2021 was a year of record highs for the cryptocurrency industry, including an 81% hike in cyber crime.
Beyond sky-high prices and rising adoption, revenues seized by cybercriminals in various crypto scams and “rug pulls” toppled $7.7 billion—an 81% rise compared to 2020. The largest hacks and scams occurred in the DeFi (decentralized finance) sector, where opportunistic actors took advantage of new users, luring them out of their funds with the promise of lucrative returns and then abandoning the project.
Whether you invest in DeFi or use centralized exchanges to purchase your coins and tokens, it’s important to protect yourself against possible hacks and scams. Below are a few simple tips to help you keep your assets safe.
Before deciding to invest in any project or token, it’s vital that you do your own prior research. You’ve heard the expression before, but if it looks too good to be true, it probably is. While digital asset investing is different from investing in stocks or traditional markets, many of the golden rules still apply, such as reputation, founding team, operating history, and future potential.
No checklist is foolproof, however, so before investing in a token, be sure to check out its whitepaper and any listed developers and founders. Also, be sure that you understand what it actually does (use case and market potential). In the nascent DeFi sector, many projects are initiated by anonymous or pseudo-anonymous founders who want to protect their privacy, so you’ll need to adapt your checklist to look into the transparency of the application and the quality of its code instead.
Everyone makes mistakes. Even billionaire Mark Cuban “got hit” in June, trading a DeFi token that went from $60 to zero in one day. “Do your own research,” he told CNBC Make It after the experience.
The majority of people who invest in digital assets are not computer scientists. Luckily blockchain technology is inherently transparent, and there are plenty of skilled developers who can evaluate the smart contract or blockchain code for you. A key question to ask before investing is whether or not the project has been audited. Compound Finance, for example, has undergone several technical audits, providing investors with additional peace of mind that there are no issues with the code that could cause a bug in a smart contract to be exploited.
Poly Network (not to be confused with Polygon), for example, a DeFi platform connecting various blockchains, underwent a massive hack in August caused by a bug in the protocol code. The hacker was able to steal a staggering $600 million, making it one of the largest cryptocurrency thefts to date. Fortunately, the “white hat” hacker returned the stolen funds, but the episode underscores the need to be vigilant about the tech. If a project has no audit or fails to make its code public, that’s likely a red flag.
While many tokens are brand-new on the market, it may also be possible to get an idea of reputational risk by looking up the founders if they make themselves public. Keep in mind that many social media influencers are often paid to promote certain coins, so you should never make a decision to invest just because it’s being hyped online. As the SEC guidance states, “It is never a good idea to make an investment decision just because someone famous says a product or service is a good investment.”
One of the most frequent methods that hackers use to steal crypto funds is through phishing or social engineering. These attacks are often very sophisticated and lead investors to a fake website where they approve transactions or hand over their private keys or passwords. If you self-custody your funds in a non-custodial wallet, it’s vital that you keep your private keys (the string of letters and numbers used to access your cryptocurrency) safe and never, ever give the details to anyone.
If you invest in digital assets using a centralized exchange, be sure that you choose a reputable provider like EQONEX that is Nasdaq-listed, regulated, and provides industry-leading institutional-grade crypto custody through Digivault. Always ensure that two-factor authentication is enabled on your account and that you use a mobile authenticator app to approve all transactions to add an extra layer of security to them.
Keep in mind that, whether you have been exposed to crypto crime in the past or not, there will always be opportunistic hackers waiting for you to make mistakes. So, always be on your guard and, above all, remember the golden rule of investing: Never invest more than you can afford to lose.
While non-fungible tokens (NFTs) have risen to the mainstream recently, they actually date back to 2012. It’s taken many industries almost a decade to realize the massive potential that NFTs can have for their businesses.
While shocking headlines catch the eye, risk experts believe the recent crypto market events could be catalyst for much-needed change in the industry
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