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Today’s crypto markets provide great opportunities for investors and traders that are accompanied by various risks and potential losses. To help alleviate the latter, let’s talk about how to secure your digital assets.
Why bother?
There are multiple stories about people losing access to their assets for a variety of reasons, from forgetting the PIN to accidentally throwing out the hard drive with thousands of Bitcoins.
Information security risks are another important issue. There are numerous cases of cyber attacks resulting in huge losses for cryptocurrency holders. For example, the CryptoShuffler trojan stole about $150,000 last fall. After the malicious software was installed on victims’ computers (using social engineering for example), it replaced a cryptocurrency wallet address with the one belonging to hackers. There are also plenty of situations where crypto traders are losing their money due to their exchange being hacked (here are several examples: one, two, three).
The high volatility of cryptocurrencies is also a key risk factor. The course of popular coins can go up and down significantly, in a very short time. Take Bitcoin as an example. By the beginning of 2017 its cost was about $1000 and by the end of the year it had skyrocketed to $13,700. That sounds pretty cool, but by mid-December 2017 its value was actually around $19,783. The cost of such fluctuations for cryptocurrency holders amounted to almost $1 billion. The price of cryptocoins may also be affected by different events — for example, recently the Bitcoin price crashed after another crypto exchange was hacked.
If things seem too complicated, there are several practical steps that can be taken to secure your crypto assets.
Use hardware storage
A popular mistake made by novices is not using a hardware wallet. Such wallets are physical devices not connected to the internet, where private keys are stored. If you store all your assets directly on crypto exchanges or in software wallets on your computer or smartphone, you are putting these assets at significant risk. The exchange can go bankrupt, the web or mobile app might be hacked, and all your coins will vanish.
Hardware wallets like Trezor or the Ledger Nano S cost several dozens of dollars but can save you thousands. The scheme is pretty simple: you just set a PIN number to access your wallet and a “seed” (a key phrase with words and numbers) for recovery. When using a hardware wallet, any criminal willing to steal your money will need to access both the device and PIN or seed. It is quite robust security (so robust that you should never lose your PIN and seed string).
Fight against cyber threats
Research shows that websites of ICO projects and cryptocurrency wallets are among the main targets for hackers. Cybercriminals aim to trick potential crypto investors into sending funds the wrong way, or, they hack their wallets and steal their money.
This means that organizing safe storage should not be the only step taken in order to protect your assets. To use your coins in the real world you will need to register on some external websites (exchanges etc.), use mobile apps, and participate in token sales. Each of these pieces of software is a potential place for an attack by hackers.
This means that you should develop and maintain your own password policy using unique and strong passwords across the internet, and enable two-factor authentication at every website used for managing crypto assets.
Crypto investors should always protect their assets — this includes a high level of attention when surfing the web and clicking on links. Often users are tricked into clicking a malicious link which installs malware on a computer or sends the visitor to a website similar to a legitimate one but created by a hacker. Always double check URLs of websites you visit before you enter financial information, and don’t open email attachments or click on links in messages from senders you don’t know and trust.
Be a clever investor
The cryptosphere became famous for its opportunities for investors, as it is much easier to enter this market and start trading when compared to, say, fiat exchanges. Last year ICOs and altcoins provided a return on investment of up to 500%.
However, at the same time, there are risks of losses as well. For example, according to recent statistics, there were 902 token sales in 2017 which raised a total of more than $2 billion. Unfortunately, 142 projects did not survive, and 46% of last year’s ICOs were dead by early 2018. As already mentioned, there have been billion-worth losses due to the high volatility of cryptocurrencies.
For this reason, it is important to find tools that can help reduce investment risks and make crypto trading more secure and flexible. There are already well-known tools in traditional markets, such as indices, with products listed on exchanges thus enabling them to be traded. They are used as benchmarks for the exchange-listed products, allowing the investor to trade whole sectors easily and manage complicated portfolios in one simple investment. This, in turn, creates opportunities to outperform a single product investment.
Until quite recently, indices were unknown to the crypto market, however today there are a growing number of them. One of the most interesting and promising is the Cryptoindex 100. It is a fully automated index composed of a sophisticated algorithm using AI Neural Networks technology. Using this index as a benchmark allows traders to reduce volatility and risks for their portfolios as well as the cost and effort in managing a portfolio, and, as a result, save their assets.