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Bitcoin and its cryptocurrency brethren were all the rage in 2021, and a record number of investors are now caught in the excitement. And while the critics raise many interesting questions about the long-term viability of crypto, it is undeniable that vast fortunes have been made by some. One of the areas of crypto investing that has been most often overlooked, however, is the risk of owning crypto investments – not the risk of losing capital, which has been discussed a lot, but rather the risk of being. tricked, scammed or outright stolen from your investment. Here is an overview of some of the most important cyber risks associated with investing in cryptocurrency.
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See also: Breaking the Basics of Cryptocurrency
Cryptocurrency is not a tangible item, like a dollar bill. It only exists in the virtual world. As such, it is vulnerable to theft in several ways just like your online banking account. While the risk of a particular person falling prey to crypto theft is low, crime is increasing dramatically overall.
According to Crystal Blockchain Analytics, from January 2011 to December 2021, $ 3.18 billion was stolen through security breaches and $ 1.76 billion through DeFi hacks. For the most part, cryptocurrency assets held in crypto wallets are highly secure. They are only accessible by private keys, known only to the owner. These keys are strings of letters and numbers similar to passwords. But as with any type of password system, hackers have clever ways to break into your private wallet. Here are some of the most common.
Phishing attacks come in many forms. A common method used by hackers is to create websites that look almost identical to the ones you are familiar with so that you can click on them. For example, if you verify your crypto account on a fictitious site like “cryptocurrencyholdings.com”, hackers can create a site similar to “cryptocurrencyholding.com”, by removing the “s”. Other forms of this attack include bogus Google ads that look like legitimate crypto wallet sites. If you are not suspicious, you can enter your cryptographic credentials or other vital information on the hacker’s website.
Another common phishing game is receiving a notification from a legitimate looking website asking you to update your login information or password for security reasons. If you click on the link, it directs you to a hacker’s site where they can steal your information and gain access to your crypto.
See: 10 Inexpensive Cryptocurrencies To Buy
SIM card exchange
Two-factor authentication is one way businesses try to improve their cybersecurity by requiring you to respond to a notification on your phone or in your email when you access your account. However, smart hackers can bypass this system by cloning your SIM card or calling your phone company and convincing them to port your number to their SIM card. Then they can hack into your crypto account and ‘confirm’ the connection is genuine through two-factor authentication on their own phone, instead of yours.
Crypto scams have resulted in even more losses for consumers than outright theft of cryptocurrency. Data from Crystal Blockchain Analytics puts losses from crypto scams from January 2011 to December 2021 at $ 7.21 billion. To protect yourself from crypto scams, learn about some of the most common methods criminals use to part with your cryptocurrency.
Pump and dump
Pump and Dump is not a new scam developed in the crypto age. This is actually one of the oldest stock market manipulation tricks in the book. Essentially, an “authority”, whether it is a talker, a group of message board leaders, or an influential person in the crypto community, will refer to a new cryptocurrency as ” the next big thing â. As the news spreads, this creates its own momentum, as the more investors cram into the crypto the faster it grows. Once it achieves a significant gain, the original touts will dump their crypto, driving down the price and ending the mania, leaving small investors to hold the bag.
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The “rug pull” is a close cousin of the pump and dump system, and they share some characteristics. Either way, scammers push up the price of a crypto until it’s time to cash it in and let investors hold the bag. But with the pull of the rug, a crypto is created specifically to defraud investors. Once the legitimate crypto is traded for the scam, the creators remove all the liquidity and the coin usually goes zero. According to Chainalysis, carpet prints are on the rise, totaling $ 2.8 billion in 2021. This represented 37% of all fraudulent income in 2021, down from just 1% in 2020.
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Scam yourself: forget your private key
Perhaps one of the most painful ways to lose access to your crypto investments is to forget your private key. Since digital crypto wallets are decentralized and not tied to any bank, if you forget your private key, you can say goodbye to your crypto assets. After a certain number of tries, most wallets get locked permanently, removing access to your cryptocurrency forever.
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