Is cryptocurrency secure?

Cryptocurrency is decentralised, meaning that transactions operate outside the control of governments and central authorities. For this reason, many people believe there’s a risk of fraudulent activity. On the one hand, this can be true – more on this later. On the other hand, the technology that cryptocurrencies use is secure enough to protect your investments. Rob Armstrong (managing director, restructuring advisory) and Jen Harrison (senior manager) at Kroll shed some light on Cryptocurrency security and how it should be dealt with in an insolvent estate.

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Before we continue, note that investing in cryptocurrency is extremely high risk and complex. The Motley Fool has provided this article for the sole purpose of education and not to help you decide whether or not to invest in cryptocurrency. Should you decide to invest in cryptocurrency or in any other investment, you should always obtain appropriate financial advice and only invest what you can afford to lose.

How safe is cryptocurrency?

When cryptocurrency safety is in question, hackers are often the first thing that comes to mind. This is probably because of news about hacks in the crypto market, especially cryptocurrency exchanges.

Cryptocurrencies use blockchain technology to record and time-stamp transactions. It’s a lengthy and complex process that ensures secure and safe transactions that hackers can’t influence. So how are cryptocurrency investors hacked?

Hackers don’t directly target investors’ cryptocurrency. They try to access investors’ personal information through smart attack techniques like phishing and SIM-swap assaults. They then use the information to access investors’ cryptocurrency wallets.

For this reason, it’s always best to stay up to date with the latest crypto wallet security measures. For example, don’t store your seed phrase online and use two-factor authentication (2FA).

Additionally, cryptocurrency exchange hacking isn’t confined to third parties. Employees and even exchange founders may commit fraud. It’s therefore essential to research and register with the most secure and trusted exchanges.

It might also be important to note that hacking is not the only way to lose your cryptocurrency investment. Something as simple as making a mistake and inserting the wrong address can result in the loss of your funds. Funds sent to the wrong addresses cannot be recovered. Copy and paste the address and double or triple check it before confirming.

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How should cryptocurrency be dealt with in an insolvent estate?

Rob and Jen highlight that given the increase in use and popularity of cryptocurrency, we will likely continue to see a considerable investment shift towards it, particularly now with the backing of so many blue-chip companies.

Insolvency practitioners (IPs) need to embrace the move toward cryptocurrency as a more prevalent asset class. They should look to expand their training and understanding of the toolkits available to them.

The first step is to identify whether the company of concern has cryptocurrency. This is achievable by:

Looking for transfers to exchanges as indicated in the company bank statements
Finding a USB key within the books and records of the company
Running everyday keyword searches, such as ‘crypto’ or ‘bitcoin’ against the electronic records
Identifying seed phrases written down within the company records
Asking the directors

If the company does hold cryptocurrency, then the IP should act swiftly to transfer the asset to a secure wallet of its own or an approved agent, as per the new FCA legislation. The IP should also obtain the appropriate insurance.

The post Is cryptocurrency secure? appeared first on The Motley Fool UK.

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