When it comes to security, cryptocurrency is not immune to attacks. Hackers have been accessing traditional financial institutions since before cryptocurrencies even existed. This, combined with a lack of regulation, can make it easy to exploit the investor pool. It is not for everyone, so only the highest-risk investors should consider investing in cryptocurrency. Read on to learn more about the security risks of cryptocurrency. And remember, it’s not like investing in traditional financial institutions.
Cryptocurrency is a form of payment
While it’s true that there are security risks with using cryptocurrency, it’s not as large as those with credit card payments. Cryptocurrency does not involve third-party verification, and its customers’ data is not stored in a centralized hub, like a bank. The blockchain general ledger, which records all transactions, makes it difficult for hackers to steal someone’s identity. However, it does pose a risk of losing money if a user’s account is compromised.
A significant security risk associated with cryptocurrency transactions is that the process is decentralized. Most transactions involve the physical presence of a currency. However, in electronic transactions, there is no trusted third party to provide legal recourse in the event of fraud. The lack of a third party to rely on increases the potential for legal ambiguity between the parties. Similarly, due to the decentralized nature of cryptocurrency, the legal recourse of the victim may not be as straightforward as it would be for a traditional fraud victim.
It uses proof-of-work to prevent double spending
In addition to securing monetary transactions, cryptocurrencies use a system known as proof-of-work to prevent double spending. Proof-of-work is a consensus mechanism carried out by a decentralized network of ‘miners,’ which ensures that past transactions are ‘true’ and that the blockchain is not corrupted. Double-spending is a problem that many cryptocurrencies struggle with.
Proof-of-work is one method used to ensure that no one can duplicate any transactions. Double spending is the problem with cryptocurrencies because digital actions are easily duplicated. Copying a file or sending an email is trivial. Proof-of-work, on the other hand, makes double-spending impossible, as it requires considerable computations to duplicate the money. In Bitcoin, proof-of-work uses a shared ledger called a blockchain, which consists of blocks. Each block has the most recent transactions.
It is vulnerable to cyber attacks
With all the talk about cybersecurity and how to protect cryptocurrency, it is important to understand the risks of cyber attacks and how to prevent them. Cryptocurrency is in its neonatal stage in India, and despite its relatively short existence, it has already been the victim of numerous hacking attempts. In August 2018, three experienced hackers were arrested for stealing $87 million worth of cryptocurrency from individuals’ personal accounts. According to the court documents, these hackers used remote strategies to transfer Bitcoin from personal accounts without leaving any traces.
The main threats to cryptocurrency are related to its digital nature and its vulnerability to cyber attacks. These attacks have several ways to compromise them, including crypto exchange hacks and ransomware. Cybercriminals typically target cryptocurrency users through phishing campaigns that mimic legitimate websites in order to trick them into handing over their private keys. Crypto phishing attacks, for example, use emails designed to lure victims into clicking on a malicious link, which leads to an online form asking for crypto private keys. Once the attackers have gained access to this information, they can use the stolen cryptocurrency to steal it.
It is a criminal haven
Despite the positive impact of cryptocurrency on the financial system, its use as a vehicle for criminal activity raises some alarming security risks. A recent investigation by Europol revealed that the digital currency bitcoin is being used as a way for terrorists to launder money and hide their identities. In one case, the Lazarus Group, a cybercrime group with ties to North Korea, stole $275 million in cryptocurrency from the KuCoin exchange. This crime involved the popular money laundering method of sending small amounts to mixers and extortion through decentralized platforms.