In the spirit of Information Security awareness, it is also important to share topics that will help broaden your overall awareness of modern technology. Today’s topic is on ‘cryptocurrency’ and some of the risks associated with its use.
Cryptocurrency comes under many names. You have probably read about some of the most popular types of cryptocurrencies such as Bitcoin, Litecoin, and Ethereum, or have seen some sensational stories around cryptocurrencies, such as the one regarding the person who bought two pizzas for 10,000 bitcoins in May of 2010, which at the time was the equivalent of $41, however as of June 11th, 2019, is now worth over $78 million. Some of the noise around cryptocurrency is hype, but some of it points to important forces for financial institutions, including higher education.
Cryptocurrencies are increasingly popular alternatives for online payments. Before converting real dollars, euros, pounds, or other traditional currencies into ₿ (the symbol for Bitcoin, the most popular cryptocurrency and the one which many other cryptocurrencies are based off of), you should understand what cryptocurrencies are, what the risks are in using cryptocurrencies, and how to protect your investment.
What is Cryptocurrency?
Broadly speaking, a cryptocurrency is a digital currency, which is an alternative form of payment created using encryption algorithms and is enabled using blockchains (more on blockchains in a future Pulse article!) The use of encryption technologies means that cryptocurrencies function both as a currency and as a virtual accounting system. To use cryptocurrencies, you need a cryptocurrency wallet. These wallets can be software that is a cloud-based service or is stored on your personal computer or on your mobile device. The wallets are the tool through which you store your encryption keys that confirm your identity and link to your cryptocurrency.
What Are the Risks to Using Cryptocurrency?
Cryptocurrencies are still relatively new (Bitcoin has existed since 2009), and the market for these digital currencies is very volatile. Since cryptocurrencies don't need banks or any other third party to regulate them; they tend to be uninsured and are hard to convert into a form of tangible currency (such as US dollars or euros.) In addition, since cryptocurrencies are technology-based intangible assets, they can be hacked like any other intangible technology asset. Finally, since you store your cryptocurrencies in a digital wallet, if you lose your wallet (or access to it or to wallet backups), you have lost your entire cryptocurrency investment.
These tips may help protect yourself if you choose to use cryptocurrencies:
- Look before you leap! Before investing in a cryptocurrency, be sure you understand how it works, where it can be used, and how to exchange it. Read the webpages for the currency itself (such as Ethereum, Bitcoin or Litecoin) so that you fully understand how it works, and read independent articles on the cryptocurrencies you are considering as well.
- Use a trustworthy wallet. It is going to take some research on your part to choose the right wallet for your needs. If you choose to manage your cryptocurrency wallet with a local application on your personal computer or mobile device, then you will need to protect this wallet at a level consistent with your investment. Just like you wouldn't carry a million dollars around in a paper bag, don't choose an unknown or lesser-known wallet to protect your cryptocurrency. You want to make sure that you use a trustworthy wallet.
- Have a backup strategy. Think about what happens if your personal computer or mobile device (or wherever you store your wallet) is lost or stolen or if you don't otherwise have access to it. Without a backup strategy, you will have no way of getting your cryptocurrency back, and you could lose your investment.
For further information on this topic or for previous Information Security Pulse articles, please see the sections below.
- 2-minute video from the International Monetary Fund, “What is Cryptocurrency?”
- Lean more about cryptocurrencies from the FTC article, "What to Know About Cryptocurrency"
- Read the Forbes article "Guide to Top Cryptocurrency Exchanges" to learn about Bitcoin exchanges and wallets.
- View A Beginner's Guide to Cryptocurrencies infographic.
Previous Information Security Pulse Articles
- Securing Your Information – What Can You Do
- New Forms of Information Security Attacks on the Rise
- Information Security To Go! (Tips When Travelling)
-Submitted by Jonathan Wagner