Crypto-currencies are similar to electronic money such as any WebMoney and Yandex.Money. So, the common problems of electronic payment systems are also associated with them.
However, the specific principles by which crypto-currencies work sometimes make the emergence of these problems more likely, and the consequences – more unpleasant. Also, these same particular principles define some risks that are unique to crypto-currencies.
Substitution of payment details and phishing
Let’s say you want to transfer money to a friend. You copy the address of his wallet, and somehow, the address was changed. Not every user re-checks the address after copying especially when it looks like a set of random characters. You can mistakenly transfer the fund to someone else.
As with the general electronic money, the user can be lured to a fraudulent site to which the user himself will download the wallet and enter the password.
Similar problems can await the user of a traditional bank or payment system. However, in the case of a traditional system, there is always a good chance to cancel the transfer. In the case of cryptocurrency, you can only write a complaint.
Hacking of the payment portal
Even errors can occur on a real payment portal with the correct address. In June 2017, the most popular web portal for cryptocurrency Ethereum Classic, with the original address was hacked, and users’ money was stolen.
Hackers used social engineering techniques and convinced the hosting provider that they are the real owner of the domain. Having access to the site, they began to interfere with financial flows.
Fortunately, hackers used a suboptimal strategy – they immediately replaced the recipient of money, so they quickly “burned” and managed to steal just $300,000 in a few hours.
For the sake of justice, this can happen with the traditional financial service. For example, this year in Brazil, hackers managed to steal a whole bank at once.
Error in the address of the recipient
These were standard problems of electronic money, but, as already mentioned above, it is worse for crypto-currencies. For example, there is a risk that is very specific to cryptocurrency – loss of money due to an error in the address to which the transfer is made.
For example, in the case of Ethereum, if the last digit of the address was not copied before sending it – the fund will be gone forever. Or when the money was sent to the right address, the amount might not be accurate. Such error is excluded in the case of Bitcoin which validates address before transactions are made.
Loss of the wallet file
Another problem that is common to crypto-currency is the loss or theft of a wallet. Most users store their crypto-currency wallets on their computers. So, you can steal them with the help of malware, or they may disappear due to a hard disk failure. Experienced users do have a copy of the secret key on a piece of paper or somewhere outside their computer, but the proportion of such users is small.
In the case of “centralized” electronic money, the situation is better at the moment. Few Internet banks do not require mandatory two-factor authentication and transaction confirmation via SMS with one-time passwords. If we are talking about legal entities or large amounts, then it is mandatory to use a USB token.
Anong the holders of cryptocurrency, it became especially popular to invest in various projects. This fundraising is called ICO – Initial Coin Offering.
In 2017, more than $ 1.5 billion was raised through the ICO. There was little to hear about the successful projects, yet investors did not lose optimism.
The problem is that the cryptocurrency market is not regulated in any way. There are no risk assessment mechanisms, and the return on investments is not guaranteed by anyone and nothing, except the honest word of the author of the next project.
The fact that someone has an idea does not mean that; the idea is good and realizable, the result will be a success, the author will spend the money for implementation, and not on salary to the director (himself). He can simply run away with money because the cryptocurrency is not so easy to track down.
Usually, the collection of funds within the ICO opens at a specified time and closes when the required amount is collected. The address of the collection is posted on the project website at the time of opening, although this practice seems completely unfounded to us.
When conducting one ICO, a hacker got access to the project site, and at the very moment of the opening of the fees, he changed the address to his own. Literally, for an hour, 2000 participants contributed 8 million dollars. After that, the address was marked as forged. But even this did not stop the eager ones to invest – many continued to transfer money to the same forged address. The day after, another 2 million dollars were contributed.
Tips for Crypto-Currency Holders and Crypto-Investors
Let us summarize what has been written and give some basic advice.
1. Always check the address of your web wallet, do not click on links that entice you to an online bank or web wallet.
2. Recheck the address of the recipient (at least the first and last characters), the amount sent and the commission value before sending it.
3. Write down the mnemonic phrase, with which you can restore the crypto-cheater in case you lose it or forget the password.
4. When crypto investing, keep a serious head and take weighted decisions, do not panic, do not rush.
5. Do not invest more than you are willing to lose. Diversify your investments.
6. Use hardware crypto-currency wallets.
7. Use high-quality anti-virus protection.
This will help both the new and experienced crypto-investors. Crypto-currency deals with money and losing it can affect you dearly. So, you have to be very careful with your actions.
Guest article written by: Melissa Crooks is Content Writer who writes for Hyperlink InfoSystem, a mobile app development company in New York, USA and India that holds the best team of skilled and expert app developers. She is a versatile tech writer and loves exploring latest technology trends, entrepreneur and startup column.