One of crypto investing’s biggest hurdles is convincing investors that it’s safe.
Safety is especially relevant for investing in bitcoin bitcoin and other crypto assets, which are by nature bearer assets with varying degrees of anonymity. There are four other complicating factors:
- The education curve for crypto can be steep
- Most investment advisors and brokerages do not yet offer crypto investing support forcing the “crypto curious” to validate investment opportunities, identify trading platforms and manage assets on their own
- The exuberance that can come from the volatile nature of the space may lead to FOMO (fear of missing out) in opportunistic investors, which could lead them to drop their guard when it comes to trusting platforms and “helpful hands”
- As more decentralized applications come into existence, opportunities abound for bad actors to either manipulate these protocols or take advantage of security vulnerabilities in the forms of bugs to siphon or steal funds.
According to a February 2023 report from Chainalysis, a crypto forensics firm that tracks illicit activity on blockchains, 2022 was the biggest year ever for crypto hacking, with $3.8 billion stolen from cryptocurrency businesses. In fact, October became the biggest single month ever for cryptocurrency hacking, as $775.7 million was stolen in 32 separate attacks.
The report points out that decentralized finance (DeFi) targets such as exchanges, lending protocols, and bridges (which are used to transfer assets from one protocol to another), were the biggest targets. Many of the largest bridges can house hundreds of millions of billions of dollars in assets.
But that does not mean that everyone else is immune. Even in this market downturn, when naive investors may be less likely to fall victim to fake investment schemes, scammers still made out well. The chart below shows that around $5 billion was taken by scammers and many billions were also stolen.
As crypto continues to go mainstream, one can bet that scammers, thiefs, and fraudsters will continue looking for ways to misappropriate funds.
However, there are ways to protect yourself. Here are some key items to keep in mind.
Crypto Security Checklist
- Remember, if an investment opportunity appears “too good to be true”—it probably is. There are no such things as “guaranteed returns” or “risk-free” strategies when it comes to investing.
- Do your own research—never take anyone’s word at face value.
- Be skeptical of new token projects, especially if they are being led by unknown or unproven individuals.
- Be suspicious of emails or solicitations that you did not request.
- Resist the urge to publicize a profitable crypto trade on social media or at a party—scammers and criminals can’t target you if they don’t know you exist.
- Never click on any links or attachments from an email if they appear suspicious.
- Never share or reuse passwords, especially for your crypto or online banking accounts. Additionally, make sure that you enable two-factor authentication (2FA) for all accounts.
- Do not give any person or organization unilateral control over your account.
- If you plan to trade directly on an exchange, make sure it is one with legitimate trade volumes and a strong reputation for security. Less-popular exchanges have been known to inflate their volumes by 100%. A selected list of reputable exchanges include Coinbase, Kraken, Bitstamp, and Gemini.
- Don’t keep all your eggs in one basket. You don’t keep all your cash underneath your mattress, don’t make the equivalent mistake with crypto. In fact, once you start to build up your positions, you may want to think about taking funds off of exchanges to keep them in hardware wallets or cold storage.
Forbes is a bona fide news publication, not an investment advisor, registered broker-dealer, or exchange, and nothing in this publication should be construed as investment advice, research, or investment advisory services. Forbes’ site is not tailored to a specific reader’s or prospective reader’s current or future investment portfolio, investment objectives, or other needs. The content provided in this publication is for informational purposes only. No part of this publication should be construed as a solicitation, offer, opinion, endorsement, or recommendation by Forbes to buy or sell any security, investment, cryptocurrency, or digital good or property in the metaverse. You should consult your legal and tax advisors before making any financial decisions.