You must have seen the interview between Omar CryptO and market sniper also known as Francis Hunt. The sweetest and the minor tip (which he calls them) read as “don’t get shaken out of the game, stay in the game and you will be the winner as it is the expanding market.”
The distilled knowledge by this experienced trader has attracted many investors to trade the cryptocurrencies. He meant that don’t short yourself. Don’t plan to sell your units in a hope of buying them again at cheaper rates. I am not afraid to admit that I did exactly the same. Bitcoin was sitting stable at $10 and all of a sudden, the chart bounced to $50 and just because I had limited myself by shorting, I sold them. And guess what? The graph kept on rising. I kept on estimating that the market will fall, the bubble would burst, but it kept on going and going. And market punished me for underestimating the cryptocurrencies. The bottom line is if you feel that you should keep it, then keep it, because the market of cryptocurrencies is insane and its benefits definitely need some backing in the form of trust.
But that is just my take. We can’t rule out all the security risks attached to the cryptocurrencies exchanges. According to a recent survey organized by Encrybit – an upcoming cryptocurrency exchange platform, 40% of the participants said that security is a major concern while trading. Most of the cryptocurrency exchanges are third-party in nature and they are managed by humans. So, your data is vulnerable to tampering or hacking. The history of centralized exchange has been really shameful. On several occasions, the exchange gateways refuse to give the private keys of the users. You don’t know who the third-party is, how it looks like. It might disappear into the thin air and you won’t even know until everything’s gone.
Let us just check all the security risks involved in trading the cryptocurrencies on the centralized systems and necessary steps to protect your funds:
RISK: Virus or malware attack is the most common security threat. Viruses are released to slow down the system so that the perpetrator can take the system in under his control. 4% of the cryptocurrency users like to store their traded or exchanged money on the desktop wallet. The desktop wallet is the wallet which operates on installing the software in the system.
SOLUTION: Use new system and install reliable anti-virus software. There are plenty of antiviruses available in the market. You should scan your computer pre and post every exchange or trade.
RISK: In the past, there were exchanges which validated the sign up through single-step verification. Although the one-step process of validation is a bromide now, there are chances that you may get into the trap of cryptocurrency exchange platforms which have a weaker verification process.
SOLUTION: Using 2 Factor Google Authenticator with only one IP address. You should make sure that you are dealing with an exchange which follows 2FA process for both login and wallet login. Also, with all the kind of wallets like hard and cold available in the market, keep certain that your device or wallet uses 2FA to double verify your authenticity.
RISK: With all the kind of wallet offerings in the market, people usually don’t verify the merits and demerits of the wallets. Just when they trade from the third-party exchanges, they store their currencies on smartphones. Now, smartphones can be dangerous as they can liquidate your money instantly.
SOLUTION: If you wish to store the traded money in the mobile wallet, please set the PIN for your wallet. There are chances that you may lose the wallet and this makes it easier for anyone to fetch your private key and liquidate all your coins. Also, a buggy software would mean that your software could be cracked leading to the same problem. So, use your smartphone wisely when you plan it to make your wallet.
Read: Usage Of Drones
RISK: Platforms like Coinbase and Binance have their own web storage wallets. The problem or risk with these wallets is that they are operated by the staffs. They have the arbitrators to resolve the disputes, they have other members to manage the accounts. More importantly, they have the private key. A centralized system can vanish overnight. Who knows?
SOLUTION: It is advisable to not store the currencies on the third-party wallet. If you do so, you are signaling them to use your funds whenever they want. We all have seen banks getting defaulters and wait for the government to bail them out. Same could be the case with web wallets.
RISK: There couldn’t be any risk greater than getting your system hacked. While everything is on the internet, the chances of threat increase manifold while selling or buying coins on exchange platforms.
SOLUTION: You should be using multiple wallets for storage. Cold storage is the most recommended and safe storage. One wallet should be used for trading while the other should be kept secure for saving the coins. Using multiple wallet services readwould ensure that you don’t lose all the money even if one of the multiples is attacked.
RISK: A lot of crypto-enthusiasts rely on specific exchange service. I personally am a huge fan of Coinbase and I mostly prefer to carry out a trade on it. But it could just succumb right now. And that’s very much possible.
SOLUTION: Don’t rely on one exchange service. That’d be the most uncanny strategy. Consider multiple exchange services even when you don’t find the best rates. It would open the window for web wallets if you don’t want to spend your money in cold storage. You can distribute your currencies on various exchanges and this would mean that even if one of the platforms succumb, you will be safe.
RISK: Since everything is conducted on the internet, you can’t afford a laid-back attitude. A slight negligence can drain all your efforts down the gutter.
SOLUTION: Don’t connect to the unsecured Wi-Fi. You have to be careful while trading. Make sure that you are carrying the complete trade on your personal computer, internet, and other mandatories to run the procedure. Also, if you are using a wallet which keeps your seed keys in an unencrypted form, then you do have a potential threat of losing your coins. Your IP can be traced, your data packets can be scrutinized, leaving ample digital footprints for the interceptor. So, stay attentive and ensure that you don’t lend your device to anyone.
RISK: Lack of knowledge regarding the subject compels new entrants to take unwise steps like registering into the websites which don’t demand users’ verification. Also, impatient users input their necessary credentials in haste to perform the exchange. This puts a tremendous amount of risk.
SOLUTION: Consider a solid fact that a reliable exchange service would verify everything about the user. A good exchange keeps things transparent between them and you. So, before trading, choose the exchange wisely.
RISK: The most common security risk while trading is falling into the pitfalls of frauds and scamsters.
SOLUTION: Like the traditional market, the cryptocurrency market is cheat-laden with false coins and fraud exchanges. Just before you select your favorite currency and exchange, verify as much as you can. Take advantage of your rational conviction and move forward diligently. Check if the particular currency or project is in ICO. Check the spikes and ridges of the graph. A lot of volatility would mean the project has no operational code and you should stay out of it.
RISK: The obvious risk of trading in a centralized system is that your funds can be seized any time by the authority. This has happened in China where the bitcoins accounts were freezed.
SOLUTION: Consider using decentralized exchanges. Although these exchanges are very slow in comparison to the conventional trading methods. They allow transactional censorship. The decentralized exchange does not store any fund. It makes the buyers and sellers meet at a junction and they trade without any involvement of the third-party.
The Final Call
The risk of using cryptocurrencies exchanges have led to the birth of decentralized or P2P exchanges. They are very secure in comparison to the centralized system but the experimentation is at the initial phase. If you still want to stick to the central exchanges, you should consider the mentioned points to minimize if not nullify the threat.