Bad things can happen any time trading a book of risk. Weekends are always problematic. This set of ...
Trading Lesson: As Bitcoin Breaks $10,000+, How to Keep Your Cryptos Safe
11/29/2017 3:00 pm EST
Trading Lesson, fourth in a series: Here are over a dozen tips for traders to safeguard themselves with bitcoin and other cryptocurrency, write Avi Gilburt and Ryan Wilday of ElliottWaveTrader.net.
In our first article of this series together, Ryan and I spoke about how to start making your first cryptocurrency purchases. We now want to address security. While we’re not computer security experts, we have subscribers who are. They have helped form our thinking.
We suggest using this article to jumpstart the process of getting your digital assets secure. If you are interested in the crypto space, please make security your top concern. While our article is elementary, we provide some links we found helpful.
Also in this series on MoneyShow.com:
Why so vulnerable?
First, we need to address a myth that still exists regarding the blockchain. Using current technology, the blockchain is not hackable or corruptible. Once a transaction exists on the blockchain, it is immutable. Today, hacks are not perpetrated against the blockchain. Rather, users or organizations are the vulnerable ones.
If an account or wallet is accessed by a hacker in such a way that they can create transactions instead of the owner, one’s coins become completely vulnerable.
The decentralized and borderless nature of cryptos, which is normally a benefit, is also their greatest vulnerability. A hacker may simply move coins to an address they control, and those coins will never be found again. No one is party to the transaction but the owner and the hacker so the owner may be left to fend for himself.
Forms of attack
There are two big categories of attack to watch out for.
The “inside job” is where an exchange is hacked, usually with the help of an employee.
The direct user attack, where a user is compromised, is usually via the stealing of credentials for an online exchange, or exposure of their private keys. It’s more common.
We hear most about direct user attacks, and two of our subscribers have been hacked, and have lost their funds.
A common way a user is compromised involves getting a user to enter their credentials and second-factor authentication into a fake website. A bot captures that info and instantly logs into the real site, disables the two-factor authentication (if they have it), and liquidates the account before the two-factor authentication expires.
Key logging viruses may also track a user’s credentials when they logon to a legitimate site. This requires a direct compromise of the user’s computer or device.
Finally, a copy and paste virus that infects a computer converts a crypto address pasted at the time a user sends cryptos, causing the user to send coin to the attacker’s address.
Here are the basic “musts” of good security. If you are diligent with these, you can avoid most direct user hacks:
Keep clean. Given the above noted potential attacks, keep your computer free of viruses, and you’ll win half the battle. Some users we know, including Ryan, have a separate machine to make trades online and never install any software beyond the browser on that trading computer. A Chromebook is a good cheap option for $150-250. If you are a techie person, you might consider the use of a virtual machine on your computer.
Use difficult and unique passwords for all crypto related sites and software. Many people use passwords that are quite easy to hack. Consider using over 10 digits, with symbols, numbers, and caps. Consider changing passwords regularly, say every 30 days.
Always use two-factor authentication (2FA) on all crypto trading sites. Always copy the private keys exchanges provide you when you start 2FA, which allows you to restore your authenticator on another device. The common 2FA apps are Authy and Google Authenticator.
Do not use your phone number as a recovery source for any email or authentication app tied to a crypto account. Security at cellular carriers is too lax and the Equifax hack raises the risk that your private information will allow hackers to take control of your phone number.
When copying and pasting a crypto address for sending assets to other addresses, double check the address. There are viruses that hijack the copy and paste function so you enter a crypto address that doesn’t belong to you, sending coins to the hacker.
Once you’ve started an account somewhere, bookmark the site and only go to the site through that bookmark. Never hit a link in an email, and be careful if hitting a link from a Google search. Double check the URL.
If you keep custody of funds, such as in a wallet app, always copy down your private keys. Put them on a thumb drive or on paper and in a secure location. This will allow you to restore funds if your machine goes down.
Ryan has half of each key encrypted on two separate cloud storage services in the event he loses his offline version.
Finally, the Hardware wallet is a very good approach to security. Trezor and Ledger are the leading brands. They hold the private keys encrypted in the hardware and can be unplugged from your device. They are not easy to use, so you might choose to keep your actively traded funds on an exchange. However keeping your long-term holdings away from hackers on a hardware wallet is a good idea.
Trading cryptocurrencies is very rewarding financially, but due to their decentralized and borderless nature, you have to be the one responsible for your own security. This extra effort does keep the less tech-savvy out of the market.
There is more you can do. For more advanced topics in security, here are some links we found helpful:
Advanced password technique:
How to Build a (Nearly) Hack-Proof Password System with LastPass and a Thumb Drive
Regarding the security issue with carriers:
Here's How an Attacker Can Bypass Your Two-Factor Authentication
Recovery codes for authenticator:
What Happens If I Use Two-Factor Authentication and Lose My Phone?
More protection strategies:
This is how you can protect your cryptocurrencies from hackers
If any questions about security, please let me know and I’m happy to include more links in comments.
Avi Gilburt is a widely followed Elliott Wave technical analyst and author of ElliottWaveTrader.net (www.elliottwavetrader.net), a live Trading Room featuring his intraday market analysis (including Emini S&P 500, metals, oil, USD & VXX), interactive member-analyst forum, and detailed library of Elliott Wave education.
Ryan Wilday is an analyst at ElliottWaveTrader.net specializing in cryptocurrencies.
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