A cryptocurrency such as bitcoin works using blockchain technology. The transaction is stored on a large number of nodes, making it extremely hard to fake a bitcoin – you would literally have to hack into all of those nodes simultaneously.
However, this does not mean cryptocurrency transactions are completely secure and anonymous. They are also irreversible. Once a coin is gone from your account, it can easily vanish without a trace. Hackers have taken advantage of this by breaking into exchanges and stealing small amounts from each user.
For example, more than $1,000,000 was stolen from the Bithumb exchange in early 2017, compromising the information of 30,000 customers. These losses include spear phishing and other fraud committed using the stolen information.
What are the Security Risks with Cryptocurrency?
The largest risk with cryptocurrency is that online exchanges are vulnerable, as mentioned, to hacking. There are some others, though:
Offline wallets are cumbersome and can still be hacked. Trojans such as Pony Loader 2.0 can identify and steal from wallets.
ICO – initial coin offering – fraud is becoming common. Tempting deals on new cryptocurrency startups should be considered carefully. A lot are legit, but some are fake.
Fake trading exchanges. Make sure you use an exchange with a good reputation.
Your bitcoin or other address can be compromised, most often through your own error. Don’t post your address on social media or through messaging clients, as it can easily become linked to your real identity.
Bitcoin addresses are not fully anonymous. Some newer currencies such as Monero or Zcash are better. It is possible to connect a bitcoin address to an IP and thus identify the individual concerned.
Blockchain addresses are publicly recorded for transparency (this is why accountants are starting to use blockchain a lot), and if those addresses get linked to an identity then that person could become a target, especially if they are holding a lot of money.
In fact, some governments have banned trading in cryptocurrencies and others tax them heavily. As cryptocurrency exchange grows, the governments will increase their efforts to develop tools to track transactions.
Phishing attacks. Last month malicious agents attacked Electrum Wallet Nets and stole almost a million in a few hours.
Cryptojacking is a common form of malware these days. When you are cryptojacked, your computer or phone is hacked and the hackers then use your CPU as a mining load.
This can result in a significant slowdown of your system. If you notice a sudden drop in system performance, you should run a malware check. Adguard found 33,000 websites running crypto-mining scripts that execute on computers visiting them.
Why Should You Use a VPN When Working With Cryptocurrencies
That last point above is exactly why you should do all bitcoin transactions over a VPN.
- VNP encrypts your data when trading, making it harder to intercept
- Phishing attacks
- Malware and viruses
- VPN hides your IP address and prevents IP tracking, meaning that your computer’s location will not become connected to your bitcoin address. By changing your IP address, you can also bypass government band, and exchange freely
- You may even be able to configure the VPN to only protect cryptocurrency activities (especially if the VPN is slowing down your internet traffic)
- Make sure to choose a VPN that does not store user logs, which can potentially be matched to your traffic
- Free VPNs often fund themselves by selling the very data you are using them to hide. Paid VPNs are quite affordable for the average user, and more reliable and secure, read here why
What Other Precautions Should You Take When Dealing With Cryptocurrencies
Other than using a VPN, what else can you do to help protect your cryptocurrency wallet? Here are a few:
Don’t store your wallet or make transactions from your mobile phone. If you absolutely have to, make a second wallet and keep only a small amount of cryptocurrency in it. Phones are vulnerable not just to hacking but to physical theft.
Don’t do transactions over public WiFi unless you are using a VPN.
Use a strong password and use a different password for all of your wallets. A high-quality password manager can be very helpful here.
Consider avoiding bitcoin in favor of newer currencies that are better designed to ensure your anonymity.
Always use two-factor (2FA) authentication on any online or exchange accounts.
Encrypt your wallet, whether it is stored online or offline.
If possible, store your main wallet on a system that is not connected to the internet unless you are using it. This is called an “air gap,” and as long as your physical security is good it can be very helpful for keeping hackers out.
Use an escrow service when doing bitcoin transactions with individuals you don’t know. Don’t trade with people who refuse to use escrow, as it may well mean they are attempting some kind of fraud.
Get a client that changes your IP address with each transaction.
Have more than one wallet, keeping only a small amount in your “working” wallet and topping it up from a primary account as needed.
Always keep your VPN, anti-virus and other malware protection up to date and use reputable products. This will help protect you from cryptojacking. Also use both an ad blocker and an anti-cryptomining extension such as MinerBlock.
If you are doing high value or high security transactions, consider using a multi-signature address. This is generally only used by businesses who can give the keys to multiple staff. However, it can greatly increase security if you can do it.
Consider the security of your OS. Using an OS like Linux to keep computers free from viruses and malware is also good.
Consider the use of a hardware wallet like Ledger is a fantastic way to keep wallet keys secure.
Finally, always practice good cyber hygiene such as not clicking on links in email. If a cryptocurrency deal seems too good to be true, it probably is. Don’t buy into ICOs unless you have done your due diligence and are absolutely sure they are for real.
Using a VPN is one of the best ways you can secure and protect cryptocurrency transactions. The great promise of blockchain is its security and transparency, and the ability to both be anonymous and visible. However, it is also ripe ground for hackers and thieves, especially as it becomes more prevalent and ordinary people start using cryptocurrency to handle their online transactions.
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