What is Cryptocurrency?
Cryptocurrency, sometimes referred to as crypto or crypto-currency, is a digital or virtual form of currency that operates independently of traditional banking systems. It utilizes cryptographic technology to secure transactions and control the creation of new units. Unlike conventional currencies, cryptocurrencies do not rely on a central issuing or regulating authority. Instead, they employ a decentralized system that records transactions and maintains a transparent ledger.
Cryptocurrency assets operate on peer-to-peerr, decentralized networks, distributed across numerous computers. This structure allows them to exist outside the control of governments and central authorities. Experts believe that the underlying technology behind cryptocurrencies, such as blockchain, has the potential to disrupt various industries, including finance and law.
Over the years, as humanity moved from the bartering system to different forms of currency like metal coins, paper money, plastic cards, and mobile payments, each shift was met with its share of suspicion, curiosity, and eventual acceptance. Cryptocurrency is but the latest type of money to draw everyone’s attention.
So, how safe is cryptocurrency like bitcoin or dogecoin? While cryptocurrency is considered safe due to its technology and decentralized nature, some events have proven that it’s not immune from manipulation. For example, market speculation or social media trends, like one tweet from an influential investor like Elon Musk, can negatively or positively impact a cryptocurrency’s value significantly. Investors with large holdings can also make a cryptocurrency’s value plummet by selling it overnight. Likewise, governments and regulatory bodies can force cryptocurrency values to seesaw by imposing restrictions and bans.
The lack of oversight on crypto exchanges has also shown that investors are vulnerable to insider threats. You don’t have to look further than the demise of FTX and its “Crypto King,” losing $32 billion overnight and its customers out of $5 billion in deposits.
Although cryptocurrency’s core technology may be safe from hacking, investors and cryptocurrency platforms are vulnerable to social engineering attacks like phishing and investment scams. Some investors have lost their life savings to SIMjacking attacks. Even with the Federal Trade Commission (FCC) curbing SIM swap attacks, cryptocurrency investors are still susceptible to this type of fraud.
Read this in-depth guide for more on:
- How does cryptocurrency work?
- Types of cryptocurrency
- Risks of cryptocurrency
- Cryptocurrency cyber security risks
How does cryptocurrency work?
Most cryptocurrencies work by employing cryptographic techniques and using blockchain technology. And what is blockchain and how does it work? In brief, blockchain is a digital distributed ledger that exists on a network of peer-to-peer computers called nodes. Blockchain is nearly incorruptible due to its distributed nature and baked-in security features. The secure characteristic of blockchain helps make cryptocurrency a unique asset.
If you’re wondering how NFT works, it also utilizes blockchain. Other technology that uses blockchain includes smart contracts and decentralized apps.
How does a cryptocurrency blockchain transaction work?
- Someone requests a cryptocurrency transaction on a blockchain.
- Blockchain nodes on the peer-to-peer network see the request.
- The nodes use sophisticated technology to validate and verify the transaction.
- The verified transaction adds to a block.
- The modified block becomes a permanent and irreversible part of the blockchain.
What are the key features of cryptocurrency?
Decentralization: There is usually no central authority that controls cryptocurrency. However, influencers can significantly impact cryptocurrency value, sometimes making it more volatile than state-controlled currency.
Security: Cryptocurrency is challenging to hack because of the nature of blockchain technology, with users constantly reviewing it.
Privacy: Cryptocurrency can offer privacy and anonymity thanks to its decentralized and digital nature. However, this is a bit of a double-edged sword. Cryptocurrency is also popular on the Dark Web amongst cybercriminals for illegal or illicit transactions.
Speed: Cryptocurrency transactions are fast. While it may take a few days to send someone money in the other part of the world through a bank, sending cryptocurrency can take minutes.
Cost: Cryptocurrency transactions are usually cheaper than conventional ones because they cut out the middleman. You can also spend cryptocurrency wherever it’s accepted when traveling without worrying about exchange rates and conversion fees.
Types of cryptocurrency
How many types of cryptocurrency are there? CoinMarketCap estimates that there are nearly 23,000 different cryptocurrencies valued at around $1 trillion.
Here are some of the most popular types of cryptocurrency:
Bitcoin is the most renowned cryptocurrency was a catalyst for the cryptocurrency industry. Bitcoin was created by a person or persons using the pseudonym Satoshi Nakomoto in 2009. A notable feature of bitcoin is that it has a limited supply of 21 million coins.
- Ethereum: Ethereum was conceptualized in 2013 and launched in 2015. While ethereum and bitcoin are very similar, they have some key differences. Bitcoin was designed to store value while the ethereum network offers other features like smart contracts and decentralized applications.
- Litecoin: Litecoin was created in 2011 from bitcoin’s source code. You’ve probably heard bitcoin referred to as gold. Well, litecoin is often referred to affectionately as bitcoin’s silver counterpart. It has a faster block generation time, higher coin supply, and is designed for faster transactions.
- Ripple: Created in 2012, ripple is a cryptocurrency and payment protocol that offers low transaction fees and high processing times. Ripple utilizes blockchain technology for international money transfers. The decentralized network RippleNet boasts hundreds of financial organizations worldwide.
- Dogecoin: Dogecoin was launched in 2013 with technology derived from litecoin. Its key defining characteristic is not technological, though. Dogecoin was named after the popular doge meme and features the Shiba Inu dog as its logo, which boosted its popularity.
What is cryptocurrency used for?
- Privacy: Some people use cryptocurrencies to protect their identities during transactions.
- Buying or selling: You can use cryptocurrencies as digital money. You can use cryptocurrency to purchase goods or services from many different types of people and organizations worldwide on various platforms.
- Investment: Some speculators may invest in an upcoming cryptocurrency to make a profit. As the value of the cryptocurrency rises, so does their wealth.
- Storage: People who don’t trust traditional financial institutions store their savings in cryptocurrency like bitcoin.
- Money transfers: Sending money to people in other locations, especially across the world, can be significantly cheaper and faster with cryptocurrency than conventional means.
- Fundraising: Some sole-proprietors, startups, and enterprises raise funds for projects through cryptocurrency sales or Initial Coin Offerings (ICOs).
- Illegal transactions: A growing number of criminals use cryptocurrency to trade illegal goods and services. Scammers and extortionists also usually demand bitcoin from their targets instead of cash or bank transfers.
How to get cryptocurrency
Your first option is to buy it from an exchange. You’ll need an app called a wallet to hold your cryptocurrency. There are online and offline versions of a crypto wallet. You can also mine for cryptocurrency by using your computer to solve complex mathematical equations associated with blockchains. Every time you crack these codes, you earn cryptocurrency as a reward. However, looking at how cryptomining works — the more a cryptocurrency matures, the harder it is to mine it profitably.
Nowadays, the cost of mining a mature cryptocurrency like bitcoin is pretty high in terms of computer hardware and energy resources. For more resources, many cybercriminals deploy cryptojacking malware to use your computer, smartphones, tablets, and servers to mine bitcoin and the like without your consent or knowledge. You can try a tool like Malwarebytes Browser Guard to block in-browser cryptojackers. Also, read up on ways to protect your computer from malicious cryptomining vectors.
How to buy cryptocurrency safely
- Pick an exchange: Select a reputable cryptocurrency exchange platform to purchase your assets from. Don’t go by celebrity endorsements, as many of them have backfired. Research platforms and pick a stable and secure exchange that supports transactions in your country and offers the digital assets you are interested in buying. Alternatively, work with a crypto broker to buy your digital coin.
- Create an account: When creating a cryptocurrency account, ensure that the password is long and sophisticated. Please activate MFA (multi-factor authentication) for an extra layer of security. You may also have to authenticate your email address and verify your identity by sending the exchange a digital copy of your driving license or passport.
- Fund your account: You can add funds to your account by linking your bank account number or debit card. A number of exchanges may allow you to buy crypto with your credit card, though experts advise against it. Some financial institutions will not allow it, while others may consider it a cash advance. Additionally, investing in crypto by borrowing money at credit card rates can be unwise.
- Research your cryptocurrency: As mentioned, there are many cryptocurrencies to choose from. Research the pros and cons of investing in them before making a decision. In addition to buying cryptocurrencies, you can invest in crypto trusts, crypto mutual funds, or crypto stocks.
- Store your currency: After purchasing your asset, you must store it safely. Remember, not all exchange services offer storage services. Some investors store their crypto in online storages called hot wallets, while others keep them offline in cold wallets.
Who accepts cryptocurrency?
Cryptocurrency has rapidly grown in popularity. Some countries already use Bitcoin as a legitimate legal tender. People can legally use cryptocurrency in places such as the United States, Canada, Australia, Israel, and many in the European Union (EU). However, in other countries, the laws around cryptocurrency are more complex. Some countries have banned cryptocurrency outright.
Many retailers, accommodations, eateries, online services, charities, and auction houses accept cryptocurrency worldwide. The first major mobile carrier to accept cryptocurrency payments was AT&T. Online spaces such as Newegg.com, Microsoft, PayPal, and Twitch also support cryptocurrency in some shape or form.
How safe is cryptocurrency?
Ask yourself, what are the shortcomings of traditional currency like paper notes? Well, counterfeit gangs can duplicate paper notes. Paper notes are also vulnerable to physical damage. Moreover, a central authority can significantly alter the value of paper notes at a moment's notice.
On the other hand, a cryptocurrency that uses blockchain lives in cyberspace across a peer-to-peer network of computers, it's very secure, and users determine its value instead of a central authority like a bank or a government. However, a currency that lacks the backing of a central authority, such as a national government, has inherent risks, too.
Although cryptocurrency is exceptionally challenging to hack, it is vulnerable to theft like any type of money. For example, hackers are known to hit crypto exchanges and steal millions in cryptocurrency, though some gray hat hackers give the money back to their targets in rare cases. In addition, if you don't follow basic cybersecurity protocols, someone may steal the private key to your bitcoin wallet. It’s critical to keep it secure because lost or stolen cryptocurrency is quite tricky to recover due to how it works.
Cryptocurrency investors are also the target of a number of scams. Read about the FBI warning about fraudulent cryptocurrency investment apps to stay away from malicious software designed to steal your money. In addition, you should learn to identify fake cryptocurrency investment opportunities.
How to identify fake cryptocurrency
While identifying fake cryptocurrency investment opportunities can be challenging, it’s not impossible. You must apply a healthy dose of skepticism to any scheme that comes your way and research thoroughly before investing.
Some investors look for Initial Coin Offerings (ICOs) to capitalize on the next bitcoin. Unfortunately, many ICOs are scams led by fraudsters who pull out overnight after drawing funding, leaving the currency worthless in a pump-and-dump scheme. To protect yourself from cryptocurrency scams, study the whitepaper. Ensure that it's detailed, sensible and justifies its feasibility. Check the ICO’s official website, social media pages, and message boards to gather more information. Steer clear of cryptocurrencies that offer unrealistic returns, advertise too aggressively, or appear insincere in any way.
Please also learn about the social engineering tactics that cryptocurrency scammers employ. They may use fake websites, fake contests and giveaways, phishing emails, fraudulent apps, and even impersonate thought leaders on social media to defraud people.
How to use cryptocurrency safely
Consider using a hardware wallet, also known as a cold wallet, to store your keys. A cold wallet doesn’t connect to the Internet and is less vulnerable to online attacks, though nothing is 100% safe.
Many people use a service like Coinbase, Binance, or Crypto.com to store cryptocurrency and make trades, and it's important to be cautious of phishing attacks if you do. Don't share your secret recovery phrase (or what used to be called a seed phrase), as a threat actor could use it to recover your account.
Additional cybersecurity best practices include using a secure Internet connection like your home WiFi, or using a VPN that encrypts your data if you are accessing your crypto on shared networks. On the devices you use to store or trade, use good antivirus/anti-malware protection to block threats like keyloggers (that store your keystrokes), Trojans, and other types of attacks that can enable someone to access your device. A good cybersecurity solution will also shield your system from cryptojacking attacks.
Establish complex passwords for your account to reduce the risks of cryptocurrency account hacks. Experts say that your password should be at least 12 characters long and feature uppercase letters, lowercase letters, numbers, symbols, and alphabets. However, complex passphrases are even more secure against brute force attacks. Read “What is a Passphrase” to learn more about improving your cryptocurrency account’s login security.
Please also activate multi-factor authentication (MFA) to improve your crypto cybersecurity. MFA can force a hacker to authenticate their identity in multiple ways, reducing your cryptocurrency cybersecurity risks.
Attackers use a number of social engineering attacks to trick cryptocurrency account holders into sharing confidential information, such as login credentials. Learn how to protect against phishing attacks to boost your crypto cybersecurity.
Secure your SIM
SIM-swapping is a type of identity theft attack where hackers deceive your cellular provider into issuing them your SIM Card. With access to your phone number, the hacker may break into your crypto account and steal your assets. Many victims have lost their entire life savings to such attacks.
Here is how to protect your SIM from SIM-swapping attacks:
- Create a strong PIN for your cellular account.
- Avoid sharing private information online. Threat actors can use personal information to commit identity theft.
- Use Android security and iOS security to protect your cell phone from malware that may spy on you. In addition, update your operating system to the latest version.
- Ask your cellular provider about the steps they take to protect against SIM-swapping. If the answers aren’t satisfactory, consider switching to a more secure cellular service.
How to mine cryptocurrency safely
Start by downloading reputable mining software for your target cryptocurrency. Ensure that your mining device has the processing power and cooling capabilities for your project. You will also need to place your device or devices in a ventilated room, as the machines can run hot when mining.
Research the investment costs, energy costs, returns, and challenges of cryptomining to ensure the project is worthwhile. For example, it may be too expensive to mine a cryptocurrency that’s nearly depleted.
You should also secure your mining operations by using complex passwords, anti-malware software, the latest firmware and drivers, and network security software. Use a secure wallet and back it up frequently. Avoid sharing information about your project publicly, or you may be targeted by scammers, hackers, and other criminals. Finally, stay on top of your mining project by consuming the latest crypto news and updates.
How to make a cryptocurrency wallet
- Research different types of wallets and service providers. Pick a reputable wallet provider that offers excellent features and support to store cryptocurrency safely.
- Carefully follow the instructions to set up, install, access, or download your wallet.
- Set a unique and sophisticated seed phrase to recover your wallet.
- Store your seed phrase securely and away from curious eyes.
- Ensure that your wallet password is long and complex.
- Protect your wallet with MFA, biometric authentication, and a complex PIN. Always access the wallet from a secure device.
- Fund your wallet after it's secure and you have your wallet address. Send a small amount initially to test your wallet.
- Make a secure backup of your wallet and seed phrase.
How to recover stolen cryptocurrency
Recovering stolen cryptocurrency can be more challenging with each passing minute. Report the incident to the exchange, wallet providers, and law enforcement agencies as soon as possible. Get in touch with professionals to help recover stolen cryptocurrency, though be wary of stolen crypto recovery scams. Ultimately, it’s easier to keep your cryptocurrency safe than to recover stolen crypto.
How to keep your cryptocurrency safe
- Work with a reputable exchange or broker.
- Use a secure wallet.
- Diversify your assets.
- Create backups.
- Set a sophisticated password and use MFA.
- Protect your computer and devices with the latest security patches and antivirus software.
- Activate security alerts.
- Investigate unusual activity quickly but cautiously, in case it’s part of a social engineering attack. Yes, threat actors may send a fake security alert to attack your digital investment.
- Protect your cellular account from SIM-swapping.
- Steer clear of phishing attacks.
- Avoid sharing personal information on social media.
The future of cybersecurity and cryptocurrency
As scammers use sophisticated social engineering tactics to attack cryptocurrency investors, we should hopefully see cryptocurrency platforms, cellular service providers, and government bodies introduce tighter rules and regulations to enhance crypto cybersecurity and protect investors.
However, the rise of generative AI may pose greater cryptocurrency cybersecurity risks. With threat actors impersonating thought leaders more convincingly by leveraging AI, we may see more people victimized by cryptocurrency scams. In addition, scammers may use AI-generated voices to bypass voice recognition security features and break into cellular accounts to initiate identity theft for crypto theft.
On the other hand, the foundational technology of cryptocurrency, blockchain, should continue to improve the cybersecurity of financial and real estate transactions with smart contracts. Blockchain also benefits these two industries with anti-money laundering, client and staff onboarding, and fraud prevention.
In addition, blockchain will have a positive impact on supply chain integrity, data storage, and identity management, helping the cybersecurity of industries like healthcare, automotive, and others.
Cryptocurrency works through the use of cryptographic technology and decentralized networks. Transactions are secured using encryption techniques, and a distributed ledger called the blockchain records all transactions across a network of computers. Miners or validators validate transactions and add them to the blockchain, ensuring their integrity. Consensus algorithms ensure agreement on the state of the blockchain. Users store their cryptocurrency in digital wallets, which consist of public and private keys. Transactions are publicly broadcasted, and once confirmed, they become part of the permanent blockchain record. Cryptocurrency operates without intermediaries, providing secure and transparent digital transactions.
Crypto money is essentially the same as cryptocurrency. Both terms refer to digital or virtual forms of currency that utilize cryptographic technology to secure transactions and operate independently of traditional banking systems. They are often used interchangeably to describe the same concept.