The world of digital currencies has come a long way since the invention of Bitcoin. With hundreds of cryptocurrencies responsible for billions of dollars in market cap, it seems like these digital currencies are here to stay. Blockchain, the technology behind Bitcoin, is turning out to be even more impactful, with applications in a variety of domains, including supply chains, music and even gaming. However, there remains a cloud of uncertainty around Blockchain, largely because of the volatility surrounding cryptocurrencies. The good news is that a number of initiatives are emerging which are focused on creating new opportunities to help enthusiasts, businesses, speculators and curious people find their own way into trading on these digital currencies. In this blog post, we will look at 3 of the biggest risks of Blockchain and cryptocurrencies and discuss how the risks should be minimized.
Public and Private Key Security
You need both a public and private key to access Blockchain. Private keys are strings of characters that are practically impossible to guess even with advanced computing power. Hackers, unable to guess anyone’s keys, respond by shifting their attention and efforts to attempt to steal the keys. The most vulnerable points to steal the keys are actually a user’s mobile devices or personal computers, which are relatively easy to hack.
What should be done? You have the best chance of protecting yourself if you use reliable antivirus software for your computer and mobile devices, keep it updated, and ensure that it runs the anti-malware scans regularly. Do not store Blockchain keys in a Word Document or text (txt) file because these files are extremely easy for hackers to read; similarly, avoid emailing your private key to anyone else. If you need to store keys on your devices, you should use a reputable encryption application.
Risk for Vendors
For information stored in a distributed ledger (DLT) to be useful, there must be a way to move it in and out of the ledger. With the increased adoption of DLT, third-party solutions, such as Blockchain integration platforms, wallets, payment processors, fintech, smart contracts and Blockchain payment platforms, fill in this gap. However, third-party vendors create a potential risk. Organizations deploying 3rd party apps and platforms need to be aware that the security of their blockchains themselves can be unimpeachable, but nevertheless only as strong as the third-party services that surround the blockchain. This third-party ecosystem can be the weakest link.
What should be done? It is important for you to thoroughly vet each vendor contributing to your Blockchain ecosystem. Reputation and experience should be the key factors for you to distinguish those who will help build your business and those who might allow it to burn to the ground.
Weak Standards and Regulations
Regulation—or lack of it—as a major problem with cryptocurrency security is a central theme in the discussion of cryptocurrencies of late. In fact, cryptocurrency purists advocate that the platforms remain free from any regulations, as they feel that currency based on a decentralized blockchain is the antithesis of government compliance. Even though many government regulatory bodies around the world argue that cryptocurrencies must be regulated, there is great debate as to how and how much.
What should be done? Most of these issues around regulation and standardization may well diminish with evolution and maturity. Some combination of external regulation as well as self-imposed standardization seems to be the current direction.