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Is cryptocurrency safe?
Cryptocurrencies are popular digital currencies. With different ways of tracking transactions, determination of value, and ways of storage, there can be a learning curve when it comes to safe management and use of crypto compared to other forms of digital money.
Cryptocurrencies like Bitcoin and Ethereum, for example, were created to be decentralized — so they're not issued by traditional banks or governments. Instead, payments are verified and tracked by blockchains.
Factors like decentralization and crypto’s inherent digital form make it important to understand the security factors and potential safety risks associated. This article will help explain the ins and outs of cryptocurrency security, including some potential safety risks and considerations when buying and selling crypto.
Cryptocurrency security
Cryptocurrency uses cryptography to help securely encode and protect payment information. Instead of something like a bank account number, cryptocurrency wallets use private keys — or alphanumeric codes — that are used to make payments and authorize transactions.
Cryptocurrency is also secured by blockchains — which function as digital ledgers of all cryptocurrency transactions. Many blockchain ledgers are typically verified and maintained by a peer-to-peer network of computers, potentially helping to increase transparency and accountability.
Even with these built-in protections, there are potential risks associated with cryptocurrency security.
Potential cryptocurrency scams
Beware of potential cryptocurrency scams, such as:
- Investment scams. Fraudsters may reach out with fake investment opportunities and promise big returns in exchange for crypto payments.
- Imposter scams. Fraudsters may impersonate financial and government institutions, telling people they owe money. They may invite individuals to pay off their debts by buying cryptocurrency or transferring it into a digital wallet.
- Romance scams. Scammers may use dating apps and websites to start online relationships with people and then ask for financial support in the form of cryptocurrency.
Lost encryption keys
Each crypto owner is usually given a private encryption key that they can use to access their cryptocurrency. Private keys are generated automatically, so there isn’t any action needed on the user end to create one. These keys create a secure way to verify and maintain ownership.
However, they are also the only way to do so. That means if someone loses their encryption key, they lose access to their cryptocurrency. Crypto owners can help protect their private keys by storing them in a digital wallet. Different wallets may have different key management methods — some, like PayPal, will manage the keys for the user, while other wallets may require the user to manage their keys.
Crypto transactions may not be reversible
Crypto transactions are typically final because transactions recorded on the blockchain can't be reversed. If someone accidentally makes a crypto transaction to a scammer or fraudulent business and sends it on the blockchain, it will likely be difficult to get that crypto back.
Cryptocurrency phishing
Cryptocurrency phishing can occur when hackers try to steal someone's private keys to access their crypto or if the hackers gain access to someone’s crypto wallet account. They usually do this by sending fraudulent emails with links to sites where people can enter their private information. For example, a hacker may send an email impersonating a reputable finance company imploring them to go to a form and fill in their private details. People can try to avoid phishing scams by not opening suspicious emails and texts and never clicking on questionable links.
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What is a safe way to store crypto?
It's important to know how to potentially protect cryptocurrency and help store it securely. Digital currency owners may consider these tactics to help keep crypto safe:
- Research reputable digital wallets. Look into options for crypto storage apps and platforms. Digital wallets may offer tools for securely storing passkeys and managing cryptocurrencies.
- Diversify storage locations. Consider using multiple digital wallets, apps, or exchanges to store cryptocurrency, spreading funds across multiple trustworthy platforms.
- Try hardware wallet storage. Practice crypto safety by using a hardware wallet, also known as an offline wallet. Hardware wallets typically only connect to the internet when the owner is ready to transfer funds. Otherwise, they're kept offline and therefore may be less vulnerable to hacking.
What is a safe way to buy cryptocurrency?
Getting started with cryptocurrency may seem overwhelming. But people can consider some general guidelines to potentially decrease risk and buy cryptocurrency safely:
- Use a reputable crypto exchange. Find a trusted and verified crypto exchange through which to buy cryptocurrency with traditional dollars or to trade one cryptocurrency for another.
- Beware of volatility. Consider crypto's volatility when making an investment. Since crypto isn't backed by physical assets, its value is based solely on demand. And that value can fluctuate frequently.
- Set a strong password or use a passkey. Using robust passwords or a passkey for digital currency wallets and crypto exchanges may make it difficult for others to access the user’s private key.
Learn about buying, selling, and holding cryptocurrency.