Is Cryptocurrency Really Secure?
Cryptocurrency has been in the public eye worldwide during the last few years. And it is not surprising. The rising popularity of crypto markets and cryptocurrency rate simultaneously contributed to the interest in and the vulnerability of crypto assets. The question about the reliability and security of digital assets bothers future and existing investors.
What Is Cryptocurrency Essence?
There is no precise answer concerning crypto security. Hackers’ attacks are usual for every financial system, so safety is first. To understand the issue, we have to dig deeper into the underlying technology of most digital currencies – blockchain technology.
Blockchain is a distributed ledger that stores data in different nodes, not in one central place. Any added data are stored in a separate block connected with the previous one. In such a way, they form a chain of blocks. There is a unique identifier, up to 64 digits (hash), for each block, which makes it impossible for cybercriminals to guess them all. Furthermore, each block is connected to the previous and next by hash, so it is hard to hack one block without vulnerability to others.
Cryptocurrency is not the same as fiat currency. It exists digitally. Since cryptography ensures secure transactions of this virtual money, a bank is not required for cryptocurrency transactions. Instead, it is stored in a digital wallet, and transactions are recorded in a public ledger. Encryption is used to verify a transaction and ensure safe and secure financial operations.
Some virtual currencies are relatively expensive. Their value reaches dozens of thousand dollars. Others are new and only gaining popularity. Therefore, price and market cap define cryptocurrency ranking.
Is It Safe to Invest in Crypto Assets?
Compared with other assets, investments in a digital asset are still risky. Although cryptocurrencies are legal, there is no regulatory framework to control price changes, making them vulnerable to price swings.
Many cryptocurrencies are considered relatively new (the first Bitcoin was released in 2009), and most investors have no idea how to use them in the future and what the prospect is since there have been cases of alarming price changes.
Every investor should remember about tax-connected issues. In some countries, cryptocurrency trading is subject to tax, so investors may need advice not to break laws while selling or purchasing bitcoins. There is no precise answer about the future of digital money since every case concerning each crypto ecosystem is a precedent.
Security Risks Related to Cryptocurrency
There are no secure cryptocurrencies. Some of them are safer due to blockchain technology, where every buyer can control transactions. However, there are still some risks that remain.
- Inreversable transactions. Since most cryptos use blockchain technologies to provide transparent and secure transactions, it is impossible to reverse transactions. There are no third parties for transaction processing or editing.
- Limited legal protection. Purchasing with credit or debit cards seems more secure than by crypto. However, if you lose money because of fraud, there is no possibility to return them in the legal field.
- Scams increase. Hacked digital wallets may happen when scammers receive access to private keys using fake apps, emails, or other tools.
While there are certain risks concerning safe storage and the transfer of digital assets, you may choose several currencies for this if you still wish to make a crypto investment.
How to Store Crypto?
We used to save cash in wallets and considerable sums – in bank accounts. So, what to do with virtual money? As far as you cannot keep crypto under the mattress, you should find a reliable way to protect them from fraudsters and theft. Crypto wallets, both ‘Hot’ and ‘Cold,’ are used for storing your private key to crypto. Cold wallets are considered safer as they keep keys on an electronic hardware device, which is not prone to online attacks. Moreover, some cryptocurrency exchanges offer wallets for storing on the platform.
Since blockchain technology is new to the modern-day world, it is difficult to crack. Therefore, it ensures a high level of security and transparency. In addition, every transaction usually requires a double authentication process (password and code confirmation). However, cryptocurrency volatility and limited legal regulations wish to be better.