Cryptocurrency scams are on the rise. At the same time, there are many people looking for alternative ways to invest their savings and often choose cryptocurrencies.
How safe are cryptocurrencies really? What are the most common risks and dangers when buying and storing cryptocurrencies? How to protect yourself from them? You can read about all this (and more) below.
Are cryptocurrencies safe?
Investing in cryptocurrencies is more dangerous compared to traditional financial instruments. Differences in the level of security result from several different factors.
To buy cryptocurrencies, you must create an account on the corresponding website - the cryptocurrency exchange. While technical investment in securities or other instruments is handled by bank brokers, trading cryptocurrencies on an external site can be risky. Due to the enormous liquidity of this market, especially in relation to popular cryptocurrencies such as Bitcoin and Ethereum, there is no shortage of attacks on cryptocurrency exchanges and trading networks. Attacks can also directly target us, the owners of digital funds.
Apart from the digital security aspects and the need to navigate the uncertain, sometimes illogical financial market, cryptocurrencies can even be a great investment tool. This carries a very high risk of capital loss, but the high dynamics of the quotes can also guarantee high rates of return.
What are the main risks associated with cryptocurrencies?
The risk of a decrease in the value of the selected cryptocurrency after its purchase is a natural and the most serious threat for anyone interested in investing in this market. The valuation of cryptocurrencies depends on many factors, and their future values are impossible to predict. Not without reason, however, cryptocurrencies are shrouded in an uninteresting reputation. In addition to the loss of capital due to the decline in the value of digital assets, there are also other risks for investors. Which are related to cybersecurity.
Cryptocurrency scammers
One of the main threats related to the world of cryptocurrencies are scammers who use the theme of investing in cryptocurrencies to extort money. In recent years, the number of such attempts has perceived considerably, and some of them ended in hacking, appropriation of money from bank accounts and/or theft of confidential information. The mechanism by which cryptocurrency fraudsters work is very diverse. The subject, cryptocurrencies, is not very important, because the behavior of the attackers may seem identical to the way in which scams related to photovoltaic energy or supposed government support programs are carried out. The manner in which the scam is carried out is usually by email or telephone.
One of the most popular modus operandi of scammers is to call with information about withdrawing funds from the sale of Bitcoin. The sum of the amount is usually very high, although not quite abstract, so many people, under the influence of imagination, stop to rationally analyze the situation. Fraudsters send files that manipulate the interlocutor to install special software on the phone during the conversation. It all ends up draining the contents of your bank account.
Of course, there are many more detailed types of this type of cryptocurrency fraud. They are all based on manipulation and, in practice, have little to do with the crypto world itself. Currently, everyone can be exposed to them, and extortion attempts are carried out both from Poland and, mainly by phishing, from abroad.
Cryptocurrency software providers and exchanges
Cryptocurrency exchanges are a favorite target for hackers. Cryptocurrency trading service providers hold and trade large capital on a continuous basis. Today, it is hard to count how many cryptocurrency exchanges have collapsed since 2008 (the Bitcoin boom). Historically, the first and for a long time the largest cryptocurrency exchange, Mt. Gox has been attacked several times. The first major attack took place in 2011 and resulted in the theft of Bitcoins worth more than $8.75 million USD.
Even those platforms that were operated the most secure did not resist the actions of thieves. In 2016, hackers carried out a successful attack on the Bitfinex exchange, and in 2019, after many years of building the brand of the most secure crypto platform, the Binance exchange fell victim to the attack. At that time, cryptocurrencies worth more than $40 million were stolen. It is not known about the actual amounts, as it may not be in the interest of the providers to share the actual extent of the losses.
Data theft from investors' devices.
Another threat is the theft of information about cryptocurrency wallets and access data to cryptocurrency platforms and exchanges directly from investors' devices. Using a combination of social engineering, malware and spyware, cybercriminals can access the contents of victims' drives. And then they hijack or intercept all the necessary data that will allow them to steal funds, sometimes worth many millions of dollars.
In addition, the physical theft of a computer or phone on which such data is stored can pose a great threat to all the funds we hold in cryptocurrencies. That is why it is so important to encrypt the drive to protect all data from third-party access.
How to invest safely in cryptocurrencies?
Investing in cryptocurrencies can be much safer if you follow the basic rules beforehand. The first range of threats (fraud attempts by email or phone) can be minimized by taking care of the privacy of your personal data and phone number. E-mails that look suspicious should be immediately moved to the trash, without opening the content. Common sense, skepticism and the principle of very limited trust should always guide us in all these circumstances.
The solution to the second most popular problem is the use of special cryptocurrency wallets. The exchange house should be used for buying and selling coins, but never as the main storage place. There are many dedicated wallets on the market that are equipped with advanced cryptographic technologies.
It is also worth taking care of the security of your own computer, which is used to perform operations and transactions in cryptocurrencies. You should take care of regular updating of the operating system, use antivirus software, encrypt the disk and data, and remember about regular backups, i.e. backups.
Is it worth investing in new cryptocurrency projects?
The cryptocurrency market is not regulated like other markets, so issuers are not obliged to submit professional projects and issue books. Although in the case of many projects such documentation is created, it is much more difficult to rely on them. Over the years, thousands of cryptocurrency projects have been created that turned out to be a scam or ended in a fiasco.
However, it is worth distinguishing cryptocurrency projects, which mainly consist of altcoin issuance, from blockchain projects. There are many interesting implementations of blockchain technology, which are projects that are not related to cryptocurrencies at all. The last decade has been a kind of blockchain revolution: this technology is already being adopted by banks and larger technology companies.
Will investing in cryptocurrencies never be completely safe?
The risks associated with investing in cryptocurrencies mentioned above are the most common, but the risk associated with financials can also have a completely different background. One of the most serious sources of subsequent capital loss is in the psyche of the investor. Investing in financial instruments is inherently an activity characterized by a very high risk of losing part or even all the investment capital (in the case of products based on leverage and with the option of margin calling, it is even possible to pay extra on losing positions).
In addition to substantive preparation, fundamental and technical analysis, the human psyche plays a very important role in investing. The price of each asset is ultimately based on an individual valuation shaped by the changing relationship between demand and supply. This is also confirmed by numerous statements from market regulators.
Perspectivas poco claras para invertir en criptomonedas.
No hay nada de malo en invertir en criptomonedas si eres consciente de los riesgos que implican. A diferencia de los valores y muchos otros instrumentos financieros, las criptomonedas se rigen por leyes ligeramente diferentes. Son mucho más susceptibles a la especulación y la manipulación financiera.
No existen herramientas analíticas que permitan una valoración objetiva de determinados activos, como se hace en el caso, por ejemplo, de las acciones de empresas que cotizan en bolsa. Especialmente en los últimos años, las criptomonedas más famosas, por ejemplo, Bitcoin, Ethereum y Litecoin, han sido objeto de actividades de pump & Down. La volatilidad muy alta significa que incluso las inversiones mejor pensadas en criptomonedas pueden perderse.
También vale la pena recordar que el estado de las criptomonedas aún no está del todo claro. No faltan nombres famosos que especulan con valores altísimos de Bitcoin y otras criptomonedas. Al mismo tiempo, existen dudas relacionadas con problemas legales (la perspectiva de una regulación completa de las criptomonedas por parte de las organizaciones financieras y los bancos centrales) y problemas técnicos (el número máximo de Bitcoins emitidos).