Security in Cryptography. How and why?
2022 became a year of vital lessons for many (if not all) cryptocurrency investors. This year brought not only various insights for some, but also a cryptocurrency collapse as many traders and investors lost loads of money.
Besides, recently the metaverse sector has been developing rapidly, so law-enforcement of different levels and from different countries have already been warning users about the development of criminal activity and emergence of new scam schemes. In this material we will touch on an extremely important topic that is essential for entering the cryptocurrency market whether you are an investor or a trader.
If you are a professional, you already know about the things that we will be talking about, however, if you are just about to take your first steps as a trader or an investor or you are already in the world of cryptography, it will be imperative to know several rules.
Absence of precautionary measures and specific rules that are followed by any self-respecting investor, all the hard work may offset all your investments of finances, or, which is more important, of time. Not to waste your time and money, you need to adhere to several simple but very efficient rules.
Are exchanges reliable?
Last year we could see how several cryptocurrency platforms were closed down. It concerns not only simpler platforms that offer their clients decent earnings with the help of the credit system, but that had other interesting features. Even the exchanges that were considered the most prestigious in the world also collapsed.
There were enough cases. Here we can remember Terra (LUNA), Three Arrows Capital and other projects. But the biggest fall happened to the pillar called FTX. The situation touched numerous individual investors, cryptocurrency traders and even some companies that were forced to close down because of loss of all their money. The US court is now pressing charges against Samuel Bankman-Fried who held the post of the general director for a solid reason.
The collapse of FTX could be treated as the greatest event in 2022 or even one of the most important events in recent years. The total sum of losses of cryptography enthusiasts exceeds $1,800,000,000. It is remarkable that the exchange of Samuel Bankman-Fried was in Top-3 and even Top-2 of the most stable exchanges, having loads of money on their account.
Nevertheless, as we can observe, no one is insured against the risk, even such huge companies that signed partnership contracts with various organizations, even including the esports club TSM.
Diversification is good
What should you do to not lose all your finances? Maybe the answer is hidden in the choice of the right exchange? A great way to save yourself from risks that is used by many investors is asset diversification. Diversification implies division of all your assets into several parts and putting them into different places to store to secure the money in case of collapse of one place.
The high level of reliability and popularity of the decision to switch to this saving system is proven by sales of the hardware wallet Ledger. The manufacturer acknowledged one of the October weeks as the most successful in the history of the company.
Numerous organizations suffered a collapse right after FTX because all their money, including their own and clients’, was stored on one platform. We can remember only one exchange that reported that 95% of their finances were stored on FTX. In other cases companies said that they had lost all their money.
Those who diversified their assets and lost only a part that was stored on the American exchange had to face huge but surmountable difficulties. But the investors and companies who kept all their money there also suffered a collapse together with the exchange.
Consequently, your savings will be more secure on several exchanges if you do not have a hardware wallet and you want to leave your digital assets on platforms for any reason.
Hardware wallets
What are hardware wallets? These are devices that enable sending digital assets that were previously bought on an exchange to a personal wallet that looks like an MP3/MP4 player or smartphones. Nevertheless, x-hunters will not be satisfied with the option as not all blockchain support such hardware wallets.
To understand what cryptocurrency assets could be sent there, you should get familiar with a list of supported blockchain on the developer’s website. But if you are an old-timer and you prefer working with the most advanced currencies like Bitcoin, Ethereum, BNB, be sure that these blockchains are 100% likely to be supported by the manufacturers.
So, we will be brave to say that hardware wallets are the most reliable way to keep your crypto assets. What can be better than having your savings at home on a separate device that cannot be hacked or reached by exchanges and other third parties that do not actually need access to them, right? Ledger, Trezor and other companies can help you to protect your money. Such wallets have a different price range, taking into account their features.
For example, Ledger has hardware wallets for storing crypto assets with the price ranging from $70 to $290. The difference concerns only additional features like Bluetooth, wireless charger and others.
And even if you choose storing digital assets on hardware wallets, we will recommend you to follow the diversification rule and buy at least two devices and keep your finances there. Just in case.
There were cases when hardware wallets were broken, however, in this case we will need to use seed-phrases that consist of 12 or 24 phrases. As they claim, Ledger generates these phrases from 2048 words so hacking this wallet is quite problematic, to put it mildly.
Are hardware wallets universal solutions?
The answer to the question is “yes and no”. Even though we have said that hardware wallets are a great way of saving your money, it is not universal and it will not work for all cryptocurrency enthusiasts. If you are a medium-term and long-term investor, who invests into bitcoin as a deflating and saving asset, nothing will work better for you.
But if you are a day trader, who is a person who does speculative operations every day (or a few times a week/month) or works with derivatives in the medium-term and long-term, using leverage, hardware wallets will not become a perfect fit for you.
The reason is very simple. Operations with using derivative financial tool can be done on the exchange, supported by its liquidity. Exchanges cannot give you an opportunity to open termless deals in the long or short term if you do not have money on the exchange. It is technically impossible.
If you are worried about keeping your money on an exchange and you would like to have assets in your wallet for protection, you will have to consider an option with partial diversification and balance between risks and huge profit and security with a less impressive profit.
Another option if to sign up on several exchanges and make deals on several of them at the same time. In case if one of them has problems with liquidity or when it makes it difficult to withdraw your finances or will use tricks with limiting profit in future deals, you will not experience the same on the other exchanges.
Following the rules will not guarantee 100% success as no one is protected from force-majeure circumstances. Nevertheless, if you use the diversification rules for protection of your assets that will be scattered on different platforms, the risk of losing money will be as low as possible.
Online-wallets
Another way of keeping your money that is not the best, however, an interesting alternative way of storing the money is online wallets. Trust Wallet, Metamask and other online services will help you to keep your finances beyond the exchange if you do not own a hardware wallet by any reason or you do not want to do it.
In several years of usage of wallets like Trust Wallet and Metamask, I have not had any problems. Transactions are made on time all the time, money has not been lost, access is not lost. However, compared to hardware wallets, this method of storing money is losing. Nevertheless, it is much better than keeping digital assets on centralized cryptocurrency exchanges that have access to your money.
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Money management, risk management, psychology
These rules are related to those cryptocurrency enthusiasts who do not want to wait for an increase of the price of cryptocurrencies for other reasons prefer trading. The main weapon of any successful trader is money management, risk management and psychology.
Breaking one of those three whales that function as a foundation for successful daily trading will result in a failure in any case.
Money management and risk management are a set of rules that involve reasonable calculation of risks and profits prior to opening a deal. These form a trading strategy of a trader. If speculators do not have tools they work with, in this case trading is not anyhow better than roulette or other representatives of the casino world.
If in case of casino the success rate of your bet on red/black will be 48,65%, in the cryptocurrency market the probability theory is going to rest, as volatility of cryptocurrencies along with absence of understanding of traders’ actions will deprive them of success.
If we make a sketchy example about what is money and risk management, the actions of the mentioned actions of a trader will look in the following way:
- Find a good moment to enter the deal
- Find a moment of leaving the deal
- Calculate the risks (how much you can lose in case of a failure) and profit (how much you can earn if you succeed)
- Get satisfied with the ratio of profit to risk
- Trader opens a deal of 5% of their budget
- In case of success, they get 5% to their deposit
- In case of a failure, they lose 5%
Successful traders can earn over 20% of the monthly deposit and the number of successful deals can be several times less than the failed ones, however, if you follow the rules, they will still be able to earn good money here.
Another kind of weapon in hands of such speculators is strong psychology. Speculators have to keep it together and do not let emotions take control if it is decline of motivation after a failed deal or excitement after a successful closing of a deal.
Nevertheless, even if it is related to security, it is slightly off the topic of safety in the cryptography world, so we will keep a detailed analysis of these moments for later.
Phishing
We have already gone through the questions of how to keep the money if you are an investor and how not to lose the deposit if you are a trader. Now we have come to another essential question — how not to fall for tricks of hackers and ensure safety?
One of the favourite kinds of weapon of hackers is fishing attack. We should understand that hackers can get access to your finances only if they get access to your data on the cryptocurrency exchange or your wallet.
Such schemes are sometimes very hard to notice, especially, if you are an inattentive person or a newbie who had not fallen for such tricks before. Phishing attacks lure the victim onto a website where you are asked to enter your data which can later be used by hackers for stealing the cryptocurrency finances.
The most common way of luring victims is e-mail newsletter. There are other more trivial ways of newslettering on Discord channels or on Telegram and other messenger, however, e-mails could be acknowledged as a leader in terms of efficiency.
The reason is simple. Hackers create a website and newsletter in a way that a potential victim does not suspect anything as they are almost identical to the original website. Also hackers introduce themselves as administrators of the project and ask to go to the page to protect their finances. It also results in pressure on inexperienced enthusiasts of the cryptocurrency fauna and as a result they go to “protection of the account” only to discover that it has been stolen.
To get protected from phishing attacks, they should remember forever that the administration is not going to send you emails to help you to protect the account. This message could only be received in case of attempts of unsanctioned access to your finances, however, you will be protected by the two-factor authentication method that is vital for crypto activity. Otherwise your account can be easily hacked.
The second thing you should pay attention to if you do receive this kind of letter is the link itself. Usually it is masked and an average user will not spot the difference at once. For example, if we speak about the exchange Binance with its address binance.com, hackers can create an identical copy with the address binancce.com. If you have not spotted that in the second case there are two letters “c” instead of one, you are a potential victim of phishing and you have to be extra careful when you visit a website, be very observant and check thoroughly where the invitation in the letter takes you to.
As for Discord channels and other messengers where people share links that will take you to “a secret working way to earn loads of money” and you have to enter your data to receive the money, we will not comment it. It is not surprising that there are a lot of people who fall for such tricks. These attackers should be reported and banned.
Metaverses
Metaverse has become a topic of numerous discussions and there is a reason for this, as the topic of virtual worlds has been haunting people for a long time. Loads of enthusiasts of cryptography are positive that metaverses are the future of the new world are they may be right. We should not forget that big opportunities are accompanied by big dangers.
The question of keeping order in metaverses has already started disturbing different countries and authorities. For example, Interpol has reported that they have set up a “department” in the virtual world where workers will be able to get together to discuss safety issues in the virtual worlds.
At the 90th assembly that took place in India the International Police announced that they set up an office that became a digital copy of a real building in Leon where the Interpol representatives reside.
The International Police warns all people that advancements in technology will entail development of attackers. They will have lots of new ways to trick their victims and make them give away the hard-earned money. The attackers of the new era will have to gain trust and go to a new level of communication with people to steal the money.
In this case, as we have already said, you should remember that in the majority of cases victims lose money because they trust people more than they need and give access to resources willingly.
There is a likelihood of good-old hacking but with new opportunities. Law enforcement officers report that attackers can get familiar with a person, and then hack them and copy parameters of their appearance, and then commit crimes on his behalf. The government of China already aim at obliging creators of NFT tokens with a special watermarks. They must give people an idea if the user is original or it is just a copycat who is about to do a wrong deed.
The Interpol advises people to be cautious and keep distance if they worry about saving their data and finances. In this case we stumble upon the question “Why do we need metaverses that are supposed to help people to get acquainted and virtual worlds that aim at meeting in the real world?”. Not all people are wrong doers and numerous users actually come there to have a good time.
Nevertheless, we should not lose vigilance and it will always be a good idea to adhere to precautionary measures. We should mention that in the United Arab Emirates they have already a set up a police department that will serve not only in real life but also metaverses. People will also be able to go to policemen in the virtual world if they are interested in something.
NFT
If you like NFT, in this case it will be useful to buy a hardware device that will be able to transport non-fungible token to your hardware wallet. We cannot say that keeping NFTs on OpenSea is too dangerous, however, no one has canceled regular precaution measures.
Recently the cases of stealing non-fungible tokens have become quite common and sometimes the sums exceed a hundred and even several hundreds thousand dollars. In NFT, the situation is a bit more complex than in normal cryptocurrencies as if your token is worth lots of money, you cannot divide it into two tokens and diversify it into several wallets. Nevertheless, if you send it to your hardware wallet and keep the seed phrase away from anyone, no one will get access to your tokens.
Takeaway
Today you have learned main rules of how to save your money. The main points are the following:
- finances should be divided into several parts and stored separately
- the best way to save your money is to use a hardware wallet
- dual authentication is essential
- administration of cryptocurrency platforms will almost never send emails with a request to protect your account. Protection of your data is your own concern, it is not an interest of the administration
- trusting people in the vastness of digital assets is not a great idea. Trusting strangers from the cryptocurrency sphere is an extremely bad idea
- stealing your data will be very difficult unless you provide all the necessary data
- if you decide to trade, support your psychological health and adhere to the rules of money and risk management to become one of the 3% of successful traders
- if you did not follow one of the rules and lost your money, do not get upset. Treat it as experience, fix the mistakes and do not let them happen again and in this case you will make it to the list of successful investors
Bogdan Lashchenko – content manager at EgamersWorld.Bogdan has been working at EGamersWorld since 2023. Joining the company, he began fillin the site with information, news and events.