Despite the inherent security of most public blockchain networks, crypto hacks and exploits are becoming increasingly sophisticated. With little regard for who they target, it is often those who are complacent with the security of their assets that stand to lose the most. So, before reading any further, have you considered the extent to which you know how to protect your cryptocurrency? Also, do you know what to look out for to recognize scams and hacks before they affect you?
In this “How to Protect Your Cryptocurrency?” article, we’re going to explore some of the best ways to keep your crypto assets safe. We’ll discuss some of the different ways hackers can access your funds. Plus, we’ll consider some of the best practices for minimizing losses.
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Crypto Hacks and Exploits
Scams, fraud, and hacks are extremely common in crypto. Even the most reputable exchanges and platforms have fallen victim to malicious actors. Below, we will discuss some of the most prominent types of hacks and exploits in crypto.
Password and Private Key Theft – There are multiple ways for an attacker to gain access to your passwords or private keys. Whether your email account is compromised or your device is hacked into, malicious actors can implement all kinds of tactics to gain access to your funds.
Scams – One of the most common types of crypto scams is fake giveaways. Typically, a scammer will pose as a high-profile figure (Vitalik Buterin, Elon Musk, etc.) on YouTube by posting an advert with a video of said figure. Often, these videos have a crypto wallet address somewhere on the screen with a message encouraging viewers to send crypto to the wallet and receive extra crypto in return.
For example, some scammers will state something like, “send one BTC and receive two BTC back”. These adverts are rife on social media and have caused substantial losses for many investors. A similar version of this scam occurs on Twitter, Discord, Telegram, and other social media applications, whereby users are tricked into transferring funds to a thief.
Phishing Scams – A phishing scam is when somebody uses a fake email address to pose as a legitimate entity. For instance, a malicious actor could use an email address similar to that of an exchange’s address (perhaps with “.org” instead of a “.com” URL). The phishing email might ask you to provide account information to secure your account. In this case, an attacker could use your details to access your funds.
How to Protect Your Cryptocurrency? – Hacks and Exploits
Fake Websites – Even if a project is 100% legitimate, imposter websites can trick you into thinking that you’re on the correct page when in fact, you’re on a dangerous fake website. This could appear to be identical to the website you intend to visit. However, it could lead you to lose your funds if somebody has created a convincing, malicious fake site. Always check that the URL is correct for the page you interact with by cross-referencing it with a reputable source.
Exit Scams – An exit scam is when the promoters of a cryptocurrency take the funds from an initial coin offering (ICO) and disappear with it. After building hype around a project and raising funds for it, scammers simply abandon the project and take off with the funds raised. Because token launches and ICOs enable investors to invest in a project early, many of these investment opportunities are for underdeveloped projects. Accordingly, it can be difficult to foresee a potential exit scam, as most crypto projects can successfully build hype around a product, regardless of legitimacy.
Exchange Hacks – Crypto exchanges are one of the biggest targets for hackers, as they can often gain access to funds from multiple accounts with a single breach. Even the most reputable exchanges are susceptible to malicious attacks. However, some exchanges will cover up to a certain amount of funds lost to theft.
Rug Pull – Rug pulls are one of the most prominent variations of an exit scam in decentralized finance (DeFi). It involves the development of a fraudulent token and a “pump and dump” from the development team. Once the price of the asset is high, the team will sell, extracting as much value as possible before the price of the token drops to zero.
How to Protect Your Cryptocurrency?
Now that we’ve considered some of the most common hacks and exploits that can occur in crypto, it’s time to take a look at the best ways to keep your assets safe and prevent anyone from accessing them. Below, we’ll discuss some of the most common methods for safeguarding your crypto.
How to Protect Your Cryptocurrency? – Hardware Wallet
Using an offline “cold storage” hardware wallet is one of the best ways to keep your digital assets safe. Unlike a “hot” wallet, cold storage wallets do not connect to the internet. As such, they are less vulnerable to exploits and cyber attacks. Many traders keep their crypto funds on an exchange to make it easier to execute trades during market moves. However, keeping funds in an exchange account means that you are not in control of your funds.
If an exchange is hacked or a CEO runs away with your funds, you may never see your crypto again. However, if your funds are stored securely on a hardware wallet, nobody can access your funds without your permission. Furthermore, using multiple hardware wallets allows you to spread the risk of self-custody in the event that you lose your private key for one wallet.
Secure Internet Connection
A public internet connection makes it easier for any potential attacker to access your crypto. However, by avoiding public WiFi and using a virtual private network (VPN), crypto holders can further prevent online attacks. A VPN hides your IP address and location to enable users to browse privately. It achieves this by routing your internet connection through different servers to make it almost impossible to detect your actual location.
Secure Device
To further minimize the risk of potential vulnerabilities, ensure that your device is up to date with the latest software versions of antivirus and firewall protection. Also, creating a strong password and regularly changing it will make accessing your device even more challenging. However, ensure that you keep a backup of your passwords in a safe place. Using a combination of numbers, letters, and special characters will provide the strongest passwords.
Two-Factor Authentication (2FA)
Two-factor authentication (2FA) provides an additional layer of security. It achieves this by requiring each sign-in and transaction to be authenticated using a second device. You can download an authenticator app on your mobile device that generates a random number every thirty seconds or so. Alternatively, you can have a text message or email sent to you with a one-time authentication code. Using 2FA means that anybody who gains access to your device or accounts has an additional hurdle before they can access your funds or accounts.
DeFi Insurance
If you interact with smart contract-based DeFi protocols, you can take out insurance to protect against unintentional loss resulting from smart contract failure. Smart contract insurance enables investors to protect themselves against bugs and vulnerabilities to minimize losses.
Join a Hackathon Event
To take your crypto security to the next level, consider joining a white hat hacker group or hackathon event. White hat hackers are ethical hackers who try to find vulnerabilities in code before they can cause harm. In addition, many Web3 projects sponsor hackathon events that encourage developers to collaborate in identifying weaknesses and flaws in code.
Invest Wisely
Naturally, Moralis Academy is unable to provide investment advice. However, we can offer some tips on how to avoid making mistakes that could cause losses. You can minimize the risks to your funds by only using reputable exchanges. Also, losses that occur as a result of speculative investments can be minimized by only investing what you can afford to lose.
Furthermore, avoiding the hype of a particular token on social media could help you to avoid buying at the top. If a token has pumped by 50% in a day, consider letting it cool off before you jump on the bandwagon, as there’s a good chance that the price could fall after such a big increase.
Moreover, you can minimize losses by only investing in projects that you think provide genuine utility. Check to see if a project has a strong following, good marketing, and appears to be solving a real-world problem before investing large sums of money. In addition, if you don’t understand the value proposition of a token or a project, perhaps expand your knowledge a little before diving head-first into a significant investment.
How to Protect Your Cryptocurrency? – Keep Learning
After implementing the recommendations above, the only way to ensure that your funds, devices, wallets, and accounts are secure is by studying and researching. New attack vectors are discovered frequently. By staying on the ball and learning about blockchain technology, you can position yourself to avoid costly mistakes by conducting your own research into DeFi hacks and crypto exploits.
The blockchain industry is still relatively young. Despite the increase in regulatory measures throughout the space, much of this technology is still largely unregulated. Accordingly, you should always consider the legitimacy of any token or project before you invest in it. Look at the real-world use cases for the project, the correct documentation, and an active development community.
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How to Protect Your Cryptocurrency? – Summary
So, if you fell victim to one of the situations above, would you know how to protect your cryptocurrency? Hopefully, you should now be armed with the tools to identify and protect yourself from hacks and exploits. Remember, if something appears to be too good to be true, it usually is. If any party or entity is asking you to give you something, always stop and ask yourself why.
Often, the easiest way for a scammer to get your funds is to make you think that you can benefit from sending them to someone else. As such, always be vigilant when interacting with any crypto service or platform. Furthermore, try to ignore the comments and private messages from strangers that provide investment opportunities or tell you that you’ve been selected for a prize draw.
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