How safe are digital assets?

What are the security risks for digital assets?

Every owner of digital assets must take measures to protect them and there are a number of options with different security stages. Owners of crypto-assets also have to be as vigilant for fraud and hacks that they personally attack as with traditional money.

The best protective methods depend on how a user stores assets and with which institutions, since both security and reliability are very different in this emerging area. In the past 10 years there have been 126 major violations of 3.1 billion. The average injury cost around $ 25 million. Bitcoin, the most popular cryptocurrency, remains the most targeted digital asset.

Where should I keep my digital assets?

Owner of digital assets need their unique “private key”, a long password that serves a similar purpose as a bank card pin to unlock access to their cryptocurrency. It is important not to lose or forget this private key. Decentralized digital assets are not guaranteed by banks and have no hotline to reset the password, which means that it is almost impossible to restore lost digital keys. According to Chainalysis, a blockchain data provider, more than $ 100 billion in Bitcoin could have been lost in this way.

The keys- and therefore crypto- can be kept in online or mobile wallets that are known as hot wallets. This makes it easier to access funds - for example for retailers who want to quickly connect to stock exchanges, brokers or other services. In fact, many cryptocurrency exchanges offer digital online wallet services that connect seamlessly with their trading systems.

However, this is the least safe method for holding crypto, which makes digital assets more susceptible to hackers. In 2014, Mt.Gox, the world's largest cryptocurrency exchange, reported bankruptcy after it

Today, some large stock exchanges such as Coinbase offer additional protection for investors in the form of crypto insurance. When a person's password is compromised, she loses her money forever. However, if the company is chopped or injured, for example, the insurance takes over the damage to the user.

Are there safer options?

yes. The most popular alternative is the so -called cold storage - a device that is not connected to the Internet. Hackers usually need access to this device and all associated passwords or codes to steal crypto-assets.

More than $ 100 billion of Bitcoin can be lost because users lose or forget private keys

The cold storage options for checking digital assets that do not include intermediaries include physical USB keys, special offline computers or sophisticated hardware wallets-small USB-like devices that are impenetrable for hackers and can cost several hundred dollars.

cryptocurrency exchanges, especially the largest, are increasingly offering options for the custody storage. Other specialized third-party services make even greater efforts to protect customers' crypto assets, for example by storing private keys in safe with human guards.

in southern England, which was bought by the Genesis crypto trade company last year, according to Forbes, an underground bunker that is patrolled by ex-military personnel. The servers are manipulated in such a way that they delete the digital assets stored on them if intruders trigger hidden release switches (VO1T has backup servers in other countries). Other services that offer military protection, such as Prosegur Crypto, use biometry, including facial recognition and thumb prints so that customers can access their digital assets.

Are there other risks?

In addition to attacks on the exchange of digital assets and stores, hackers were able to take advantage of the emerging code of new crypto initiatives in the growing area of ​​decentralized finances (DEFI). According to Crypto Head, attacks worth around $ 1.1 billion have occurred in the past 10 years.

Such a digital robbery was aimed at Poly Network this year, a decentralized trade network that has developed a computer protocol with which users can transfer token to a blockchain to another network. Hacker stole cryptocurrencies worth around $ 600 million, one of the greatest thefts of all time, due to an error in the protocol itself.

Crypto fraud remain the greatest form of crime through which owners of digital assets lose money. According to Crypto Head, the losses have amounted to almost $ 15 billion or $ 364 million per fraud in the past ten years. The largest crypto fraud to date was the OneCoin ponzi scheme worth $ 4 billion, which had charged itself as a new cryptocurrency. Ruja Ignatova, the Bulgarian founder, has been on the run from the law enforcement agencies since 2017, although in 2019 she was charged with absence for securities fraud. According to Chainalysis, the Plustoken Ponzi program cheated millions of investors by a total of around $ 2 billion last year.

becoming a victim of a fraudulent project is always possible if fraudsters are very convincing and sophisticated. However, investors are recommended to always carry out a Due diligence and to examine the "white paper" and other documents for any initiative for digital assets.