From trading goods for services, coins and cash, credit cards and online banking, we’re now in the midst of the next evolution in how we pay for things — cryptocurrency. A hot topic of early 2021, cryptocurrencies like Bitcoin and Dogecoin have entered into mainstream conversations. One of the primary issues and a major reason the topic of cryptocurrency can be so divisive is that many of us do not understand how this works.
The simplest way to define cryptocurrency is that it is digital or virtual currency that only exists in the online world; however, it is much more complicated than that. This form of digital money is decentralized, meaning no bank or government involvement, and it is based upon blockchain (a topic to be visited in depth in the next Tego blog — stay tuned!)
Cryptocurrency is heavily backed by its proponents due to many factors including the fact that it has little-to-no transaction costs and can make for easier transactions between individuals in different countries across the world. From 2018 to 2021, the value of a single Bitcoin has grown from ~$7K to $56K each. This rapid growth is very attractive not only to those interested in blockchain and all-things-crypto but to risk tolerant investors as well. Cryptocurrency is here and it appears as though it is here to stay into the future; however, because of its relative novelty and lack of economic stability, there are some risks to be aware of before investing in this hot, and growing hotter, commodity.
There are four types of cryptocurrency wallets, or digital wallets, including mobile, web, desktop, and hard drive. The mobile and web options allow for more flexibility when it comes to trading online currency, but the desktop and especially hard drive options are the most secure ways to trade these digital coins. When a wallet is attached to one device such as the desktop or hard drive options, the transactions are more secure, but there is the risk of physical loss of said device, which is now worth much more than the sticker price of the device itself. People have been offering hefty rewards recently to people who can help them find an old computer they used for cryptocurrency. One man accidentally threw away his hard drive which had 7500 Bitcoin on it, equivalent to $381M today. He is offering a reward of $95M to anyone who can find his old hard drive so that he can recover his fortune. The decision between online security of transactions and the ability to access your digital wallet is a major toss up that could be beyond the level of risk that a cryptocurrency investor is looking for.
While cryptocurrency itself is typically a secure thing, the platforms on which things like Bitcoin are traded are highly hackable comparatively. In 2019, twelve cryptocurrency exchanges were hacked. Thankfully, at this time, cryptocurrencies were not valued as highly as they are today, however, there was still a loss of $292,665,886 worth of cryptocurrency and 510,000 user logins were stolen in this same year. Though, as with anything, security is becoming stronger as time goes by when it comes to crypto exchanges, these platforms are still relatively new and kinks are still being worked out. This leaves your personal information and your investment in whichever cryptocurrency you use at risk. Below, we will take a look at another major risk of these trading platforms and see how the fact that these are unregulated impacts you as a user of such platforms.
The lack of bank interference or governmental regulation is one of the primary attractive attributes of Bitcoin and other cryptocurrencies in the eyes of proponents. However, the fact that cryptocurrency is an unregulated form of money, not tied to the dollar or anything else, creates major risk to those who choose to invest in it. A person who chooses to buy cryptocurrencies accesses their accounts and trading platforms via the use of a private key or password that is typically, and understandably, very complicated by nature.
City National Bank’s Cyber Innovation Architect, Bryan Gour, said in regards to cryptocurrency cyber security, “When it comes to risks with cryptocurrency, I think the main one is that most people store their private key on their PC like any other file. There are a lot of dangers associated with keeping a key on a computer. It’s highly risky because it’s so easy for hackers to access a person’s computer. And once a key is stolen, there’s no getting it back. It’s like having a credit card with no authentication check. That money is gone for good.” Not only is there the risk of not having the currency tied to something else to give it its valuation legitimately, but most people do not practice good enough cybersecurity hygiene to have such highly risky and highly valuable piece of information on their devices.
As mentioned above, trading platforms are at risk of being hacked. Now, if someone stole your credit card or bank account number, you would have recourse to get your money back. When it comes to the unregulated world of cryptocurrency, you are essentially S.O.L. if you are the victim of a cybercrime related to your digital wallet. This is why those who buy and invest in cryptocurrency need to ensure security is at the topic of their priority lists.