Cryptocurrency Theft: 4 Steps to Protect Yourself

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For one week in November 2022, FTX was one of the world’s largest and most trusted exchanges, and it has become a talking point about the risk of cryptocurrency theft and loss. Its founder, Sam Bankman-Fried, was a rock star in the industry, but now he’s facing more than a century in prison.

Read: 3 Things You Must Do Once You Have $50,000 in Savings

FTX customers could lose $8 billion in assets, and while the exchange’s implosion was the most notorious episode since the 2014 Mt. Gox hack, it certainly won’t be the last.

Steps to secure your crypto

The good news is that you can take steps that would have protected you if you were using the FTX exchange. Here’s what you need to know to protect yourself against cryptocurrency theft, fraud, and loss.

1. Choose a wallet with security in mind

You cannot invest in cryptocurrencies until you own a digital wallet. Also, not all wallets are created equal. If you chose an exchange-provided wallet when you bought your first coin, it’s time to upgrade to something a little more secure. If you’re still in the planning stages, here’s what you need to know about different types of wallets before you start trading.

Hardware wallets are the most secure

As the name suggests, a hardware wallet is a physical device that connects to your computer only when you need it. The rest of the time, wallets, or assets, are safely stored offline in what is known as cold storage. They are not connected to the internet and are out of reach of hackers, thieves, viruses, and malware.

It’s more complex and expensive than other options like the NGRAVE Zero ($398), Ledger Nano X ($149), and Trezor Model T ($219), but it’s basically impregnable when used correctly.

Hardware wallets have replaced the old-school paper wallets that were the most secure cold storage available in the early 2010s, but some traditionalists still use hardware wallets. .

Software wallets are great — especially if they’re non-custodial

Software wallets are a kind of hot storage. Because they are connected to the internet, they are not as secure as hardware wallets. No matter how many steps your wallet provider takes to encrypt and harden their software, your wallet is only as secure as the device you use to access it.

It’s easy to set up and use, just download it like any other software application, and often free to use. Many software wallets are custodial. This means that you must trust your private key to a third party. If you use a software wallet, choose the unmanaged option that allows you to manage your private key alone. MetaMask and Trust Wallet are his one of the most popular non-custodial software wallets.

Do not store assets on centralized exchanges

Most centralized exchanges offer their own wallets as an easy, free and convenient feature that allows users to store their keys in the same place they buy their coins.

Some centralized exchanges such as Coinbase offer more secure decentralized wallets, but even the most secure exchange wallets live on the exchange, not on your device like software wallets. . Exchanges are easy targets for hackers, and as the FTX debacle proves, even the largest exchanges can be taken down from within before online criminals have a chance to attack.

2. Choose a safe and secure exchange

Most cryptocurrency trading takes place on digital exchanges accessed through a web browser or mobile app. As the world learned during the FTX implosion, exchange choice matters.

Choose an exchange based on the resources you dedicate to repelling attackers, preventing breaches, and keeping your assets safe. Look for features like:

• Default two-factor authentication
• Robust phishing protection
• biometric login
• Bounty program to encourage ethical hackers to find and report vulnerabilities

Coinbase is the largest and only listed exchange in the United States. This means they are subject to scrutiny from federal regulators that no other exchange has. Other exchanges known for their strong security are Gemini and Kraken.

3. Learn, learn, and follow encryption best practices

Wallets do not actually store cryptocurrencies. They generate private keys that grant access to property that exists on the blockchain.

Your 12-24 word secret recovery phrase, or seed phrase, is the key to your wallet and private key. It is your responsibility to manage and protect them according to standard cryptographic best practices.

• Write down your recovery phrase and do not reveal it to anyone.
• Consider writing down 12, 18, or 24 words on a separate piece of paper and hiding them somewhere else.
• Use strong, hard-to-guess passwords.
• Use a password manager like Bitwarden.
• Do not reuse the same password on multiple sites.
• Don’t save passwords in your browser.
• Enable two-factor authentication, even if your exchange doesn’t require it or it’s on by default.
• Do not use public Wi-Fi to connect to exchanges or software wallets.
• Do not keep your assets on exchanges longer than necessary. An exchange is just that — a place where you exchange money for tokens and tokens for other tokens. Once you’re done with the exchange, there’s your time.

4. Learn how cryptocriminals operate

Now that you’ve followed best practices and used secure exchanges and secure wallets, take the time to research criminals trying to steal every token you’ve ever owned.

What is crypto theft?

Criminals can directly steal crypto by compromising exchanges, software wallets, or devices used to access software wallets. Cryptocurrency theft also occurs indirectly through phishing, investment and romance scams.

Can stolen crypto be recovered?

Blockchain transactions are designed to be irreversible and most victims have little recourse. An FTX victim recently received good news that authorities in the Bahamas recovered his $3.5 billion in missing cryptocurrencies on the original exchange, but that’s an outlier.

How many cryptos are stolen every day?

Although there is no official tally tracking daily losses, the cryptocrime industry is huge. In 2021, thieves stole a record $14 billion in digital assets from him. According to Cointelegraph, the number of thefts in 2022, before the FTX implosion, doubled from his previous year by November 1st.

Can I get my money back if I get scammed with cryptocurrency?

Companies like DPS Cyber ​​Security have a record of recovering millions of stolen crypto assets, but that’s the drop in the bucket. Lost coins are rarely recovered. Prevention is the best medicine when it comes to cryptocurrency theft.

never stop learning

Cryptocriminals are learning new tricks and adopting new tactics every day. Stay up to date on the latest cryptocurrency scams, threats and safety protocols by checking in regularly with the FTC and other watchdog groups.

Information current as of January 6, 2023.