The Verge has a recent article that could send shivers down the spine of anyone who invests in digital currency. An online storage site for cryptocurrency was attacked by a hacker, and over $1 million worth of Bitcoins were stolen. An ominous headline accompanying the article reads, “Users Very Unlikely to Ever See Their Money Again.” This isn't the first time something like this has happened, and—let's be realistic—it's not likely to be the last.
We aren't telling you this as an attempt to sound a death knell for cryptocurrency in general, but we are holding it up as an example that electronic financial tools are vulnerable if they aren't adequately protected. Two aspects of cryptocurrency that are pushed by its advocates to potential investors can also make it more susceptible to hacking, as recently discussed in Bitcoin Magazine.
1. It's not linked or connected to any bank or government—which also makes it devoid of protection. As of yet, there's no digital currency equivalent to the Federal Deposit Insurance Corporation (FDIC), which the US government established to insure depositors' money against theft. As things stand now, if digital currency is stolen, it's just gone forever. As PCWorld notes. “(Digital currencies) aren't protected or insured by anyone.”
2. Cryptocurrency transactions are totally anonymous, with no personal information from either party attached to the exchanges. This is great if you're concerned about personal privacy, but not so great when it comes to tracking down a thief. Alternative currency has its own digital signature, but it's not attached to any single person; whoever holds the coin owns the coin, rightful owner or not.
All this can be a little depressing; however, don't despair! Amid the bad news is hope; there are ways you can greatly improve the security measures surrounding your digital currency. Let's take a look at the steps you can take to protect your cryptocurrency accounts:
Keep Your Money Offline. Hackers can't tap into a device that isn't turned on. Keep your digital currency wallet on your hard drive whenever possible, and turn your computer off when it isn't in use. Better yet, invest in an external hard drive, and store your wallet there; these can be unplugged from your computer, and need only be connected when in direct use.
Trust your Digital “Banker." Many online wallet services do their best to keep their investors' information offline whenever possible, but that's not always the case, as the article cited above indicates. If you do decide to trust your cryptocurrency wallet to an online service—as opposed to keeping it locally—get the following information from them first, preferably in writing:
1. How do they assure your account information is kept offline, unless in direct use? Some offer private key codes that bring your info online when needed, and take it back offline when you sign off.
2. Do they offer insurance or replacement for stolen currency? Some do, and some don't; in a perfect world, they all would.
3. What other security measures do they have in place?
Layers of Security. All cryptocurrencies offer encryption for both the currency itself and each individual transaction. Some, like Securecoin, offer six layers of coding security. This might sound a little overboard on its surface, but it's better to be safe than sorry. In addition, many wallets require a password to even access them. The more digital walls you can put up between your money and a hacker, the better.
Follow Digital Currency Security Developments. These aren't necessarily gonna knock down your door. The alternative currency industry is intensely aware of security issues, and as new technologies and strategies arise, Coin Pursuit will be here to let you know what they are.
Don't let scary news in the press push you away from digital currency investment. As Julia Dixon, editor of DGC Magazine, recently told iPost, “...digital currencies can be very secure but not without a bit of knowledge and effort on the part of the user.” At Coin Pursuit, we'll do our level best to bring you that knowledge.
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