3 Crypto common risks & prevention suggestions
With the recent price fluctuations of Luna and USDT, you should understand the ordinary risks of cryptocurrencies. Over 800 cryptocurrencies have fallen to zero or close to zero in history. And the cryptocurrencies and even the stable coins that the market has applauded have also fallen into this situation, which will undoubtedly make people lose confidence in the crypto market.
According to “The Basics of Bitcoins and Blockchains: An Introduction to cryptocurrencies and the Technology that Powers Them (Cryptography, Crypto Trading, Digital Assets, NFT),” by Antony Lewis, there are three common risks, concepts, and prevention suggestions selected.
#1 Exchange Risk
There is a list of hacks on cryptocurrency exchanges between 2012 and 2016. For example, user wallets are hacked, self-theft, verification loopholes, etc. Therefore, articulate the security record of cryptocurrency exchanges; hacks are a severe threat to the very existence of cryptocurrency exchanges. Therefore, first-class of cryptocurrency exchanges place great importance on security.
It is best to use the exchange services when necessary and withdraw funds immediately after the transaction. In addition, it is recommended that you only deposit money safe from loss on the exchange.
#2 Wallet Risk
What is a cryptocurrency wallet?
Cryptocurrency wallets provide the tools needed to interact with the blockchain; it is impossible to receive virtual currency without a wallet. Wallets allow you to view balances on addresses and will enable you to transfer funds on the blockchain. Cryptocurrency wallets don’t really “put money in” but operate by recording public and private keys.
The public key generates addresses on the blockchain, recording a specific “location” for sending and receiving cryptocurrencies. The owner of the address can move funds on the blockchain.
A private key is a concept similar to a password, which proves the ownership and control of virtual funds, and can access virtual funds in different wallets. This private key must be used when making payments.
Because of the convenience, many people choose to use online cryptocurrency wallets — some even store cryptocurrencies in mobile wallets for instant payments. This is very likely to reduce security.
- Use a secure network
Avoid using public Wi-Fi networks. Even if you are using a private network, you can add a VPN for an extra layer of protection. A VPN can mask your IP address, making your browsing activities more secure from hackers.
- Use multiple cryptocurrency wallets.
Since there is no limit to the number of cryptocurrency wallets you can create, you can diversify your risks and store virtual currencies in different wallets. You can also classify other wallets as “transaction” or “storage” and then select the wallet type as needed.
Cryptocurrency wallets can also be classified as “hot wallets” or “cold wallets,” depending on how they operate.
A hot wallet is a wallet that is connected to the Internet. These wallets are easy to set up and provide quick access to funds, convenient for traders or active users. Hot wallets can be divided into browser plug-in wallets, mobile APP wallets, and desktop wallets. Hot wallets are more suitable for storing small amounts of cryptocurrencies. You can imagine using a hot wallet as an account for daily payments, which is convenient and dedicated to cryptocurrency transactions or transfers.
Cold wallets are not connected to the Internet and are also called offline wallets. This is because it uses physical means to store private keys offline to avoid being attacked by cyber hackers. Therefore, cold wallets are often safer for “storing” virtual assets. This method suitable for long-term investors is also known as cold storage, and it is worth mentioning that if the hardware wallet is damaged and cannot be accessed, its assets will never be returned.
Paper wallets are considered one of the safest cryptocurrency storage methods in the world. A person who wants to store cryptocurrency in a paper wallet will print the public key and the private key, equivalent to the password for accessing the personal wallet, onto a piece of paper for storage. As long as you don’t lose this paper, you will not be attacked by hackers, and your passwords will not be stolen.
- Increase cybersecurity vigilance
Change account passwords regularly, identify malicious emails, update antivirus software and more. In addition, you can opt for two-factor authentication (2FA) or multi-factor authentication (MFA) for added security.
#3 Fraud Risk
There are plenty of grey areas in the regulation of cryptocurrencies and tokens, and as a result, scams are relatively rampant — examples: hype, technical complexity, regulatory uncertainty, and more.
The following concepts are some of the more common fraud risks.
- Ponzi scheme: promises rich rewards for investors, paying old investors with money from new investors.
- Rug Pull: program founders, wallets, exchanges, or investment programs take clients
- The money ran away.
- Fake Hacking: The project team finds someone to launch a hack and share the benefits with.
- Pump-and-sell: Fraudsters buy illiquid currencies at bargain prices, then tout them on social media and sell them to new investors at pump-up prices.
- ICO fraud: ICO is an initial coin offering, blockchain crowdfunding, and a way to use blockchain to combine access rights and cryptocurrencies to finance projects that develop, maintain, and exchange related products or services. Raising funds with an ICO with no intention of launching a product. At times, ICOs add credibility by listing a well-known industry expert as a project advisor or team member without the expert’s knowledge or consent.
- Web Graft: Copy the ICO website, remove the actual remittance address, and put the fraudster’s address.
- Mining mechanism scams: Claims that investors can earn a lot of cryptocurrency without revealing critical information such as difficulty increases.
- Fake wallets: Fraudsters use wallet software to access private keys, stealing users’ coins.
You must be cautious about your actions. You need to take encrypted assets and do more research before investing money.