As cryptocurrencies are still a relatively new introduction to the world, there are a few areas where security is put to the test for one reason or another.
Cyber-criminals are attempting to find the best ways to take advantage of this new technology and to get their hands on any Cryptocurrencies they can. For this reason alone you might be thinking is cryptocurrency safe? And what you can do to protect your investment.
So far there has been no Bitcoin hack, so the coins themselves and the Bitcoin alternatives are considered safe and secure.
The threats come in other areas where other parties are involved, or in the storage of your coins and investment. There are also Cryptocurrencies that are taking things a little further to enhance security by features built into the currencies or networks they run on.
1. Avoid Cryptocurrency Scams
There are over a 1,000 Cryptocurrencies on the market, and many come and go each month. A few of these are nothing more than an online bitcoin scam and a way to pilfer coins from unsuspecting investors.
One of the easiest way fraudsters are able to perform this is advertising a new coin and build up interest. They then offer an ICO (initial coin offering), and before anyone notices something has gone wrong, the fraudsters have pocketed the Cryptocurrencies, and the site and the coin have vanished. It is this reason a great deal of homework should be done to find a currency based on a solid background.
2. Secure Crypto Wallets
When you are investing or using Cryptocurrencies for use, you need to store your Cryptocurrencies in a secure wallet.
Although there are hot wallets which are ideal for usability cold wallets are the most secure. Hot wallets are a cryptocurrency wallet that can be hacked.
When choosing cold storage crypto wallets, there are two types. A paper wallet is one of the simplest cold storage wallets where your keys are printed. Many copies should be kept as the paper is not the safest medium.
From here you can have a hardware wallet which is much the same as a USB drive. This is secure and can support many varying types of cryptocurrency. A prime example of the best is the Trezor hardware wallet. This comes with 2-factor authentication, and password manager should the device be damaged, lost or stolen.
3. Cryptocurrency Exchange Theft
There are some cryptocurrency exchanges around the globe, though many of these are not the ideal places to leave your coins. When looking at which cryptocurrency to invest in the exchange you use should be considered.
Although lesser known exchanges can be risky, some significant exchanges can also be a weak point in securing your crypto investment. Mt. Gox was up until recently the most well-known exchange to be hacked.
Over $450 million worth of Bitcoin was stolen from their Hot Wallet over a period. This shows how crucial it is to check on the exchange and to never leave your coins there for any length of time.
4. How Crypto Coins Help Secure Your Investment
As you can see a lot of the security weaknesses are down to other parties intervention, there are many Cryptocurrencies themselves that aim to make their own security tighter to help protect your investment.
With the peer-to-peer network and the 4,500 plus nodes, Dash uses around the globe Dash utilizes 200 TerraHash of X11 ASIC of processing power to confirm transactions.
The miners are rewarded for securing the network while validating, storing and distributing the Blockchain to users.
The master-node of servers form Quorums to enhance privacy and governance while eliminating threats of low-cost network attacks.
This coin enforces security by not re-using addresses. Ring signatures allow private transactions as any user on the ring can be a sender or receiver of a transaction.
Monero also uses CryptoNight as their proof-of-work algorithm which was designed to reduce the gap in performance between GPU and CPU mining. The block-time is also reduced compared to BTC and is 2 minutes rather than 10.
A crypto wallet for this Crypto also uses mnemonic seeds. Here you are given a list of 25 words which are the only ones that can be used to restore a wallet.
This coin uses what they call the TANGLE which is a blockless distributed ledger. When the IOTA network has more users, and the number of transactions is increased the more efficient and secure the Tangle becomes.
The wonder of the pack is Skycoin as it totally decouples any of its coins from the mining process.
As a way of doing this, they use their new Obelisk algorithm that rids the need for POW and POS in transactions. A web of trust is created, and decisions are decided upon through network consensus.
The network it runs on is Skywire and is built with nodes, so there is no one point of failure. Data is broken into chunks where only the application and the P2P network knows where it is.
With a secure network and a coin that fixes the flaws with the Blockchain and Bitcoin, you will be safe in the knowledge your investment is safe.