Being a cautious group by nature, Cyber security enthusiasts always approach new digital currencies with caution. Forget the hype and the criminal element that places Bitcoin and the blockchain at the center of many an international drug scandal and on the SEC hitlist, the safety and security of everyday trading is troubling to cyber security enthusiasts.
These fall under two main branches of risk: Regulation and Volatility
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As more traditional financial products have very stringent regulations, it appears that consumers are better protected if things go awry. If your bitcoins or other digital currencies are compromised, with no supervising body, your assurances, particularly on large exchanges are less guaranteed.
Investing in cryptocurrencies can be risky as price is prone to extreme highs and lows. Investors get very nervous as there is little to study to predict the market. Bitcoin has swung from $18,737.60 on December 18th 2017 to $6,252.44 on February 6th 2018 – and let's not forget, Bitcoin is the most stable of the digital currencies.
The reasons for the level of volatility are manifold, however for us, hacking bothers us the most.
The hacking threat in Cyber space make Bitcoin related services rather than the Blockchain itself, worrying insecure. Digital currencies network guarded by keys and increasingly long and complicated ledgers allows coins to remain in a safe space, yet, there are consistent cases of hacking on Bitcoin exchanges.
From the Mt. Gox 2014 collapse after it lost 850,000 bitcoins to hackers to the Bitfinex, 2016 revelation that hackers had grabbed $77 million in bitcoin, Bitcoin investors are hesitant to take expose themselves to insecure platforms.
Which Exchanges are more secure?
Crypto exchanges can be vulnerable to hacks where funds are swooped down on, stolen and quickly become untraceable. For investors and users these are huge risks.
How can you mediate that risk?
- Select your exchange carefully
When you select an exchange, look deeply at how long it has been operating, the volumes it trades and credibility. The more credible exchanges either have a history of high safety standards or are willing to take risks on behalf of clients. MyEtherWallet, which stores Ethereum and other tokens with the ERC-20 standard has a stable safety record and Coincheck is now attempting to offer full reimbursement to customers affected by attacks. This offer both accepts that there is vulnerability but if Coincheck will stand behind its' promises, it increases trust for the average consumer.
- Use a Cold hardware wallet
In crypto there are two types of e-wallets, hot and cold. Hot wallets are used for purchasing and are always online whereas cold wallets are for crypto savings and are stored offline.
A hardware wallet is a connectable device, such as a USB, that can be plugged into a computer when clients want to trade. This stores your private keys and the user has to confirm transactions on the device itself. In most secure hardware wallets, you choose a PIN and a recovery seed. Like all passwords, keep them in a secure and encrypted place. Emin Gun Sirer, a researcher at Cornell advises "keep a backup of the seed key in a fireproof safe."
By storing the majority of your coins here and using hot wallets for trading alone, you mitigate your exposure to hackers.
The bottom line is creating a safer environment for digital currency trading requires the traders themselves must be committed to their own level of security. That means limiting their exposure online and researching potential cryptocurrency investments.