Cryptocurrency is undoubtedly a technology that is here to stay! With the amount of fraudulent activities in the tech space, you must ensure your crypto transactions are safe to avoid stories that touch.
The use of distributed ledger technology (the blockchain), which necessitates that other currency holders approve crypto transactions, and the seemingly impenetrable cryptographic nature of cryptocurrencies have not stopped several security problems with even some of the largest and most well-known cryptocurrencies and their respective exchanges.
A few of the most recent and noteworthy instances are the 496 million dollar loss that Coincheck, one of the largest cryptocurrency exchanges in Japan, suffered in 2018, the 334 million dollar Wormhole (a tool used to mediate crypto transactions) exploit, and the 540 million dollar theft from Sky Mavis’s Ronin Network, which both happened in early 2022.
Cybercriminals successfully breached the exchanges in every instance, accessed individuals’ private accounts, and inflicted severe financial harm.
The hackers responsible for all three cases are still at large and are not expected to be apprehended anytime soon.
Even if losses for 2024 so far are supposedly much smaller (though there’s still time to change that this year), it’s not surprising that the community frequently prioritizes concerns about cryptocurrency safety.
All prospective cryptocurrency traders and investors must understand everything to know about the security of crypto transactions and how to safeguard their coins, regardless of the amount of money under management.
Since most hacks and thefts can be prevented, we’ve created this guide to help you strengthen the security of your crypto transactions.
Before going any further, let us see how scammers gain access to crypto transactions to steal funds.
Common Scams on Crypto Transactions
Crypto transaction scams are similar to other financial scams, except the crooks seek your crypto assets rather than cash.
Crypto scammers adopt many of the same strategies used in conventional financial crimes, such as pump-and-dump scams, which mislead investors into purchasing an item by making false promises about its value or direct attempts to steal digital assets.
According to Shane Cummings, wealth adviser and director of technology and cybersecurity at Halbert Hargrove, the latter type of scam could involve stealing into a person’s cryptocurrency wallet or convincing an investor to transmit a digital asset as payment for a fraudulent crypto transaction.
The goal is always to trick victims into disclosing personal information or transferring valuable digital assets, such as non-fungible tokens (NFTs), to the perpetrator’s account.
“As an instrument, crypto scams are particularly appealing to nefarious agents who enjoy cryptocurrency’s swift conversion to fiat money, ready-to-use third-party crypto transaction applications, and rich obfuscation techniques,” says Chengqi “John” Guo, professor of computing information systems and business analytics at James Madison University.
Some common crypto transaction scams include;
- Investment scams
- Phishing scams
- Upgrade scams
- SIM swap scams
- Fake cryptocurrency exchanges
Investment Scams
Investment scams entail a bad actor luring consumers into sending their cryptocurrency to the fraudster with promises of “huge gains.”
Scammers can take on various roles on an online dating service, including “investment manager,” celebrity, or even a love interest.
Whatever role they take, they offer to increase your investment if you transfer your cryptocurrency to them.
If you comply with their request, then goodbye to your cryptocurrency.
Pump-and-dump schemes are one example of an investment scam. A fraudster entices you to acquire an obscure cryptocurrency at a “low price,” promising that the asset’s value will soon skyrocket.
When you buy, the price climbs, at which point the fraudster sells their holdings at the new higher valuation, causing the price to plummet, leaving you and any other victims underwater.
“The new token is usually worth a few cents or even fractions of a penny.
However, a small amount of momentum can propel it up the charts on sites such as CoinMarketCap.com, giving the impression that price appreciation is limitless,” Cummings adds.
“Given the speed at which new coins are created and marketed to investors on the internet without regulation, some investors looking to earn a quick profit are drawn in by reports of triple-digit percentage gains in a digital asset over a short period and want to jump on the bandwagon,” according to him.
To identify an investment plan, check for promises of huge profits or no risk.
These schemes frequently begin on social media or online dating sites, so be aware of anyone contacting you unexpectedly regarding your cryptocurrency assets.
Look out for anyone promoting a specific crypto asset on Reddit or other social media platforms. These are referred to as socially constructed schemes.
Phishing Scam
Phishing scams have long been popular among scammers. Fraudsters want to access your account information, including your crypto keys. As any crypto user knows, the person with the key has complete control over the cryptocurrency.
Phishing criminals frequently trick you into clicking on a link to a fraudulent website, where they can steal your account information.
They can imitate well-known businesses, such as Amazon or your bank, utility companies, or even government institutions, and may post links on social media or contact you directly.
For example, they may send you an email or text stating that a withdrawal has been launched and providing a link to cancel the crypto transaction.
Anyone is vulnerable to a phishing scam, and any digital asset can be the target, as actor and film producer Seth Green discovered earlier this year when four of his Bored Ape NFTs were stolen.
Upgrade Scams
Cryptocurrency platforms, like any software, are subject to continuous updates.
Because many people have grown accustomed to upgrades in the digital era, scammers can easily deceive cryptocurrency owners into handing over their private keys as part of an “upgrade.”
Upgrade scammers can take advantage of legal migrations, such as the recent Ethereum merger, which prompted the Ethereum Foundation and Robinhood to advise customers to be on “high alert” for upgrade scams.
SIM Swap Scams
SIM-swap frauds are one of the more recent cryptocurrency scams. They occur when a scammer obtains a copy of your SIM card and gains access to all of your phone’s information.
“That information can be used to receive and use the two-step authentication codes required to access crypto wallets and other accounts without the victim knowing,” according to Cohn.
“When this happens, the victim’s crypto accounts can be hacked and wiped out without the victim even being contacted.”
Fake Cryptocurrency Exchanges and Wallets
“If you browse your social media handles, you will come across sites that advertise cheap Bitcoin (BTC),” explains Martin Leinweber, MarketVector Indexes’ digital asset product strategist.
They may advertise cryptocurrencies at 5% below market value and promise substantial savings if you buy through the site—but these platforms are not always legitimate crypto items.
These fraudulent cryptocurrency products generally promise outrageous returns on investment, and customers are typically compelled to pay a large initial charge before being repeatedly requested to invest more and more.
When you try to withdraw your funds, you’ll most likely discover they’ve vanished.
“A fake cryptocurrency wallet is a malware scam,” Leinweber explains. “Scammers use it to infect a computer and eventually steal the user’s private key or password.”
Select reliable exchanges and wallets with a substantial user history to avoid scams.
Now that we know some common scams in crypto transactions, before going into how to ensure your crypto transactions are safe, let us see some ways to identify scammers in the crypto space.
How To Spot Scammers in Cryptocurrency Transactions
So, how do you recognize a cryptocurrency scam? Warning signs to look out for are:
- Promises of guaranteed returns
- A weak or non-existent whitepaper
- Excessive marketing
- Unnamed team members
Promises of Guaranteed Returns
No financial investment can promise future profits because investments can decline and increase. Any cryptocurrency offering that guarantees guaranteed profits is a red flag.
A Weak or Non-existent Whitepaper
Every cryptocurrency should have a whitepaper, as it is one of the most essential parts of an ICO.
The whitepaper should explain how the cryptocurrency was built and how it will function. If the whitepaper is unclear or does not exist, proceed with caution.
Excessive Marketing
Every firm promotes itself. However, crypto fraudsters recruit individuals through extensive marketing – online advertising, paid influencers, offline promotion, etc.
This is intended to reach as many individuals as possible in the shortest time, hence raising funds quickly.
If you believe the marketing for a cryptocurrency product is overly aggressive or makes grandiose claims without supporting evidence, take a step back and conduct more investigation.
Unnamed Team Members
Most investment businesses should be able to identify the key people involved.
Typically, this entails easily accessible biographies of the investment managers and an active presence on social media. If you can’t figure out who runs a cryptocurrency, be wary.
Free Money
Whether in cash or cryptocurrency, any investment proposal promising free money is likely fraudulent.
Now, regarding the main issue of discussion, we will look at ways to ensure the safety of your crypto transactions.
Ways to Ensure Your Crypto Transactions Are Safe
With most domestic cybercriminal activities in the cryptocurrency arena preventable, we’ve prepared a list of best practices that everyone should follow, whether it’s your first time exchanging coins or you’re a seasoned trader.
- Be aware of crypto scams
- Use a secure wallet
- Enable two-factor authentication
- Avoid public Wi-Fi
- Keep your investments in multiple wallets
- Avoid fraudulent social media platforms
Be Aware of Crypto Scams
This has always been the first rule of the book.
This may appear apparent and straightforward at first. Still, it’s worth noting that fraudsters, particularly beginners, pose a real threat to crypto fans (especially as law enforcement worldwide is still struggling to regulate the spread of this form of crime).
Forged airdrops (a popular method used by blockchain creators to distribute their tokens), phishing attempts, promotions that mimic known exchanges to harvest your credentials, or fake websites that offer very high rates of return but only steal your coin or access details are examples of common scams.
Use a Secure Wallet
While this may appear apparent, having a secure wallet to hold your coins is one of the simplest ways to keep hackers out of your hard-earned digital cash. In general, there are two sorts of wallets: hot and cold.
A “hot” wallet is entirely virtual and typically provided by the exchange. They are quick, affordable, and generally easier to use (particularly for new crypto fans).
Still, due to their digital nature, they are far more vulnerable to bad online behavior and cybercriminals in general.
For this reason, many cryptocurrency users prefer a “cold” wallet storage method. A “cold” wallet is a physical piece of hardware cryptocurrency owners use to preserve and store their coins offline.
They use a PIN code and private cryptographic keys in a process known as “crypto bridging” and are available in various configurations.
If you pick this storage method, we recommend adding extra security measures. In the event of theft or loss, many cold storage wallets include a recovery or “seed phrase” (often 12-24 randomly generated syllables or characters).
We recommend using a password manager (password vault) to secure this unchangeable phrase. This is because the encrypted data inside is nearly impossible to decipher, even if a password manager is compromised.
To create your recovery phrase, password managers offer password generators that generate strong passwords (12-14 characters long) using a mix of special characters, numerals, capital and lowercase letters.
Enable Two-factor Authentication
MFA or multi-factor authentication (2FA or two-factor authentication) should be enabled on all devices whenever practicable. This safeguard is vital for the protection of your cryptocurrency account, as well as your hot and cold wallets.
Multi-factor authentication is increasingly becoming a security standard, and its different means of identification (ranging from biometric scanning to public key infrastructure) are an excellent way to prevent your crypto credentials from being hacked and stolen.
Avoid Public Wi-Fi
Undertaking crypto transactions over public Wi-Fi, whether through an online exchange with a hot wallet or remotely via a cold wallet, is unsafe because the connections are frequently easily exploited by even the most inexperienced hackers.
As a result, if you need to conduct a trade while on the go or traveling, we always advocate using a virtual private network or VPN.
Using a reliable VPN, such as Kaspersky’s VPN connection software, you can connect to your exchange’s servers and broadcast your crypto transaction to the blockchain over a safe encrypted digital tunnel.
This tunnel shields your wallet and coins from the possible perils of public Wi-Fi and unsecured internet connections while you’re on the go.
It accomplishes this by concealing and forwarding your IP address via a specially configured server run by the VPN host, making the VPN server your data source.
Thanks to your new data source, third parties, including your ISP (Internet Service Provider), cannot see the data you send and receive and the websites you visit.
Keep Your Investments in Multiple Wallets
Never put all of your eggs in one basket. Assume you had two dozen eggs. Which is riskier? Putting them all in one basket or splitting them evenly into two?
What if the basket falls? Every egg would crack! What if you had two baskets and only one fell?
The same logic applies to crypto transactions.
Instead of storing your NFTs and cryptocurrencies in one wallet, separate them into at least two. Use one “hot” wallet for daily crypto transactions and a “cold” wallet for HODLing.
Avoid Fraudulent Social Media Platforms
Assume you’re viewing a YouTube video on how to profit from cryptocurrency trading. The channel has over 500,000 members, and the content producer is reputable in this field.
In the comments, you can notice the channel owner encouraging you to contact them via their WhatsApp/Telegram number to invest and quadruple your revenues.
You see the number and add it to your contact list. You connect with them without thinking twice and join their “special” Telegram group. You now believe it is a “life-changing opportunity” for you.
After several days, you send $500 in Bitcoin, Ethereum, or any other cryptocurrency with the promise of “receiving it doubled to your wallet within 24 hours.”
After transferring the cash, email the channel’s creator to confirm receipt.
Unfortunately, you get the response, “Sorry guy, which funds? I never asked for money. Your entire world falls. What transpired in this case is an example of a prevalent cryptocurrency fraud.
That person was a scammer who pretended to be the channel owner. This is happening at such an alarming rate that cryptocurrency YouTubers with millions of viewers are urging YouTube to take action.
Whether or not YouTube plays its part, it is time to accept that there is no easy money. This is a hazardous hoax with evident warning signs.
However, people fell for it.
Before we go, let us answer a common question: What is the safest crypto exchange to use to perform crypto transactions to ensure the safety of assets?
Most Secure Crypto Exchange for Crypto Transactions
Discovering which crypto exchange is the most secure might be challenging due to the crypto industry’s ongoing expansion and the swings of numerous currencies and exchanges.
However, several credible and safe exchanges have established themselves in this frequently volatile market since Bitcoin’s creation.
For those who are unaware of how crypto exchanges work, they are digital trading portals that function similarly to brokerage and trading platforms.
Each exchange allows you to buy, sell, and speculate on cryptocurrencies alongside other traders.
Exchanges are either centralized, managed by a single corporate organization (as a brokerage would guarantee the security of its users’ trades), or decentralized, in which the security and verification of trades are distributed to those willing to join the network (similar to the blockchain).
According to Forbes magazine, the most secure cryptocurrency exchanges for 2024 include but are not limited to Coinbase (established in 2012), Binance (founded in 2013), Gemini (formed in 2015), Crypto.com (launched in 2016), and Kraken (founded in 2011).
Conclusion
Getting your money back from cryptocurrency fraud is difficult.
The best option is to take extra safeguards to ensure your funds are safe when carrying out crypto transactions.
Take your time, review the possible scams, and study how to ensure your crypto transactions are secure. By implementing them, you’ll be fine.
