Five ways to protect yourself when using cryptocurrency
In recent years, cryptocurrencies have gained traction worldwide as an increasingly common form of investment or electronic payment. Because cryptocurrency operates in the cyber world, many of the best practices for protecting other online information also apply to cryptocurrency. You should not click on links you don’t recognize, be cognizant of any phishing schemes and keep your login information secure and private.
There are hundreds of types of cryptocurrencies. The most widely known is Bitcoin. Since its creation in 2009, Bitcoin has increased in value, albeit with periodic, sometimes drastic, price fluctuations. In December 2017, it peaked at almost $20,000 per Bitcoin. By June 2018, it dropped to near $6,000, then increased to about $8,000 per Bitcoin within the next month.
Aside from the potentially high value of cryptocurrency, transactions are instant and irreversible. There are no charge-backs and users, including cyber thieves, can be anonymous or very difficult to trace. For these reasons, safeguarding your investment in cryptocurrency is imperative.
Here are five of the best practices:
Protect the private electronic “key” that allows access to your cryptocurrency. Store it offline. Write it on a piece of paper and put it in a safe, or keep it on a thumb drive not connected to the Internet. If you must store the key online, encrypt it. Put your coins in a “hot” wallet, connected to the Internet, only for imminent transactions.
Use more than one private key, commonly known as “multi-signature.” That way, a hacker stealing only one of your keys will not be able to access your cryptocurrency.
If you use an exchange to store your cryptocurrencies, make sure the exchange uses top-notch cybersecurity practices and stores your cryptocurrency offline. Read the terms and conditions of service so you know your rights if the exchange is hacked and the private key to your cryptocurrency is stolen.
If you have a business that accepts cryptocurrency, make sure the contracts or terms and conditions of service with your customers specify who bears the risk of a drop in value or who benefits from a rise in value of the cryptocurrency.
Consider purchasing insurance to recover the value of any stolen or “hacked” cryptocurrency. Unlike money kept in a bank, there is no FDIC insurance or charge-back for fraudulent purchases, or theft, involving cryptocurrency. The loss of cryptocurrency is not necessarily covered by crime or employee theft insurance policies either. If that’s the case, insurance specific to cryptocurrency can be critical financial protection.
Be smart and always use safe Internet practices. When in doubt, seek guidance from a professional. ♦
Adam Brouillet is a shareholder at Trenam Law. He focuses his practice on data privacy, cybersecurity, and business litigation. He advises clients on how to minimize risk and comply with laws governing information privacy and cybersecurity. This includes drafting information security procedures, training business owners and employees, and preparing data breach response plans. He also advises on vendor relationships, insurance policies, and transactions from a data privacy and cybersecurity law standpoint. [email protected]