As the Crypto world becomes even more invaded by cyber criminals, one must do all we can to ensure the safety of our crypto transactions. This article discusses the best practices for secure crypto transactions.
Cryptocurrencies, self-custody, and Decentralized Finance (DeFi) are transforming finance and investing by allowing people to gain control of their assets and acquire fundamentally scarce holdings like Bitcoin, which are expected to be deflationary.
Unlike fiat currencies, which are controlled by central authorities (banks and governments) and do not have an explicit supply cap (supply is only constrained by the policy objective given to the central bank by the government), Bitcoin is decentralized and limited to 21,000,000 coins, making it an effective inflation hedge.
Also, by holding Bitcoin or other cryptocurrencies in a self-custody wallet, such as a hot or cold wallet, you are the sole owner of your assets and have complete control over them.
Nobody can steal your digital assets or halt crypto transactions if you use high crypto security standards and the best security procedures to protect them.
However, this freedom and complete control come at a cost: the responsibility of effectively implementing suitable security measures and best practices, such as using a cold wallet for your long-term investments and hot wallets for trading and daily transactions, keeping your private keys safe, avoiding using public WiFi, regularly updating your crypto wallet’s software, using a VPN for advanced privacy, creating complex passwords, recognizing the most common red flags of scam and many more.
Before we go into the best practices for secure crypto transactions, let us see some of the scams we guard against when implementing these best practices.
Common Scams in Crypto Transactions
Crypto transaction scams are similar to other financial scams, except that the perpetrators want your crypto assets rather than cash.
Crypto scammers use many tactics as traditional financial criminals, such as pump-and-dump scams, which deceive investors into acquiring an item by making false claims about its value or outright attempts to steal digital assets.
According to Shane Cummings, wealth adviser and director of technology and cybersecurity at Halbert Hargrove, the latter scam could involve gaining access to a person’s cryptocurrency wallet or getting an investor to send a digital asset as payment for a fraudulent crypto transaction.
The ultimate goal is to deceive victims into giving 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.
Common crypto transaction scams include;
- Investment Scams
- Phishing scams
- Upgrade Scams
- SIM swapping frauds
- Fake cryptocurrency exchanges
Investment Scams
Investment scams involve a bad actor convincing clients to send their Crypto to the fraudster with promises of “huge gains.”
Scammers can play various roles on online dating sites, including “investment manager,” celebrity, or even a love interest.
Whatever their position, they promise to boost 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 type of investment scam.
A fraudster entices you into purchasing an obscure cryptocurrency at a “low price,” suggesting that the asset’s worth would soon explode.
When you buy, the price rises, and the fraudster sells their holdings at the new higher valuation, causing the price to collapse, leaving you and any other victims underwater.
The new token is typically worth a few cents or even fractions of a penny.
However, a modest bit of momentum can rocket it up the charts on sites like CoinMarketCap.com, creating the idea that price appreciation is endless.
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.
To detect an investment scheme, look for promises of large earnings or minimal risk.
These schemes often start on social media or online dating sites, so be wary of anyone contacting you suddenly about your cryptocurrency assets.
Look for anyone pushing a specific cryptocurrency on Reddit or other social media channels. These are known as socially created plans.
Phishing Scam
Phishing scams have long been popular with scammers. Fraudsters seek access to your account information, including your cryptocurrency keys.
As any crypto user knows, the individual who holds the key has complete authority over the cryptocurrency.
Phishing scammers frequently lure you into clicking on a link to a phony website, allowing them to steal your account information.
They can impersonate well-known firms like Amazon, your bank, utility companies, or even government entities and may post links on social media or contact you personally.
For example, they may email or text you to inform you that a withdrawal has been initiated and give you a link to cancel the crypto transaction.
Anyone is vulnerable to a phishing scam, and any digital asset can be targeted, as actor and film producer Seth Green learned earlier this year when four of his Bored Ape NFTs were stolen.
Upgrade scams
Cryptocurrency systems, like any other software, are subject to regular changes.
Because many individuals are used to upgrades in the digital age, scammers can easily trick Crypto users into handing over their private keys as part of an “upgrade.”
Upgrade fraudsters can exploit legal changes, such as the recent Ethereum merger, which caused the Ethereum Foundation and Robinhood to warn clients to be on “high alert” for upgrade scams.
SIM swap scams
SIM-swap frauds are among the most current Crypto scams. They happen when a scammer acquires a copy of your SIM card and has access to all of your phone’s data.
“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,” Cohn says.
“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),” says Martin Leinweber, digital asset product strategist at MarketVector Indexes.
They may promote cryptocurrencies for 5% below market value and promise significant savings if you buy through their website. However, these platforms may not always sell authentic crypto products.
These fake Crypto products frequently promise outrageous returns on investment, and buyers are usually forced to pay a hefty initial fee before being continuously asked to invest more and more.
When you try to withdraw your funds, you will likely find they have vanished.
“A fake cryptocurrency wallet is a malware scam,” Leinweber says. “Scammers use it to infect a computer and eventually steal the user’s private key or password.”
Choose reputable exchanges and wallets with a solid user base to avoid scams.
Now that we’ve covered some frequent crypto transaction fraud let’s look at the best practices for secure Crypto transactions.
Best Practices For Secure Crypto Transactions
With most cybercriminal operations in the cryptocurrency sector preventable, we’ve compiled a list of best practices for secure Crypto transactions that everyone should follow, whether they’re new to exchanging cryptocurrencies or seasoned traders.
- Be aware of cryptocurrency Scams
- Use a secure wallet
- Use Strong, Complicated, and Long Passwords
- Enable two-factor authentication
- Avoid public WiFi
- Keep your investments in multiple wallets
- Avoid Fraudulent Social Media Platforms
- Regularly monitor your account
- Use secure Crypto exchanges
- Educate Yourself and Stay Informed
Be Aware of Crypto Scams
This was always the first rule in the book.
This may seem obvious and straightforward at first.
Still, it’s important to mention that fraudsters, particularly amateurs, pose a severe threat to crypto enthusiasts.
Common scams include forged airdrops (a popular method blockchain creators use to distribute their tokens), phishing attempts, promotions that mimic known exchanges to harvest your credentials, and fake websites that promise extremely high returns but only steal your coin or access details.
Use a Secure Wallet
While this may seem obvious, using a secure wallet to store your coins is one of the simplest ways to keep hackers out of your hard-earned digital wealth.
In general, there are two types of wallets: hot and cold.
A “hot” wallet is entirely virtual and usually given by the exchange. They are quick, inexpensive, and generally easier to use (especially for new cryptocurrency enthusiasts).
Nonetheless, because of their digital nature, kids are significantly more vulnerable to inappropriate online behavior and cybercriminals in general.
As a result, many Crypto users choose the “cold” wallet storage approach. A “cold” wallet is a real piece of hardware that cryptocurrency users use to protect and store their funds offline.
They use a PIN code and private cryptographic keys in a process known as “crypto bridging” and come in various setups.
If you use this storage mechanism, we recommend implementing additional security precautions.
In the case of theft or loss, many cold storage wallets include a recovery or “seed phrase” (usually 12-24 randomly generated syllables or characters).
Use Strong, Complicated, and Long Passwords
A strong password is the first line of defense. It should be at least 14 characters long and unique and combine letters, numbers, and symbols.
Avoid using easily guessed facts, such as birthdays or everyday terms. Hackers typically attempt to brute-force passwords in two ways: using a dictionary attack or a “simple” attack.
Dictionary attacks employ lists of common passwords and patterns to attempt only the most frequently used combinations, limiting the number of possible sequences and boosting the likelihood of guessing.
In simple attacks, they just try all the potential combinations, and the effort and time required to guess the password increase exponentially with its complexity and length.
Long, complicated, and unpredictable passwords take years (or thousands of years) to guess.
We recommend using a password manager (password vault) to protect your unchangeable phrase. This is because the encrypted data is nearly impossible to decipher, even if a password manager is stolen.
Password managers include password generators that produce strong passwords (12-14 characters long) with a combination of special characters, digits, capital, and lowercase letters.
Enable Two-factor Authentication
MFA, or multi-factor authentication (2FA), should be enabled on all devices whenever possible. This safeguard is critical to your cryptocurrency account’s security and hot and cold wallets.
Multi-factor authentication is quickly becoming a security standard, and its various identification methods (ranging from biometric scanning to public key infrastructure) are an excellent way to keep your crypto credentials safe from hacking and theft.
Avoid Public WiFi
Conducting crypto transactions over public WiFi, whether through an online exchange with a hot wallet or remotely via a cold wallet, is risky because even the most amateur hackers regularly exploit the connections.
As a result, if you need to perform a trade while on the go or traveling, we always recommend using a virtual private network (VPN).
Using a reputable VPN, such as Kaspersky’s VPN connection software, you can connect to your exchange’s servers and broadcast your crypto transaction to the blockchain via a secure encrypted digital tunnel.
This tunnel protects your wallet and coins from the potential dangers of public WiFi and insecure internet connections while you’re on the go.
It accomplishes this by disguising and transmitting your IP address through a specially configured server run by the VPN host, which becomes your data source.
Third parties, including your ISP (Internet Service Provider), cannot view the data you send and receive and the websites you visit because of your new data source.
Keep Your Investments in Multiple Wallets
Never put all of your eggs in the same basket. Assume you have two dozen eggs. Which is riskier? Putting them all in one basket or dividing them evenly between two?
What happens if the basket falls? Each egg would crack! What if you had two baskets, but only one fell?
The same principle applies to crypto transactions.
Instead of putting your NFTs and cryptocurrencies in a single wallet, split them into at least two. Use a “hot” wallet for daily crypto transactions and a “cold” wallet for long-term holding.
Avoid Fraudulent Social Media Platforms
Assume you are watching a YouTube video about benefitting from Crypto trading. The channel has over 500,000 subscribers, and the content creator is well-known in this industry.
In the comments, the channel owner encourages you to contact them via WhatsApp/Telegram to invest and quadruple your revenue.
You notice the number and add it to your contact list. You connect with them without hesitation and join their “special” Telegram group. You now see it as a “life-changing opportunity” for you.
After several days, you transfer $500 in Bitcoin, Ethereum, or any other cryptocurrency with the promise of “receiving it doubled to your wallet within 24 hours.”
After transferring the funds, email the channel’s creator to confirm receipt.
Unfortunately, you receive the following response: “Sorry, which funds?” I never asked for money.
Your entire world collapses. What happened in this case is an example of a typical cryptocurrency fraud.
That person was a scammer pretending to be the channel’s owner. This is happening rapidly, and cryptocurrency YouTubers with millions of subscribers are pressing YouTube to take action.
Whether or not YouTube plays a role, it is essential to acknowledge that there is no quick money. This is a dangerous fraud with obvious warning flags.
Nonetheless, people fell for it.
Regularly Monitor your Accounts
Check your accounts frequently to catch fraudulent transactions or questionable activity in its early stages.
Set up alerts for accesses, transactions, and account changes, and analyze activities regularly to identify and respond to any risks quickly.
If you observe suspicious access or requests from an unidentified IP address, immediately change your password and block all IP addresses with access to your account.
2FA can help you reduce this risk because a hacker needs access to at least two devices to log in to your crypto wallet or email.
Remember that the security of your email is just as crucial as the security of your crypto wallet because if the hacker has access to your email, he can change the password.
Use Secure Crypto Exchanges
When deciding on a trading platform, prioritize security features. Look for platforms with a solid reputation, extensive security measures, and regulatory compliance.
Features such as theft insurance and frequent security assessments can give extra layers of safety.
To avoid legal concerns and compliance with legislation, ensure that the platform is registered with the relevant authorities as a digital asset service provider (DASP).
Educate Yourself and Stay Informed
Knowledge protects your cryptocurrency investments. Stay current on security issues, best practices, and cryptocurrency regulations.
Keep track of reputable news sites, blogs, and cryptocurrency forums. This will keep you informed of current trends as well as potential threats.
Learning improves your ability to make sensible choices and be proactive in defending what you own.
Final Thoughts
Recovering your money from cryptocurrency fraud is challenging.
The best approach is to take extra precautions to keep your assets safe when conducting crypto transactions.
Take your time, review the potential scams, and implement the best practices for secure Crypto transactions. You’ll be good to go if you keep at this.
