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What are cryptocurrency security issues?

The importance of identity management in cryptocurrency

Personal information is being infringed upon by institutions all over the world. Here, we discuss the importance of your crypto identity management

Introduction

Historically, service providers have sold customer data to third parties with few repercussions. In many instances, data has been sold without individuals knowing. Huge stories have included Facebook selling its users’ personal data. And it’s not just the active selling of data that’s an issue, either. Businesses and institutions alike have fallen victim to hacks that have seen thousands of sensitive data files stolen.

Although regulations such as General Data Protection Regulation (GDPR) are beginning to play a bigger role in protecting people’s privacy, there is still cause for concern. This is moreso in the cryptocommunity than any other, due to a lack of regulation. Without a governing body protecting your privacy, you become responsible for your own crypto identity management.

On a daily basis, people’s personal information and identity is being infringed upon by companies and institutions all over the world. But what vulnerabilities does your identity face in the world of cryptocurrency? In this guide, we discuss the importance of crypto identity management and how you can improve your layers of security.

Issues with centralised systems

The misuse of data can be malicious. It can be sold on without your knowledge, stolen to commit acts of fraud, or to gather unauthorised information about you and your activity. In other instances, data that you’ve knowingly provided can be leaked, hacked, or left vulnerable to threats. In this latter example, there is one core issue contributing poor identity management. And that’s the concept of centralisation.

Centralised identity management systems have a single governing body that takes custody of your information. As proven by some large corporate companies, this custody isn’t always secure. It could give some companies and individuals too much power over your data and how it’s used. But there’s a lot more to identity management than ethics.

Centralisation often means that all data is stored in a single physical or digital location. As data continues to grow, many infrastructures fail to scale alongside it – causing vulnerabilities and single points of failure. For successful crypto identity management to take place, and for your funds to remain protected, decentralised must play a central role.

Can blockchain technology improve crypto identity management?

A blockchain is a form of distributed ledger technology. It records all transactions publicly, though no identifying information is used. So when you purchase Bitcoin, for example, the amount you paid for the coin will be displayed, but the buyer (i.e. you) and the coin isn’t made publicly available. Due to the public nature of a distributed ledger, the central governing body is removed – eliminating ownership of your data by anyone other than you.

Decentralisation through blockchain technology offers multiple benefits. When it comes to crypto identity management, blockchain allows for a new level of encryption and authentication.  Along with the immutability that is offered by distributed ledger technology, data can be protected from malicious activity, unauthorised changes, and even destruction.  When it comes to cryptocurrency activity and transactions, your privacy is better protected on the blockchain than it is by centralised bodies such as financial institutions.

But be prepared. In an unregulated industry, there is no perfect technology. Your crypto identity management is your own responsibility and you must be willing to add more layers to your approach to security.

Why identity management is important in cryptocurrency

Just because you have managed to free yourself from the constraints of authoritative governance and distribution of information through blockchain technology, does not guarantee your identity is safe. The crypto industry is vulnerable to cyber criminality. If you are making multiple transactions over a blockchain, for examples, it’s feasible to leave a thread that hackers could trace. The frequency of your transactions could indicate your wealth in cryptocurrency and expose you to greater vulnerabilities.

How to protect your identity

A multi-use cryptocurrency wallet is a great solution for improving your crypto identity management. This type of wallet generates you a fresh public address every time you make a transaction. By creating a new public address each time, it becomes significantly harder for a hacker to trace down you. There are many pros and cons to different types of cryptocurrency wallets as each has a different way of helping you with your identity management.

Another issue with identity management is when traders use their social media to influence others and discuss their activities. This exposes their identity to watchful hackers. By giving up anonymity, hackers may be able to trace transactions from that point forward. Once outed, there isn’t necessarily a concrete way to protect your crypto identity. To ensure you don’t end up in a situation like this, it’s best you don’t regularly post about your trades, if at all.

Key tips for improving crypto identity management

Here’s a list of actions you should take to help better secure your identity:

  • Use strong, unique passwords. The safest bet for a password, is to use a minimum of 15 characters, all randomised. The password should appear as gibberish. Having a random, complicated password is important because a lot of hacking tools have dictionaries embedded into them that actively search for all password combinations. For this reason, avoid using words.
  • Avoid putting a large sum of crypto into your online wallet as they can be easily compromised. You should store the majority of your funds in cold storage.
  • Use two-factor authentication (2FA) when using your wallet or any cryptocurrency exchange. This is common practice at a lot of places. It just adds an additional layer of security.
  • Don’t use public Wi-Fi to complete cryptocurrency transactions. Hackers can easily intercept data packets and obtain information transferred on public Wi-Fi.

For more information on keeping your identity protected and staying safe within the cryptocurrency community, read our latest insights and guides.

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