Remember watching Back to the Future II and thinking hoverboards were going to be the greatest futuristic invention? How about paying for things through an implant in your wrist like the 2012 Total Recall movie? (That’s an idea that might not be so futuristic anymore…)
Here we are in 2023, and no flying hoverboards. Bummer. But we do have other developments…
Autonomous vehicles are a thing. AI is sweeping the globe and bringing an insane amount of innovation. And cryptocurrency is alive and… thriving (sort of).
With all of this invention, comes a glaring amount of vulnerability. Take for example how some vigilante protestors in San Francisco are “decorating” driverless taxis with orange cones to keep them immobile.
Or the increasingly prolific and more-realistic-than-ever email scams duping good people like you out of their money — or worse…
And there are cybercriminals stalking the web who would like nothing better than to take hold of Southern Illinois investors’ digital currency.
And just like I as your tax professional am diligent about staying on top of methods to protect sensitive information that gets stored on my servers and in the Cloud, keeping your crypto assets safe needs to be a priority too.
Let’s talk about that…
Crypto Security Musts for Southern Illinois Investors
“When money realizes that it is in good hands, it wants to stay and multiply in those hands.” – Idowu Koyenikan
It seems that everywhere we turn, the headlines are full of cryptocurrency and big money. It turns out that Bitcoin and other prominent cryptocurrencies hit 12-month highs in June. Bitcoin topped 31 grand, and even Ethereum (which dipped in June) is up 52% this year, resting at just shy of two grand.
One reason for this robust market is that big banks and even governments plan for their own digital assets in the near future.
The odds are getting better that we’ll all find ourselves the proud owners of a Bitcoin or two. And if you had any other kind of investment worth north of 30,000 dollars, wouldn’t you consider locking it up somewhere?
So, how do you implement some cyber security on your virtual currency? Let’s look at some basics you need to know.
Crypto Security: How it works
Cryptocurrencies are decentralized digital assets built with code in “blockchain” networks of computers. Crypto doesn’t have a central entity (like a government) backing its value. It also isn’t backed by gold or any commodity…
Instead, it relies on nothing more than the owners’ trust. Still, it’s nonetheless of great value — there are hundreds of billions of dollars worth of Bitcoin worldwide.
That’s a lot of money to leave in the open, virtual or not. But as you can imagine, there’s no bank, no Fort Knox, no locked vault — at least not in the physical sense.
Crypto Security: Exchanges, platforms, and wallets
Crypto exchanges resemble a stock exchange or any other exchange for an asset. The more common ones are centralized exchanges, overseen by a third party. Buying and selling crypto on these exchanges is generally easier but also comes with fees. On a decentralized exchange, transactions and trades take place peer-to-peer.
Most people store their crypto on a trading platform and use a crypto wallet to manage the currency. These wallets are protected by two kinds of keys: the public one you use to access and exchange funds with other crypto users, and the private one you keep to yourself. Anyone with your private key can enter your wallet and move funds out.
(Anyone without the private key can’t get in — including you, the owner of the account, as one poor guy recently discovered to the tune of 220 million dollars that he could no longer get to. Yikes.)
The wallet is your first security consideration with crypto.
- “Hot wallets” are more accessible and allow for quicker transactions. They’re also constantly connected to the internet and are not as secure as their “cold” storage counterparts.
- Among hot wallets, the most secure are “desktop wallets” on your computer that store your private key, sparing you the vulnerability of a third-party monitor (if the monitor gets hacked, so do you). Desktop wallets are constantly online and are best for storing small amounts of crypto.
- “Web wallets” are stored by third-party monitors on their servers. They’re more accessible — and volatile, even to the point of having closed access to investors’ crypto holdings from time to time.
- “Cold wallets” keep you and your assets offline. Some types of these are “hardware wallets” that plug into your computer only when you want to use them and come with added authentication features. (Get one new and not used, by the way — hackers love to plant malware.)
- And believe it or not, in these times, there’s something called a “paper wallet.” It’s a piece — and we’re not kidding — of paper with your information written on it.
A good security move: Spread access to your crypto assets among all three of the above.
Crypto Security: Steering clear of hackers
It might seem futuristic, but it’s suddenly conceivable that crypto could someday be a major asset for you — and you’d better believe hackers know this. Their methods of attack include everything from simple email phishing to exploiting weaknesses in code to cloning the SIM cards of account owners’ cell phones to bust into crypto accounts.
Exchanges know these risks, too, and have adopted such measures as two-factor or multi-signature authentication and, for Bitcoin, timelocks for the completion of transactions.
You’ll want to find out if your exchange has these and ask how often their security measures are independently audited and tested. Also, ask what crypto types they support and for details about their fees.
Here are some hacker approaches to watch for:
- “Tech-support” imposters may pressure you for account credentials. Exchanges will not ask you for these over the phone and out of the blue.
- They may ask you to create test accounts on other platforms or provide your ID or banking information over email or social media.
- Always double-check the web address before you log in to your account or input any credentials.
Keep those in mind, and you’ll be well on your way to a safe and secure crypto wallet.
If you’ve decided to jump into the crypto waters and want to make sure your assets are protected, let’s chat about how we can strengthen your system and crypto security measures. It’s always better to be safe than sorry (so that you also don’t get locked out — or robbed — of 220 million).
Until next time,
Alan Newcomb