Is Cryptocurrency Secure?

Released on

Apr 16, 2020

What about the security of cryptocurrencies? This is one of the first questions that people tend to ask about cryptocurrency.

The truth is that cryptocurrency itself is secure, but lots of precautions are needed when it comes to keeping your cryptocurrency safe.

In this article, we break down the common ways cryptocurrency gets lost or stolen so that you can take the necessary precautions to protect yourself and your crypto.

Key takeaways

  1. Make sure that you send cryptocurrency to the correct wallet address
  2. Check that you are always on legitimate websites when keying in any login credentials
  3. Do not store cryptocurrency on an exchange
  4. Learn about the different types of cryptocurrency wallets and how to use them
  5. Do not share your private key with anyone, ever
  6. Complete backup instructions by your cold wallet provider

Sending to the wrong crypto wallet address

One common way that people lose their cryptocurrency is by transferring their cryptocurrency to the wrong wallet address.

What is a wallet address?

Every crypto wallet comes with a wallet address is a unique string of numbers and letters, and its concept is similar to a bank account number. To send cryptocurrency to a wallet, you will need to input the wallet address.

What happens when you send cryptocurrency to the wrong wallet address?

Unfortunately, when you send cryptocurrency to the wrong address it gets lost forever. This is because crypto transactions are irreversible by design.

How to prevent sending cryptocurrency to the wrong address

  • Check, check, and check again that you have obtained the correct crypto wallet address
  • Make sure that the wallet you are sending your cryptocurrency to supports the particular cryptocurrency you are sending
  • Before confirming your transaction, always check that you have input the exact crypto wallet address

Phishing and prevention

What is phishing?
Phishing is a way hackers use to steal usernames and passwords, and also credit card details. They do this by impersonating a reputable company and getting you to hand over sensitive information.

This is a common scenario: Hackers impersonate your bank and send you an email or message asking you to click on a link. Usually, this brings you to a fake website. When you input your real banking username and password, the hackers now have your credentials and can access your account.

Phishing is a cybercrime that happens not just in the crypto world, but also everywhere else. Hackers are known to target banking and e-wallet accounts because there is money to be stolen. However, social media accounts such as Instagram and Facebook are also targeted.

It is especially dangerous if you use the one same username and password for all your accounts. It means that if the hacker is able to successfully phish for your login credentials on one website, they now have access to all your accounts across different platforms and banks.

In crypto, phishing is often used to obtain your crypto wallet account login so that a hacker can steal your cryptocurrency by transferring all of it to their own wallet.

How to prevent phishing?

  • Always check the URLs of a website before you click on it. Make sure there is no weird spelling and it is a URL you recognize and know to be real.
  • Always make sure that you have not unknowingly been redirected to a fake website with identical design as the legitimate one. You can do this by checking the URL again before entering sensitive information.
  • Do not post personal data that can be used by hackers. Information such as your birthday, address or phone number, should not be publicly available on an open social media account.
  • Use a different login username and password for all your accounts, so that you can isolate any phishing attacks.
  • If you receive a suspicious email or text message from a bank or company whose service you use, do not reply to it. Instead, contact the service directly with their legitimate support email or number.

Hacking of an exchange

What is an exchange?
An exchange is a platform where you can buy and sell cryptocurrencies.

Exchanges are where the biggest trades of cryptocurrency happens, and are particularly attractive to hackers because of the volume of cryptocurrency that people place in exchanges.

According to Cointelegraph, $292,665,886 worth of cryptocurrencies were stolen from exchange hacks in 2019 alone.

How to prevent exchange hacks

While there is no way that you and I can prevent exchange hacks from happening, we can make sure to protect ourselves as much as possible in the event of an exchange hack:

  • Do not store cryptocurrency on exchanges if you are not selling or buying
  • Only transfer your cryptocurrency to an exchange when you are going to buy or sell in a short amount of time
  • It is best to use reputable exchanges with advanced security offerings

Think about crypto wallets on exchanges like actual, real-life wallets that you can hold in your hand—much like the one that you have in your pocket.

If you are on the way to pay $2,000 for a big purchase, you might have that amount of cash in your wallet for that day only.
Otherwise, you will most likely put a smaller amount of cash in this physical wallet, enough to support your daily spending for a week. This is the amount of money that you are willing to lose if you lost your wallet.

Most of your cryptocurrency holdings should be stored in a cold wallet, which acts like a safe that is not accessible to anyone else but you. The majority of your cryptocurrency should not be in a wallet that could be snatched from you on the street.

A cold wallet is the most secure and protected way to store your cryptocurrency, however it means that you are your own bank and you will need to safekeep it yourself. Read more about it in the next section.

Loss of private key

Even though the cryptocurrency in a cold wallet is safe, it can also be inaccessible if you lose your private key.

What is a private key?
A private key is a unique string of letters and numbers that only you have access to, its concept is similar to a password to a bank account.

Because you are the only person in the whole wide world who has access to the private key, your cryptocurrency will be safe but not accessible if you lose your private key.

It would be like a treasure chest sitting right in your living room, that cannot ever be opened because you do not have the key.

How to prevent loss of private key

  • Complete all the necessary backups when setting up your cold wallet, your cold wallet provider will guide you through this
  • Create encrypted backups of your private key, keep these in a safe place and do not reveal what they are

Learn more about public keys, private keys, and crypto wallets in this ultimate beginner’s guide for storing your cryptocurrencies!