Some cryptocurrency users are known to express mistrust and hesitancy before, during and even after using cryptocurrency exchanges. This is often due to poor user experiences, poor trading experiences and, most likely, concerns about security. You only have to look to the news to see examples of exchanges being hacked, cryptocurrency being stolen and funds never being recovered. It’s clear to see that cryptocurrency security concerns within the community aren’t entirely unfounded. Below, we take a look at six real threats facing users so you can be aware of what to look out for.
1) Exchange security concerns
Exchange hacks are well publicised which, of course, fosters the growth of fear throughout users. The Mt Gox hack is one of the most famous hacks to have taken place. When the exchange was hacked, it had to file for bankruptcy after it was rumoured to have lost around 750,000 of users’ Bitcoin, along with 100,000 of its own Bitcoin. The CEO, Mark Karpeles, was also on trial for allegedly embezzling his customers’ Bitcoin from Mt Gox. Exchanges can be hacked in a variety of ways. These include traditional hacking, malware and phishing attacks. Simple things like giving out your password, or clicking links on email scams can also put you at an increased risk of losing your cryptocurrency.
This concern can easily be alleviated as long as you carry out security best practices. Your choice in exchange is also really important. Choose one that makes security and its customers a priority. You should look for features such as two factor authentication, an always-on customer service team that can assist with any queries and one that prides itself on transparency.
At the moment, mobile mining isn’t all that efficient, particularly compared to PC mining. However, if mobile mining were to ever become as efficient as PC mining, then the issue of phone hacks would increase exponentially. The issue of cryptojacking also occurs on PCs, and the problem with hacks like this is they are difficult to spot. The hacker reaps the rewards, whilst the victim notices their device gradually slow down and in most cases, the victim probably doesn’t know what is going on. Since it is not malicious, at least not compared to demanding payment, the target won’t realise why the device is slowing down.
3) Identity fraud
A major part of this space is anonymity. Whilst blockchains pride themselves on being transparent, at least where money is concerned, there is scarcely any identification information used. This helps protect people from being hacked and robbed. However, this doesn’t ensure perfect protection.
For example, blockchain forensic analysts are employed to track down illicit trades. Illicit trades can range from paying ransoms and laundering money through to drug trades. Blockchain forensic analysts examine the blockchain and follow a thread until they can arrive at a point where the suspect first purchased fiat.
This is as reassuring as it is problematic. On the one hand, it is a relief that illegal activities cannot go unpunished. But at the same time, privacy is essential. If there was a legitimate trader who was engaging in large transactions and not committing any crimes, but they are still discovered by an analyst, then this breach of privacy becomes questionable. It goes against one of the founding philosophies behind crypto.
Another issue with identity is social media. People who have influence in the space of crypto may hide their real name. A reason for doing this is to protect themselves from a potential hack if they own a lot of crypto. However, if they have been posting on Twitter, for example, they could easily be discovered. A serious hacker would be able to hack Twitter and determine the person’s real name before hacking their crypto accounts.
4) Distributed denial of service (DDoS) attacks
A distributed denial of service (DDoS) attack is a type of cyber-attack where the perpetrator seeks to make a machine or service temporarily unavailable to its intended users by disrupting the service. They achieve this by flooding the target with incoming traffic that originates from multiple sources. As such, it becomes impossible to stop the attack by stopping a single source.
This kind of attack can cause a crypto exchange to experience downtime, which prompts panic in traders. Once traders begin to offload their crypto at a low price, the attackers begin to buy it all up. Exchanges are often targeted by DDoS attacks. This is an obvious security concern for many, since the markets can effectively be influenced by DDoS attacks.
5) 51% attacks
This would pose a substantial risk to a cryptocurrency’s network. If a group did ever obtain that much control, it could effectively manipulate transactions by either mining blocks that aren’t legitimate or causing issues of double spending.
Naturally though, it is hard to obtain that much influence over a network. If two pools who each had 25.5% of computational power on a network decided to collude together, they would all of sudden have 51% control, but this would be highly unethical, and it is very unlikely. But nonetheless, it is a concern.
Disclaimer: The views and opinions expressed by the author should not be considered as financial advice. We do not give advice on financial products.