS or email code is required in addition to a password. There are also 2FA apps, including Authy or Google Authenticator, which are compatible with many crypto websites. These codes may also time out if unused after a while, adding an extra layer to account security.
Consider Offline Wallets
Many users prefer centralized exchanges with online wallets because they are easy to use. Like an email or e-commerce service, all that is needed for access is a username, a password, and a login code if 2FA is enabled. However, extra safety requires users to consider hardware wallets that cannot be remotely accessed. Users who HODL crypto may transfer their funds to offline wallets that are only accessible to the crypto holders.
A general rule of thumb, especially for active crypto users, is never to use the same password on multiple sites. Holders are advised to use different passwords or vary the passwords by adding numbers and special characters. Using one password on multiple sites maximizes the chance of losing funds across all platforms if a hacker accesses the password.
Common Crypto Hacks and Exploits
The following are some of the most common hacks and exploits in crypto:
- Frontend Hacks
- Fake Token Sales
- Exit Scams
- 51% Attacks
A frontend hack involves breaking into a website to manipulate the site’s code and access funds. This type requires hackers to compromise the site’s security and exploit code to create fake transactions. DeFi protocol BadgerDAO lost $120 million in 2021 after hackers injected malignant commands into the protocol’s code to complete fake approvals. These transactions seemed normal to users but allowed the hackers to transfer funds into their wallets instead of BadgerDAO’s.
Fake Token Sales
Fake initial coin offerings (ICOs) and token sales are dishonest fundraising events involving scammers who pretend to launch crypto or blockchain projects simply to exploit investors. These scammers create fake blockchain projects, launch a website and social media presence, and publish detailed whitepapers. They then fabricate team details and partnerships, provide unclear use cases, and promote fictitious advisors to give their projects some credibility. Fake tokens are usually aggressive with marketing until the creators have made enough money to disappear.
A popular example is the Squid Game token launched in 2021 after the hit Netflix series. Although it was not affiliated with the series, the scammers behind the project were able to convince enough people to buy the tokens. SQUID tokens jumped more than 70,000% to $2,861 in one week before plummeting to nearly zero. According to Gizmodo, the creators made off with about $3.38 million.
An exit scam is when a person, organization, or project launches a digital asset, promotes it to attract buyers, and flees with investor funds. In some cases, the team behind the project waits for a while until the asset’s value rises. When it hits a desired point, the project goes offline, and the developers disappear without a trace.
One of the most notorious exit scams is the OneCoin token. The creators raised over $4 billion from investors and made away with the money. Although some project executives were arrested, founder Ruja Ignatova has been on the run since 2017. US authorities charged her with securities fraud, money laundering, and wire fraud. Also, the FBI added Ignatova to its Top Ten Most Wanted Fugitives list in June 2022.
A 51% attack is a type of vulnerability typical of blockchains that use the Proof of Work (PoW) consensus algorithm. It is a situation where an entity or group wields more than 50% of a crypto network’s hashing power. Theoretically, anyone who holds at least 51% of the nodes on a network has the power to alter a blockchain in ways otherwise impossible.
PoW networks validate transactions via majority consensus before blocks are sealed and then linked together. The cryptographic method ensures that information from one block is included in the next, making it almost impossible for block information to change. However, when one entity holds more than half of the hashing power, they can introduce an altered record to the network at a specific point.
Since the hacker controls most of the hashing power, the modified record would be accepted by the network. Successfully altering the network allows the hacker to double spend by creating multiple transactions, prevent or halt transaction confirmations, and potentially reverse transactions.
Although possible, a 51% attack is not very common because of the amount of energy required to wield half of a blockchain’s hash rate. While this would be nearly impossible on a large network like Bitcoin with a high hash rate, 51% attacks have happened on the Bitcoin Gold (BTG), Bitcoin SuperVision (BSV), Litecoin Cash (LTC), and Ethereum Classic (ETC) blockchains.
Conclusion: Staying Safe While Using Crypto
It is impossible to guarantee safety when sending, receiving, trading, or investing cryptocurrencies. However, there are several strategies users can employ to significantly protect themselves against malicious actors. By carefully following trusted practices, including applying 2FA and practicing general prudence, users can interact safely with digital assets even as the crypto and blockchain landscape evolves.
Frequently Asked Questions
How Can I Protect My Private Keys?
Users must never share their private keys with anyone, physically or online. In addition, it is crucial to ensure offline and online safety by using a strong password of at least 8 characters, including numbers, letters, and symbols.
Are All Cryptocurrency Exchanges Equally Secure?
No. Cryptocurrency exchanges may employ varying security methods, with some possibly more secure than others. Users are advised to restrict trading to reputable exchanges with a track record of security and regulatory compliance.
What Is The Best Way To Store Cryptocurrencies?
A hardware wallet is the most secure crypto storage method. The hardware wallet is a physical device that stores assets offline such that funds are invulnerable to remote hacks.
How Can I Confirm That A Crypto Project Is Authentic?
The best way to confirm is to do extensive research. Users looking to invest in a project or buy new coins should research the project’s team, read its whitepaper, verify all claims of partnerships, and find community discussions. Users should also beware of projects with anonymous teams or promises of high and guaranteed returns.