The issue of security in the cryptocurrency realm tends to take center stage periodically, particularly when a significant breach happens, leaving investors nursing losses amounting to millions. Nonetheless, this reactionary approach needs a shift.
From the onset of their cryptocurrency journey, every investor should familiarize themselves with the best practices to safeguard their crypto assets.
There is a tendency to assume that digital assets like Bitcoin (BTC) are inherently secure due to their cryptographic nature. While this line of thought is true when referring to the overarching BTC network and other blockchain protocols, investors tend to store their digital assets on third-party platforms such as exchanges.
Entrusting digital assets to exchanges and unsanctioned third-party custodians presents the most pronounced security vulnerability. Essentially, this arrangement implies that investors cede a measure of authority to these platforms, a situation that frequently gives rise to various complications.
Poor Cryptocurrency Security Led to $204 Million in Losses in Q2 2023
Hackers and scammers are the biggest security threat in the crypto industry. They made headlines in 2018 when they attacked the Coincheck exchange, taking away $470 million of investor funds in various cryptocurrencies.
While the Coincheck breach held the reins for the biggest crypto hack for years, it has since faded into the distant past, considering the $620 million Ronin Network breach in 2022.
TechCrunch highlighted a significant drop in the number of losses due to security breaches on protocols, bridges, and exchanges, which had halved in Q2 2023 to $204 million. Investors also lose funds in crypto scams and rug pulls.
The report disclosed that a mere $4.9 million was reclaimed out of the colossal $204.3 million lost to heists, frauds, and underhanded market manipulations in the second quarter of 2023, marking a significant dip compared to the $6.9 million recouped during the same period in 2022.
On the brighter side, the losses contracted by 55% in Q2 2023, compared to the first quarter of the same year, during which the industry hemorrhaged a staggering $462.3 million due to malicious attacks and deceptive schemes.
Cryptocurrency Thefts Are Almost Always Preventable
Cryptocurrency investors are not defenseless against rampant security breaches. By leveraging certain security measures and processes and avoiding risky situations, they can make the most out of one of the fastest-growing industries globally without worrying about losing their hand-earned digital assets.
Although cybercriminals are always on the lookout for gaps and vulnerabilities that they can exploit, some simple actions are often much more important for the average investor. These include holding their cryptocurrencies in a personal, secure wallet and simply avoiding connecting wallets to risky platforms.
7 Best Practices for Ensuring Cryptocurrency Security
Investors, both institutional and retail, have the responsibility of ensuring the security of the digital assets they hold. Not all crypto companies provide the level of security synonymous with banks. Moreover, cyber threats are unlikely to go down with the recent growth in generative AI.
Investors with proper security controls in place can trade safely and confidently. This means that a lot of the risks that threaten the security of crypto assets can be eliminated. Some of the best practices for keeping digital assets safe include:
- Self-custody your cryptocurrencies
Keeping cryptocurrency stored on personal, secure, air-gapped devices is generally accepted to be the safest way to hold crypto. Not storing them yourself opens you up to counterparty risk, the risk of the custodian going bankrupt or losing your funds in other ways.
It must be done right, however, as there are still risks involved, including the potential to lose your wallet, so make sure to keep a secure backup in a completely separate location.
- Choose a cold storage wallet
In the realm of crypto, hardware or cold storage wallets are considered the most secure because they do not leave private keys online amid countless likely threats.
Some of the leading and trusted cold storage wallets include Trezor Model One, Ledger Nano S Plus, and Trezor Model T.
- Using a secure wallet
Investors conduct due diligence when choosing the crypto wallet to use. A crypto wallet should have all the security measures in place, especially robust encryption, to keep your private keys safe. Cold storage wallets are best but hot wallets (digital wallets) are often easier and faster to use, and many employ acceptable security measures.
Look out for strong encryption, 2-factor authentication, secure backups, and other security mechanisms.
- Keeping private keys safe
private keys must be protected at all costs and at all times. They act like passwords for crypto wallets. Keeping them away from other people is paramount to ensuring cryptocurrency security. It is advisable to scribble them down and store them in a secure place always.
The easiest way to lose digital assets is to leave private keys exposed.
- Using strong passwords and enabling two-factor authentication
Investors should opt for robust and unique passwords for their cryptocurrency accounts. Fighting the urge to duplicate passwords across different accounts is crucial, and leveraging a secure password manager for the creation and safekeeping of your passwords could prove beneficial.
The use of flimsy passwords could provide an easily exploited gateway for cybercriminals to infiltrate your accounts.
As mentioned, 2FA adds another layer of security to crypto accounts, ensuring that only the authorized account holder has access. A 2FA can follow various methods, such as a biometric scanner or a verification code sent via text, email, or a dedicated authentication app.
This a vital step in ensuring hackers do not have an easy time bursting into crypto wallets.
- Be mindful of public Wi-Fi
A prevalent precautionary measure is to abstain from accessing cryptocurrency accounts or executing transactions while connected to public Wi-Fi networks, known for their lack of security and high susceptibility to cyber threats.
It is paramount to employ a Virtual Private Network (VPN) to reinforce security layers when using public Wi-Fi networks.
- Avoiding scams
Cyberattacks on crypto protocols and exchanges are a security challenge that law enforcement agencies around the world are struggling with. It is the responsibility of every crypto investor to be aware and conduct due diligence to ensure they do not fall into nasty phishing scams, fake websites promising unbelievably high returns, as well as fake airdrops and promotions.
Crypto scams can result in the complete depletion of an investor’s cryptocurrency holdings, often leaving no feasible avenue for asset retrieval. This is why these simple security measures could make a world of difference.
Retail crypto investors aren’t the only ones who need to be worried about security. All stakeholders in the industry, especially companies like exchanges and custody service providers, should put in place additional security measures, including cryptocurrency security standards, to ensure that their funds are safe.
What Are Cryptocurrency Security Standards?
Cryptocurrency Security Standards (CCSSs) are a set of guidelines for ensuring the secure management of cryptocurrencies by information systems. They were introduced in 2014 by a group of experts from the cryptocurrency industry, academia, and security fields.
The CCSSs aim to provide a common framework for evaluating and comparing the security of different cryptocurrency products and services, such as exchanges, wallets, and web applications, according to a report by Deloitte.
The CCSSs cover 10 aspects of cryptocurrency security, each with three levels of compliance: Level I (Basic), Level II (Standard), and Level III (Advanced).
The 10 aspects are:
- Key/Seed generation: How the cryptographic keys or seeds are generated and protected from unauthorized access or tampering.
- Wallet creation: How the wallets are created and configured to store and manage the keys or seeds.
- Key storage: How the keys or seeds are stored and backed up to prevent loss or theft.
- Key usage: How the keys or seeds are used to sign transactions or perform other operations.
- Key compromise policy: How the organization responds to a suspected or confirmed key compromise event.
- Keyholder authentication: How the identity and authorization of keyholders are verified before granting access to keys or seeds.
- Keyholder authorization: How the roles and responsibilities of keyholders are defined and enforced.
- Number of keyholders: How many keyholders are required to perform a given operation or transaction?
- Key recovery: How the keys or seeds can be recovered in case of emergency or disaster.
- Audit: How the organization monitors and reviews the security of its cryptocurrency systems and processes.
The CCSSs help to improve the security of digital assets belonging to customers on exchange platforms and other custody providers, as well as on mobile and web applications, by providing a clear set of best practices and requirements for each aspect of cryptocurrency security.
By following the CCSS, organizations can reduce the risk of losing funds due to hacking, theft, fraud, human error, or natural disasters.
The CCSSs also help to increase the trust and confidence of customers and stakeholders in the cryptocurrency industry by allowing them to compare and evaluate different products and services based on their security level.
Don’t Wait – Secure Your Cryptocurrencies Now
Most of the tips given above, especially for retail crypto investors, are nothing compared to the pain, money, and time that a security breach would inflict.
Cryptocurrency security often boils down to taking responsibility, conducting due diligence, and consulting the best practices for keeping digital assets safe.
With a little extra caution, investors can focus on growing their wallets and not worrying about the security of their digital assets.