Cryptocurrency has made all manner of headlines in the security world of late: from the meteoric rise of BitCoin, to the devastating scams that capitalised on the hype.
And it’s not just BitCoin either: new cryptocurrencies are popping up daily, enticing investors with risky, yet potentially massive payoffs.
No matter the individual currency, they’re all based on what’s called ‘blockchain’: a highly-touted, yet controversial technology that promises to radically change the economy as we know it. But is it all empty hype? And more importantly, just how secure is it?
There’s no doubt that blockchain, the driving force behind cryptocurrency, is a revolutionary technology. With all the press coverage it’s received, though, it’s often treated as a rather mysterious force.
In reality, though, blockchain runs on a shared ledger or ‘record’ of all transactions for a given currency. The transaction ledger is decentralised, and exists on computers around the world. Every transaction creates a new entry in this ledger, and everyone with a copy of it gets an update pushed out regularly.
Each user has a ‘wallet’ which they can use to send, store or receive their coins. Users can either download their wallet to their computer or store it in the cloud. Those users wanting to have a local wallet will need to download the entire transaction history ledger, which varies by currency but is generally 100GB or larger.
This record can be used to track any number of activities, but for cryptocurrency it is used to keep stock of who is sending money to whom. There’s no middle man, unlike traditional currencies, which are based around banks and other centralised financial institutions.
In this way, blockchain-based currency provides a direct, anonymous and peer-to-peer way to send money. However, a lot of misinformation and mythology exists about how blockchain works and what it is capable of. For more information, take a look at Kaspersky blogger Alexey Malanov’s [excellent mythbusting article][myths].
New Platform, Same Old Scams
Due to the novelty and ‘disruptive’ nature of cryptocurrency marketing rhetoric, users are often worried to miss out on early investment in a rapidly growing new field.
Stories of overnight millionaires and ridiculously high returns are very enticing, and combined with uncertainty about how the technology works, investors can skimp on researching before they dive in.
Unfortunately, scammers and criminals are waiting to cash in on the rush. Despite the huge difference between cryptocurrencies and traditional currencies, the same investment scams still work in the new blockchain-driven realm.
Classic scams such as shady exchanges, ‘pump and dump’ and even Pyramid and Ponzi schemes can promise would-be investors almost unbelievable returns and may even offer to manage your coins and make investing easy. For newbies to the crypto world, this can prove a very attractive prospect, but it’s definitely a case of buyer beware.
If you’re keen to jump into the world of cryptocurrency, it’s possible to do it safely. However, just like any other investment, you’ll need to learn more about blockchain and keep in mind that even this exciting new tech can carry the same old risks. Some useful points to remember are:
Don’t invest in anything due to a single tip, social media post, YouTube video or article. Take your time to consult a variety of sources such as tech news sites, security blogs and expert opinions. Here’s a useful list of things to consider as you navigate this process.
Not every cryptocurrency is the same, and some are more reputable than others. Some scams even rely on their own currency that sounds very similar to more well-known types, or claims to give much higher returns than other currencies.
Don’t invest any more than you’re prepared to lose, as markets can be volatile and are still vulnerable to ‘bubbles’ and various other booms and busts.
If you do decide to create a cryptocurrency wallet, either in the cloud or on your own computer, your Internet security will become even more vital. You’ll become a much greater target for cyber crime, and your ability to get your investment back in the case of theft is pretty much non-existent.
Know thyself: if you’re the kind of person who re-uses passwords over several accounts or doesn’t place a lock code on your phone, you’d better seriously up your game – or give cryptocurrency investing a miss entirely.