How to Protect Your Crypto From Scams, Hacks

In 2023, it is estimated around $2 billion was lost by investors to scams, rug pulls and hacks. Although the technology is becoming more secure and stable and many users are more aware of the tricks used to steal assets, there are still ways for thieves to extract your crypto if you aren’t careful.  

Experts at Smart Betting Guide have provided a guide on the best ways to keep your crypto safe in 2024. 

1. Do not store your password and seed phrase on the Cloud  

For many people, the best and most convenient way to access crypto is through an exchange or a crypto wallet. Cryptocurrency wallets store users’ public and private keys while providing an easy-to-use interface to manage crypto balances. These exchanges require you to create an account with a password, and wallets give you extra security through the use of a seed phrase. Seed phrases are a sequence of random words that store the data required to access or recover cryptocurrency on blockchains or crypto wallets. Hackers will often attempt to steal these in order to gain access to your crypto and steal it. 

It is vital that these passwords and phrases are not stored in the cloud or on a device that could potentially be hacked. Instead, write these down, or get them engraved on a metal card (to protect against water damage or fire) and store them somewhere secure within your property. 

Finally, no crypto protocols or their customer support staff will ever ask for this information from you, so if someone asks for it they are trying to steal your crypto.  

If you want to ensure your crypto is completely protected, a hard wallet is the best choice. This is a device such as a USB thumb drive that securely guards a crypto user’s private cryptographic keys in offline or “cold” storage, ready to be used online to complete a crypto transaction whenever you are ready. These are much safer than keeping crypto on an exchange; like with the FTX collapse, users lost billions of dollars of crypto stored in their wallets. Hardware wallets ensure that your crypto is safe from hackers and exchange collapses alike.  

Pros: Cannot be accessed by anyone online and is completely secure from online attacks, also prevents loss of crypto from exchanges collapsing  

Cons: Could be lost or damaged physically, rendering the crypto useless (although some come with backup features now) 

A rug pull is a scam where a cryptocurrency or NFT developer hypes a project to attract investor money, only to suddenly shut down or disappear, taking investor assets with them. These scams can often be well disguised, which makes them very difficult to spot. Many may be advertised across social media and entice investors through the promise of making lots of money. This is why it’s important to do your research before investing your money in any cryptocurrency or NFT.  

Here are the things to look out for when thinking of investing in a new or unknown crypto: 

Investors should consider how credible the team behind the project are. Are they known in the crypto community, and do they have a good or bad track record? Be sure to check the legitimacy of social media accounts. Have they just been created, or is there a clear history that the person is who they say they are? Anonymous developers are a red flag, and any projects are approached with caution. Anonymous developers are a red flag and any projects are approached with caution. 

It is important to check the quality of the white paper, this is a document that explains the purpose of a project and how it works. For a cryptocurrency, the whitepaper is a guide to its technology, features, and goals. If the whitepaper seems vague or doesn’t offer a valued use case or tokenomics then it could be a potentially risky investment. 

One of the easiest ways to distinguish a scam coin from a legitimate cryptocurrency is to check if the currency is liquidity-locked. With no liquidity lock on the token supply in place, nothing stops the project creators from running off with the entirety of the liquidity. 

Investors should also check the percentage of the liquidity pool that has been locked. A lock is only helpful in proportion to the amount of the liquidity pool it secures. Known as total value locked (TVL), this figure should be between 80% and 100%. 

It is now standard practice for new cryptocurrencies to undergo a formal code audit process conducted by a reputable third party. One notorious example is Tether, a centralised stablecoin whose team had failed to disclose that it held non-fiat-backed assets. An audit is especially applicable for decentralised currencies, where default auditing for DeFi projects is a must. However, potential investors shouldn’t simply take a development team’s word that an audit has taken place. The audit should be verifiable by a third party and show that nothing malicious was found in the code.  

These are a very popular type of scam and target many investors, however, new investors are more likely to be impacted by these as they may be unsure of what to download. These fake apps can be used to steal money, cryptocurrencies or seed phrases and passwords. The best way to avoid these scams are: 

Finally, there are some basics that should be adhered to which can protect your day-to-day data and accounts as well as your crypto.  

A spokesperson from Smart Betting Guide commented: “Hacks, scams and rug pulls not only pose a threat to individual investors but cast a shadow on the broader narrative of cryptocurrency as a revolutionary force in finance. They erode trust, stifle innovation, and impede the progress towards a more inclusive and decentralized financial future. Therefore, the task at hand goes beyond personal security; it is a shared responsibility to fortify the foundations upon which the future of finance stands.”