The Ultimate Guide to Protecting Yourself in the Crypto Space

Beginner’s Guide / 24.03.2020

The year 2008 was the year that the world saw one of the biggest financial disasters since the Great Depression. The Housing market crash slowly but exponentially resulted in a domino effect that took down some of the biggest financial giants in the game. It resulted in the loss of trillions of dollars and financial turmoil to millions of families.

All of that turmoil and financial loss could’ve been averted. The poverty and job loss could’ve been avoided if there was a little more transparency from people who run the game.

Banks and Governments, but mostly the people who control the market engineered the crash. If it weren’t for their greed and manipulation of the people in power, there wouldn’t have been a crash at all.

And that’s why October of 2008 was a crucial one. It was the month where an anonymous member of a closed online mailing list came up with a novel idea that would change the face of finance forever.

In October 2008 Satoshi Nakamoto, an anonymous member of the CyberPunk group, came up with Bitcoin: a P2P e-Cash system. Bitcoin, built on the invention of Blockchain technology, was a mechanism to “decentralize cash” as we have come to know it. The idea of distributing trust and building transparency so that there was no central point of failure was something people had been exploring for several decades. But in that 8-page paper, Satoshi made it seem entirely possible and novel.

It has been about 12 years since Bitcoin was released. It has been 12 years since people all over the world started to realize the importance of a mechanism that is built by the people and works for the people. It’s been 12 years, but there are decades, or even centuries more to go.

The Importance of Being Vigilant

In the 12 years of its existence, Bitcoin and the eventual “cryptocurrency” market that it laid the foundation for has shown great potential. But then, as in any industry involving power and value, there will be people who will try to steal it. Also, the fact that the cryptocurrency industry is highly under-regulated doesn’t help with security and protection. Scams and Ponzi schemes and quick money promises are seen everywhere among people who are still new to the technology.

Within the cryptocurrency market, scams often denote dubious startups, fake initial coin offerings (ICOs), Ponzi schemes or the dark market. The scammers play on the ignorance and greed of a prospective victim to push them into the scam. Since scams are globally prevalent, the area of cryptocurrency and blockchain is no different.

When a particular project seems to lack any practical usefulness and the business idea behind it is suspicious, more often than not it is a scam. The newfound complexity and unfamiliarity of the sector is a ripe area for all types of scrupulous activities. As one considers knowing about and investing in different projects in the cryptocurrency ecosystem, it is essential to be aware of the possibilities of losing one’s investments.

Scams – What Can Go Wrong

avoiding cryptocurrency scams it's far more important than one thinks. It's very hard to identify a legit project from a scam

Scamming is the elaborate process of taking advantage of uninformed individuals or organization, and using the ignorance to get away with their money. Scamming has always been prevalent anywhere money or wealth is involved.

Scams are highly common in the crypto market as well. Through the years, there has been quite a long list of scamming techniques in the crypto market. As the area is nascent and unfortunately quite complex, it is easy for the few to overwhelm the many by making all sorts of false promises. All scamming techniques are unique in their way, trying to steal money from innocent investors looking to make a quick buck. The following are a list of some of the most prevalent and well-known scamming techniques in the market.

  • Wallet Hacks

Although it is quite difficult to do so, cryptocurrency wallets can be hacked if the attackers find an internal way. By internal ways, we mean finding out the password of your phone, cloning your device, getting to know your backup phrase and so on. Wallet hacks are not that common as they are usually stored offline and carry heavy encryption. If a wallet is hacked, as it has happened in the past, it is usually due to the negligence of the wallet makers.

  • Fake Social Media Influencers

Sometimes, many influencers and celebrities on social media platforms like Instagram, Facebook, etc. get involved in promoting projects that pay them to do so. Most times, the promoters have no idea what they are trying to promote. Celebrities like 50Cent, DJ Khalid and a dozen other have been known to promote crypto projects and ICO that most probably looked like a scam or false project.

  • Cryptojacking

In a sense, cryptojacking is a way for cybercriminals to make free money with minimal effort. Cybercriminals can simply hijack someone else’s machine with just a few lines of code. This leaves the victim bearing the cost of the computations and electricity that are necessary to mine cryptocurrency. The criminals get away with the tokens.

  • Telegram Scams

One of the more common types of scams these days are the Telegram scam groups and Telegram chatbots. People are led to join groups or influencers on telegram that promise to make money for their customers. They make fancy displays like showing you their crypto balance, snapshots of their trades, reviews from past customers, all of which are usually fake. Later, when a person is convinced and sends them funds, they close up show and change their credentials looking for another victim.

  • Dusting Attacks

As the name says, a Dusting attack is done by mass sending, or ‘dusting’, small amounts of cryptocurrency to hundreds or thousands of wallets. Scammers realized that cryptocurrency users do not pay much attention to these tiny amounts showing up in their wallets, and since then started using this to their advantage. Using the tiny amount, hackers take note of the wallet ID they send to. After dusting multiple addresses, the next step of a dusting attack involves a combined analysis of those various addresses in an attempt to identify which ones belong to the same wallet.

  • Fake ICOs

With the introduction of the ICO or Initial Coin Offering Concept, along with the constant updates in the Ethereum Ecosystem, scamming has never been easier. ICO scams might be the most difficult to pinpoint as they mostly look like the normal ones. The projects carry a fancy website, a broad and unfeasible whitepaper and promise to solve a wide range of problems. Newcomers to the market are easily swayed away by the beautiful and aesthetic presentation of the fake project and readily send money to them in the hopes of exponential return. As soon as the time limit is over, the developers run away with the money. According to certain estimates, around 1/3rd of all ICOs in 2017 were fake. One of the major drawbacks is that it does not help that most investors do not have direct contact with the developers behind the project.

  • Fake Airdrops

The concept of an airdrop is simple. It involves a business “dropping” small amounts of free crypto en-mass to individual wallets. Benefitting from an airdrop usually involves registering through a google form, a Telegram bot, or directly on a project’s website. In a dump airdrop, the goal for the developers is to generate short-term buzz about a token so that people will be eager to buy it when it hits exchanges. Another scamming technique is using airdrops to trail the accounts. By sending an airdrop, one’s account comes into the limelight. After that, standard dusting attack techniques can be used.

Check out the Top Scams in 2019 to get an idea of the malpractices.

How to Protect Yourself

cybercrimes are very common in the crypto space

Most scammers are just like wolves in the wild, they are not going to go after something that will force them to expend a lot of time and energy. They will go after the weakest links simply because that’s the easiest way and requires the least amount of effort. To make sure you are not the lone victim, go out of your way to make sure your online security is rigid and secure.

Safeguard Your Devices

  • Use Antivirus

A lot of the malpractice that goes on also has got to do with unknown malware that enters your system or mobile. Hackers use malicious code to corrupt your system and gain control over it. For example, some hackers in 2017 hid pieces of code inside an innocent-looking application that mined Monero and other cryptocurrencies by using the computing power of the hacked. We recommend you to use a trusted anti-virus that periodically checks and removes malicious applications and code from your system.

  • Do Not Download Unknown Applications

It goes without saying that to ensure no viruses and malicious applications enter your system, do not download applications from platforms that do not seem trustworthy. It is enticing and cost-saving to download “free” applications. But note that if the application turns out to be something it shouldn’t, you’ll end up losing more than the amount you could have spent on the right application.

  • Use VPN

Using a VPN while browsing through sensitive information is highly beneficial. When you use a VPN, all your traffic becomes encrypted. Neither the ISP or nearby coffee shop neighbor can get a single clue about your online activities. A VPN also contributes to your security. As your traffic is encrypted, WIFI hackers can’t hijack your session cookies or steal your plain-text passwords. Although a VPN is not the complete security solution for your coins, it is an extremely important component of the protection.

  • Use Trusted and Offline Wallets

Another important way to ensure your cryptos stay safe is by making sure the wallets you store them are secure and trusted. As the saying goes in the community – “Not your keys, not your crypto”, it is important to ensure that you have direct ownership of your funds. Make sure the wallets you use give you direct ownership of your funds. Storing large amounts on your exchange or third-party application is not a good idea as it puts your funds at risk if the exchange or third party is hacked.

Choosing the Right Exchange

When choosing a cryptocurrency exchange, it is important to balance several different considerations. Exchanges are all different and different ways of building security precautions, regulating users, building their network, and building a user experience. Also, it is important to choose an exchange that meets all the needs of the buyers. One cannot choose a compatible exchange right away, and so it is recommended that one makes accounts in various exchanges and experiment with all of them before settling on a particular exchange or exchanges.

It is important to balance several different considerations. Exchanges are all different and different ways of building security precautions, regulating users, building their network, and building a user experience.

Right now, there are more than 200+ established exchanges worldwide In all the hassle and complexities, it can be quite difficult to pinpoint the right exchange. Make sure to settle upon an exchange that has the best track record and aligns with your principles. Some are comfortable with centralized exchanges because they are easy to use while some prefer decentralized ones, as they provide maximum security.

  • DEX – Decentralized Exchange

A decentralized exchange (DEX) is a cryptocurrency exchange that operates in a decentralized way, i.e., without a central authority. Decentralized exchanges allow peer-to-peer trading of cryptocurrencies. In a traditional centralized exchange, the platform ensures that each buyer is matched with a seller, based on a first-come-first-serve basis. Centralized exchanges provide efficiency in exchange for privacy. On a decentralized exchange, one can rest assured that privacy is maintained as they are in control of their funds and data, but at the sometimes give up much of the efficiency and liquidity that most centralized exchanges boast.

  • CEX – Centralized Exchange

For investors looking to enter the cryptocurrency space, a centralized exchange is still the most common means of doing so. Although there are many cryptocurrency exchange platforms currently available, it is evident that the majority of them follow the standard model and protocol that offers a limited and frustrating trading experience to traders who would love to get more out of exchanges. The main essence of a centralized exchange is that it is the intermediary between the two roles of user-traders (taker and maker). Centralized exchanges currently form the backbone of the cryptocurrency ecosystem by bringing most, if not all of the traction.

To know more about cryptocurrency exchanges, their classification and more, you can visit our complete guide here

Securely Store Your Crypto

cryptocurrency wallets are an important factor of owning bitcoin and altcoins

  • Paper Wallets

The most basic form of cold storage is a paper wallet. A paper wallet is simply a document that has the public and private keys written on it. The document is printed from the bitcoin paper wallet tool online with an offline printer. The paper wallet or document usually has a QR code embedded on it so that it can easily be scanned and signed to make a transaction. One of the advantages of having a paper wallet is that once you transfer it, it takes more time to put it back online and withdraw than when compared to a hot wallet. That forms another layer of security as it discourages you to take out funds because it is too much work. You can use services like Bitcoin Paper Wallet Generator to easily make a paper wallet. You can then store that paper in a safe or with your other property documents.

  • Hardware Wallets

A Hardware wallet is a physical electronic device that is designed to protect an individual’s cryptocurrency funds by securing their private keys. The idea behind hardware wallets is to separate the private keys from online methods of storage, such as a computer or smartphone, which are more susceptible to being compromised by a hacker. Storing your private keys offline prevents against this, as hackers would have to physically steal your hardware wallet to gain access to a user’s private keys.

The Ledger Series hardware wallets, i.e., Nano S or Nano X, are one of the most popular and versatile hardware wallets out there. The best feature the Ledger wallets are that they are immensely more secure and trustworthy than online or Hot wallets.

  • Include 2FA Protection

2FA or 2-factor authentication is the process of externally depending on several devices or platforms to confirm a request. 2FA has been generally used by people trying to log in to sensitive websites, trying to withdraw large funds and so on. All users are encouraged to use some form of 2FA mechanism such as password + OTP protection, a password + email identification, etc. Remember that the greater the barriers to entry, the safer the information stored. For a detailed guide to securely storing cryptocurrencies, check here.

Get Your Resources Right

pick the right resources when navigating in the crypto space

  • Read Whitepaper

Blockchain and Cryptocurrency are technologies that involve multiple streams of knowledge to function. Some of them, but not limited to, include Economics, Network Theory, Cryptography, Distributed Computing, and Game Theory. To help people in their journey of understanding the technology, a new market has developed – the Market for Educators. A lot of the educators have summarized their thoughts into simple books that can help you understand concepts easily.

Reading the white paper of any project before investing is also immensely important. A whitepaper’s abstract is there to give you a quick overview of the project and to lure you in to read the entire paper to find out more about the project and its cryptocurrency. The whitepaper contains much useful information, such as the problem/issue the company is looking to solve. They also talk about the concept of the product/service, the utility of the tokens, go-to-market strategy and the timeline for implementation.

  • Check Multiple sources

It will be easier for you to learn and understand cryptocurrency if you have someone to work with. When you come across a lucrative investment, website, application or anything else, it is considered good practice to consult various sources, both online and offline. By consulting several platforms and individuals, one can gain confidence about the validity of the product or service being looked at. Most hackers take advantage by misusing the trust of users who come onto fancy looking sites and plant malicious code or application in devices without the knowledge of the user.

  • Stay Away from Quick Money Schemes

Quick money schemes are the major reason why scams in the crypto community are always hitting news. People who design scams always prey upon the people who have the least knowledge in the space. Take the example of the PlusToken scam or OKCoin scam. All of them targeted individuals who wanted to make money quickly and with no risk. And then they ended up losing all of it. Just make sure that if it seems too lucrative and promised too many things than usual, it is almost always a scam. If you stumble upon any, do make sure to report it so that others are made aware of it.

  • Stay Wary of Phishing Scams

Phishing scams are websites that are a copy of the original sites. Unbeknownst users are rarely able to find the difference as ultimately become a part of the plot without knowing they are. Before buying any particular cryptocurrency or any asset in general, we urge the reader to do brief research into it. It is common for cryptocurrencies to turn out as scams, which can lead the buyer to lose all of their initial funds. DYOR or Do Your Own Research Principle must be followed always.

Investing Techniques

pick wisley when investing in cryptocurrency

  • Have Fixed Investing Strategies

When it comes to traditional financial assets like Stocks, Bonds, Debt Instruments, etc., the market has developed dozens of strategies to make the best buck out of one’s investment. Although still nascent, investors and traders have a lot they can carry over into the crypto market. Yes, it is volatile, but having an investment strategy will act as a safety net. It is like having an instruction booklet guiding you through the investment process. Setting up your investment strategy is like buying a new car. Before one looks at the different models, they need to figure out what style suits them best. And just like cars, there are many styles to choose from when creating an investment strategy.

  • DYOR

The First Rule of trading cryptocurrencies or any asset for that matters to always DO YOUR OWN RESEARCH (DYOR). Avoid falling over other people’s opinions and form the habit of making informed decisions on your own. At the end of the day, the best advice one could give it to be thorough and DYOR – Do Your Own Research. That’s the best possible strategy when going about deciding on the exchange of your choice.

  • Risk Management

Finding out the risk preference of the investor is more important than any other component. If an investor’s risk preference is low and does not wish to get into a market with unstable and volatile returns, the crypto market is what they are looking for. The returns of the market are unpredictable, to say the least, and not for the light-hearted. Although the risk is high, the potential reward of exponential increase is as well.

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Sudarshan M is a long time crypto-enthusiast. Pulled in by bitcoin early on, it did not take long for Sudarshan to divert all of his academic attention from business studies to blockchain by doing his Masters and eventually pursuing his PhD in the subject.