Cryptocurrency Payments and Data Security – Challenges & Risks

With crypto trading gaining steady momentum in the last 3-5 years, the threats and challenges related to data security have also grown at an alarming rate. As all major cryptocurrency exchanges and platforms like Coinbase, Binance, Coincheck, Gemini, Kraken, KuCoin, etc. are adopting latest trading technology that minimizes the risk of fraudulent practices, thefts and data breach, still there are some cases related to payment/transaction security that pose a risk to traders and merchants. Let’s get into the crux of the matter, by understanding the nitty-gritties involved in it.

Exploring the Challenges in Data Security for Crypto Wallets

The challenges related to data security are many, provided you’ve taken adequate and credible measures in dealing with the risks associated with cryptocurrency transactions, or for that matter forex trading. Let’s understand the typical issues that are quite often encountered in cases related to crypto wallet security.

  • Password hacking or forgetting passwords can lead to total loss of funds.
  • In case of computer/laptop theft with wallet devices & software can lead to loss of money.
  • If someone breaks into your hardware crypto wallets, though quite tough, it can lead to fund loss.
  • Anonymity in payments, as all cryptocurrency payment/transactions occur on Blockchain technology.
  • Silent or covert phishing attacks trick traders and merchants into revealing their credentials on fake crypto exchanges, platforms and wallet sites. If someone plugs-in a hardware wallet, data security can be severely compromised, leading to theft of funds.
  • Similarly, a malware attack can easily get access to a saved cryptocurrency address on a personal computer/laptop, thereby replacing it with a fake wallet address belonging to the said attacker. This automatically leads to a diversion of funds from the trader’s wallet to the attacker’s wallet.
  • Then comes Seed Phrase Security which is a major issue among investors, as a theft of your seed phrase can fully wipe out all your funds in the wallet. A lot of cryptocurrency payment security experts always suggest storing and securing your seed phrase in encrypted files online or in Cloud based storage devices.

Challenges in Data Security for Crypto Exchanges or Processors

  • When the crypto exchange is severely infected with malware and virus, the hacker gets access to all the files and wallets on an exchange, thus severely compromising upon transaction safety quotient.
  • Almost all cryptocurrency exchanges trading in Bitcoin (BTC), Ethereum (ETC), Litecoin (LTC), Dogecoin (DOGE), Solana (SOL), Cardano (ADA), etc. are comparatively more vulnerable to malware attack, theft of funds, phishing attacks, and so on. It mainly happens when an employee gets access to credentials, thus exposing the crypto exchange in its entirety.
  • Thereafter, the role of fake customer service associates in luring targets into giving their wallet address can actually pose a serious threat to transaction security and safety.
  • The federal government can completely sanction or penalize the crypto exchange, if any link related to ransomware payments are proven.
  • Most importantly, a majority of cryptocurrency exchanges are vulnerable to software malfunction, especially predominant in the APIs and integrations.
  • What’s more, in some ‘legitimate looking’ Apps, the embedded Crypto Trojan helps attackers steal sensitive data, information, user credentials & funds, within minutes. This is quite a serious issue.

How to Ensure Foolproof & Secure Crypto Transactions?

As all cryptocurrency payments are done through crypto payment cards, steps must be taken to ensure strong passwords, apart from bolstering the technology related to tokenization, digital ID, Biometrics and customer authentication. This can significantly reduce the risk of data being stolen, diverted, compromised upon, duplicated or faked, mostly by online hackers and phishing agents. It must be noted that tokenization helps in securing user data, thus serving as a cornerstone in crypto payment security and crypto transactions. Let’s understand the core technologies in data payment security and cryptocurrency transactions.

  • Converged HSM
  • Tamper-Proof Hardware Modules for Payment
  • Securing Blockchain Assets through Private Keys
  • Tokenization

Ensuring Safety of Cryptocurrency Transactions & Blockchain Payments

Well, taking into consideration all the risks involved in digital currency trading, an investor is quite apprehensive and skeptical, while accepting or making crypto payments. In fact, the conventional banking system is also not immune to risks. FYI, the crypto Trojans mentioned earlier have penetrated and infected banking transactions, as well. Moreover, the risks of phishing attacks are always prevalent. Therefore, a strong digital security apparatus must be in place, in the form of data encryption, codes, tokenization, user-authentication, etc. that should serve as a security standard across all major crypto exchanges, wallets and digital currency trading platforms.

The best way to achieve the highest levels of data protection and fund security is by possessing a physical wallet, instead of a digital/online one. In fact, an investor or trader can also use a cryptocurrency exchange to store daily transactions on a ‘burner wallet’, and then transfer all the amount into a cold wallet, at the end of the business hour. It is to be known that crypto burner wallets are used for individual groups of transactions. Meanwhile, ongoing changes and amendments in federal regulations are working in its own way to reduce the threat of cyber-attacks on digital assets and cryptocurrencies.

An additional layer of protection from phishing attacks and malware is ensured with the use of Blockchain technology, as the coin network is ‘near impossible’ to hack or alter. Moreover, replacing sensitive data with ‘not so’ sensitive tokens enables secure crypto payments, without sharing sensitive data or user-credentials.

Role of Crypto Payment Processors

In fact, these processors carry out multiple credibility checks that help identify malicious and suspicious crypto transactions. It includes processes like

  • Know your Customer (KYC) – It enables in performing cross-validation checks, which include running user credentials scrutiny and verification, thus providing safety against money laundering, fund theft, funds embezzlement and ensure foolproof anti-terror mechanism.
  • Know your Business (KYB) – It ensures cross-checking the merchant or trader, before processing the said crypto payments in the form of Bitcoin, USDT Stablecoin, Ethereum or Litecoin, which can further be converted into fiat currencies, vis-a-vis the corresponding value.
  • Know your Transaction (KYT) – This process or mechanism helps in running ‘wallet credentials’ checks against some sanctioned list of transactions.

Final Note

As a user, merchant and investor, you must be aware of the common security challenges and risk-minimization technologies involved in crypto trading, and how to best utilize them in your favor. As the cryptocurrency market is prone to data breach and security risks, some proven industry-specific concepts can help fully secure your digital transactions on Blockchain payment gateways.

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