Crypto Security: Protect Your Coins and NFTs From Being Stolen

Crypto Security: Protect Your Coins and NFTs From Being Stolen

With crypto prices in free fall, crypto firms laying off thousands of workers and coins that are considered "stable" losing all their value, it's more important than ever to secure your remaining portfolio. 

The current crypto crash isn't the only way people are losing their money. There have been an increasing number of scams that give thieves access to your accounts and crypto assets. Just recently in May, Seth Green had several NFTs worth over $300,000 stolen, after the actor connected his crypto wallet to a scam website pretending to be a credible NFT project.

Protecting your crypto means taking some of the same steps you'd use to safeguard your other digital accounts, such as creating and using strong passwords. However, crypto accounts have unique characteristics like seed phrases that require additional security. Also, the crypto industry still lacks the regulatory framework necessary for the retrieval of your crypto assets if they're stolen.

In this story, we'll cover several ways you can protect your cryptocurrency and NFTs from being purloined and explain why it's worth taking the time to properly secure your digital assets from being stolen. For more on crypto, learn five questions every investor should ask about cryptocurrency and the latest details on bitcoin's wild price swings.

Always follow these two basic password security rules

One of the easiest ways to protect your digital assets is with strong passwords. Ideally, you want your passwords to be at least eight characters long and include random capital letters, numbers and other special characters. If you can make your password longer, however, you should, because the longer the password, the harder it is to crack, in theory.

If you're worried about remembering all of your long, complicated and unique passwords, consider using a password manager, which makes it simple and secure to store and use your passwords from one place. We recommended choosing a password manager with encrypted storage and two-factor authentication for extra security.

Also, when creating an account, never repeat your passwords. If one of your accounts is compromised, your others will also be at risk.

A strong password is vital to keeping your digital assets secure.

James Martin/CNET

Use a hardware crypto wallet for your most treasured assets

Your crypto wallet serves as the gateway to your crypto assets. "Hot" wallets such as software or mobile apps operate online, while "cold" wallets are hardware devices that work offline. Crypto wallets don't hold the actual coins or tokens -- they store the private keys that prove you own your crypto assets and let you buy, sell or trade on blockchains.

Anytime you purchase cryptocurrency or NFTs, they must be stored somewhere. Most people keep their assets in a digital wallet or marketplace, such as Coinbase or MetaMask, because they're free and easy to use, but for your most valuable holdings, you may want to consider a physical wallet.

A hardware, or cold, wallet allows you to store cryptocurrency and NFTs on a physical drive, which you can connect to a computer to access. Hardware wallets are generally more difficult to hack into, so they're a preferred option when storing digital assets that are especially high in value.

The Trezor One hardware wallet ($48.49) works with bitcoin, ethereum, litecoin and a variety of other cryptocurrencies.

Trezor

Here's more on the different types of crypto wallets.

Keep the seed phrase for your crypto wallet secure and offline

In addition to a password, most crypto wallets use a seed phrase for additional security. This seed phrase acts like a master password and is created whenever you set up a new wallet. A seed phrase is made up of 12 or 24 words that you can use to sign in to your account on other devices, or recover your account if you forget your password.

While this seed phrase provides additional security, it also comes with risk -- anyone who learns your seed phrase could potentially steal all the crypto assets recorded in your wallet. While you might be tempted to store your seed phrase somewhere online, it's crucial to write it down -- offline -- to prevent anyone from accessing it. 

Once you write down your seed phrase, store it in a safe or lockbox, so that it's not easy for anyone else to access. Specialized seed phrase hardware tools, like Cryptosteel and Crypt Keeper, can securely store your 12 or 24 words in a portable system that's protected from fire and flooding.

If your seed phrase is either lost or stolen, but you still know your password, immediately log in to your wallet and generate a brand new seed phrase.

This is an example of a randomly created 24-word seed phrase.

Nelson Aguilar/CNET

Be wary of frauds in direct messages on Discord

Discord is one of the unofficial homes of crypto and NFT communities. It's where many crypto enthusiasts go to discuss upcoming NFT projects, cryptocurrency prices, real-life events and even personal lives. Fans of NFT projects use Discord to form communities -- but it's also where hackers and thieves go to compromise accounts.

Here's how it works: A hacker may directly message you, pretending to be part of a project that you're following and interested in. The DM looks official and usually claims that you can mint an NFT that's difficult to get, at a relatively cheap price, and includes a link to follow. But when you click the link, connect your wallet and attempt to purchase the NFT, your wallet is drained of all your NFTs and crypto. And there's really no way to get it all back.

The most important research you can do to avoid falling for a fake NFT website is to use verified channels to find the correct website when attempting to mint or purchase a newly created NFT. Even if you receive a link from what seems like a credible source, use multiple online sources like Google, Twitter and Opensea to verify that you have the correct URL for the project.

An even simpler method to avoid falling into a scam is to disable DMs on Discord. On your mobile device, launch the Discord app, tap your profile picture on the bottom right, go into Privacy & Safety, and toggle off Allow Direct Messages From Server Members. You'll no longer receive direct messages on Discord.

Discord is where people go to discuss cryptocurrency and NFTs, as well as prey on potential victims.

Discord

Don't fall for support scams on Twitter

Like Discord, Twitter is a hunting ground for hackers looking to swindle unsuspecting victims into giving away their assets.

On Twitter, anytime someone mentions "stolen account," "lost password" or even "MetaMask," an army of hackers may respond, offering to help recover stolen assets or restore access into accounts. Hackers may then ask for your seed phrase via DM and use it to steal your crypto or NFTs. 

If you need support, go straight to the official customer service site on Twitter. Never give anyone your seed phrase, ever, even if an account is verified -- sometimes hackers have access to verified accounts. And never share your screen.

Not even Elon Musk can stop these Twitter scammers.

James Martin/CNET

For more about cryptocurrency security, learn whether it's possible to insure bitcoin and how the Securities and Exchange Commission is taking on crypto fraud.

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Crypto Crash Rattles Cybercriminals, Pushing Them Beyond Ransomware

Crypto Crash Rattles Cybercriminals, Pushing Them Beyond Ransomware

What's happening

Crypto prices continue to plunge, but cybercriminals still need the currencies for ransomware attacks.

Why it matters

Some experts say the price drops might be pushing cybercriminals away from ransomware and toward other kinds of cybercrime that involve stealing traditional money.

The collapse of cryptocurrencies is rippling through the world of ransomware, security researchers say, even though bitcoin, ether and other digital tokens remain the payment of choice for cybercriminals locking up corporate computer systems.

Over the past few months, the value of cryptocurrencies has plummeted amid rising inflation, economic shocks caused by the war in Ukraine and falling global stock markets. Hundreds of billions of dollars in value has been wiped out over that period, which is starting to be known as crypto winter. On one day alone, more than $200 billion in value was wiped from the broad crypto market.

The widespread fall has forced cybercriminals to recalculate their ransoms, security professionals say, and has pushed out of business some of the services that handle their ill-gotten gains, such as dark web crypto-swapping marketplaces. It's also accelerating a preexisting shift toward crimes such as malware attacks and corporate phishing scams that target actual dollars, rather than crypto.

 Mark Lance, vice president of cyberdefense and a ransomware negotiator at GuidePoint Security, notes that ransomware demands are generally based on US dollar amounts, so cybercriminals are simply doing the math and asking for greater amounts of crypto. That makes the bitcoin demand look larger, even though ransoms haven't changed much in dollar terms. 

Lance says many ransomware attacks fly under the radar these days because the attacks aren't as novel as they once were. Many ransoms get little attention unless they have the type of consumer fallout that last year's headline-grabbing attack on Colonial Pipeline did.

"Ransomware is still as prevalent as it ever was," Lance said, "and still making a ton of money." 

Business isn't as good at the largely shady crypto exchanges that cater to small-time cybercriminals. Many of those organizations are feeling the chill of crypto winter.

Last year, a team of researchers at Cybersixgill, an Israel-based threat intelligence firm, watched the activities of roughly 30 small dark web exchanges for several months. The exchanges, which the company didn't specifically name, have all been shut down since April.

The reason: Cybercriminals act a lot like many investors. When the values of assets start to tumble, they panic and cash out as fast as possible in hopes of cutting their losses. 

"It's just like what we see when there are bank runs," said Dov Lerner, who runs Cybersixgill's security research. He says the people behind the exchanges are still active in cybercrime even though the exchanges have "just vanished."

Some observers say crypto winter has put a permanent chill on ransomware attacks. 

Not that long ago, cybercriminals could demand $1 million to $3 million in payment after locking up a corporate computer system, notes Sherrod DeGrippo, vice president of threat research at Proofpoint, an email security company.

"But I think those heydays might be over," she said, noting that criminals aren't seeing the same success they once did. She notes that many organizations, along with the US government, have stepped up their ransomware defenses recently, pushing cybercriminals toward other activities.

Her company has seen upticks in attacks involving remote-banking trojans, malware designed to steal credentials or access to financial accounts, along with phishing attacks that scam company officials into paying fake invoices or otherwise send criminals real money. There's even been an uptick in the harvesting of credit card numbers. 

With any of those crimes, the criminals make off with conventional currency, rather than crypto. 

Criminals also like trojans because the malware can sit on systems quietly siphoning money overtime. For example, an attacker might be able to scam a company into paying a fake invoice month after month, or a banking trojan could continue to harvest access to financial accounts over time without the company knowing.

"Getting an organization's payroll, pensions and retirement makes for a massive payday," DeGrippo said. "It's a lot bigger, quieter and easier than ransomware."

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5 predictions for bitcoin, NFTs and the future of money

5 predictions for bitcoin, NFTs and the future of money

This story is part of The Year Ahead, CNET's look at how the world will continue to evolve starting in 2022 and beyond.

Cryptocurrency made many of the strangest headlines of 2021. Boosters touted digital currencies as a world-changing technology with the potential to create new economies and empower people who don't have access to bank accounts. Critics pointed to crypto's massive environmental footprint, as well as its popularity in online crime. The chasm between these views will be hard to bridge.

Much of the cryptocurrency industry functions as a hype-monster, powered by oddball memes of cute dogs and outer-space emoji. The same industry boasts a staggering amount of funding from venture capitalists and private enthusiasts, along with real technical innovations that could radically alter the way we interact with money. And, as it often goes with innovation, what we get may not be what we expect. CNET asked experts to help us navigate crypto's journey to new lands in 2022. Here's what they told us.

1. Crypto moves further into the mainstream

Big companies are trying to figure out how cryptocurrency fits into their business. Everyone from hedge fund managers to Starbucks executives are making moves that could impact how we use digital money this year. 

When we hear about cryptocurrency in the headlines, it's often about Tesla CEO Elon Musk's tweets, overnight millionaires, expensive digital art and hacks. Yet the larger, fundamental changes are often less flashy and attention-grabbing than whatever crypto-hype machine dominates Twitter at any given moment. 

"I hope we're going to see a lot more focus on utility," said Denelle Dixon, CEO of Stellar Development Foundation. "Instead of focusing just on a few use cases that create a lot of hype, we'll see more focus on the use cases that drive real value. And more discussion around financial inclusion."

2. NFTs create new ownership opportunities, and remix old ones

NFT, or nonfungible token, is a buzzy term that many of us heard for the first time in 2021. A new way to determine ownership of digital property using a blockchain ledger, NFTs are increasingly popular in the art and collectibles scenes. One of the most notable NFT collections of 2021 was called the Bored Ape Yacht Club. Go figure.

But the potential of NFTs goes far beyond eccentric digital artworks. NFTs are also used for digital land purchases in virtual worlds and for next-generation music ownership, licensing and publishing. Some observers see a future in which NFTs offer access to special sales or limited-edition products. How about using a NFT as a concert ticket? Or when you log into your favorite video game online? Expect to see all of that in 2022. 

"The possibilities of NFTs are endless, since they can be used to log ownership of any unique asset," Alex Atallah, co-founder of OpenSea, said in an email. "We're already seeing early use-cases of NFTs being used as event tickets, software licenses, fan club memberships, or otherwise tied to interactive experiences."

Some of America's biggest brands, including Nike, are already working on expanding the application of NFTs. But NFTs used in consumer products may only be the tip of the iceberg. How about using an NFT to prove you are you? 

"We've seen some movement from the artist-driven NFTs to NFTs that are focused on access or authorization," said Stellar's Dixon. "There was a party in New York recently where folks got access to the party by purchasing an NFT. So I wonder if we'll see some focus on leveraging NFTs for digital identity."

The $85 billion video game industry may be one of the most fertile areas of potential for NFTs. Some of the larger studios are already experimenting with them. And with all the talk surrounding the metaverse, an immersive 3D digital environment that's been proposed by Meta (formerly Facebook) CEO Mark Zuckerberg and other movers and shakers in the tech industry, NFTs could serve as building blocks for a next-generation digital world. 

"Gamers are already accustomed to caring about digital goods, so the potential for NFTs is enormous: a few million NFT users compared to almost 3 billion gamers," said Atallah. "We're seeing some exciting developments when it comes to the intersection of NFTs, gaming and the metaverse."

3. Bigger hacks and bigger ransoms

Cryptocurrencies were used to facilitate millions of dollars of ransomware payments in 2021. That's because digital currencies include features that make them attractive to criminals. They're difficult to track, they're borderless, and once the payment goes through, it's nearly impossible to unwind. 

"We should expect to see more criminals turning to cryptocurrency and services that promise to obfuscate illicit funds due to the misconception of total anonymity," Gurvais Grigg, a senior tech officer at Chainalysis, said in an email. "Bitcoin is appealing to criminals for the same reasons it appeals to those using them for legitimate purposes: It's cross-border, instantaneous and liquid."

Grigg and others expect decentralized finance, a nascent but blossoming industry on the cryptocurrency frontier, to be a popular target for cybercriminals in 2022. Decentralized finance, or DeFi, involves finance that works independently of a central authority or institution. Instead of relying on a bank or credit card network, people can connect directly with DeFi products on a distributed network. 

Though the industry is still in its early days, DeFi is a fast-evolving, highly technical space with tremendous potential. As such, it's attracted a great deal of attention and investment, making it ripe for criminal activity.

"Criminals are likely to explore DeFi as both a target for hacking and as a means to attempt laundering funds through," said Grigg. "Because of how new DeFi is, and the explosion in adoption in developed markets, these platforms are easy targets for experienced criminals who have conducted similar hacks before."

4. You'll hear more about stablecoins

Bitcoin and other cryptocurrencies have grabbed headlines because of their volatility. You can become a millionaire or lose it all at the hyper speed of the internet. But try buying a latte with bitcoin, and that volatility can make things confusing fast. 

Enter stablecoins. This subcategory of cryptocurrency, which is tied to an underlying asset, mitigates much of that volatility. Stablecoins could play a vital role in turning cryptocurrency into something we can easily use to conduct the ordinary transactions of everyday life. 

"People should start paying attention to trends in stablecoins both as a medium of payments and as a dollar digital currency. The use cases for cross-border payments, aid relief, instant settlement payments are starting to flourish in 2021 and we will see more of that in 2022," Rachel Mayer, a vice president of product at fintech firm Circle, said in an email.

Transferring assets more efficiently is one of the central values of a stablecoin. This value is powerful for companies that need to move digital assets and cash quickly and efficiently. 

"On the payments side, more industries will start adopting stablecoins as a more efficient way to make payments," Omid Malekan, author of The Story of the Blockchain and a professor at Columbia Business School, said in an email. "Stablecoin volumes will continue to grow, but the share of that volume that is only involved in crypto trading will go down."

5. New crypto rules appear on the horizon

Washington lawmakers sense that cryptocurrency is a big and important thing. But they are struggling, perceptibly, to understand it. It may only be a matter of time before crypto gets its "series of tubes" moment from a hapless representative out of their element.  

In December, executives from six cryptocurrency companies were called to testify before the House Financial Services Committee, where they discussed potential paths for future legislation. Lawmakers in the US have expressed interest in a range of topics -- whether stablecoin issuers should be considered banks, when to tax cryptocurrency and how to craft functional rules in a highly technical and complex industry. This is tricky stuff. Creating the right standards will take time. 

"I think there's going to be a lot more conversations around crypto and blockchain," said Dixon, one of the executives who testified before the House committee. Dixon previously testified on the issue of net neutrality before a House committee during her tenure at Mozilla in 2019 and harbors no illusions when it comes to regulating new technology. Some discourse will be positive and some will be negative, "but I just think that [by] having these conversations, we're going to see policymakers and regulators be more focused, and hopefully, more traditional businesses will be more focused on that." 

There could be more milestones to reach before Americans see a comprehensive framework for crypto-focused legislation. But if industry leaders and elected officials can work together, regular cryptocurrency users and investors may benefit while environmental and security concerns are addressed. 

"It's important to understand that the cryptocurrency industry wants to be regulated, but wants to ensure that proposed regulatory frameworks are feasible," said Grigg. "Governments globally are working with industry players to create legislation that protects consumers and fosters innovation."

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Cryptocurrency faces a quantum computing problem

Cryptocurrency faces a quantum computing problem

Cryptocurrencies hold the potential to change finance, eliminating middlemen and bringing accounts to millions of unbanked people around the world. Quantum computers could upend the way pharmaceuticals and materials are designed by bringing their extraordinary power to the process.

Here's the problem: The blockchain accounting technology that powers cryptocurrencies could be vulnerable to sophisticated attacks and forged transactions if quantum computing matures faster than efforts to future-proof digital money.

Cryptocurrencies are secured by a technology called public key cryptography. The system is ubiquitous, protecting your online purchases and scrambling your communications for anyone other than the intended recipient. The technology works by combining a public key, one that anyone can see, with a private key that's for your eyes only. 

If current progress continues, quantum computers will be able to crack public key cryptography, potentially creating a serious threat to the crypto world, where some currencies are valued at hundreds of billions of dollars. If encryption is broken, attackers can impersonate the legitimate owners of cryptocurrency, NFTs or other such digital assets.

"Once quantum computing becomes powerful enough, then essentially all the security guarantees will go out of the window," Dawn Song, a computer security entrepreneur and professor at the University of California, Berkeley, told the Collective[i] Forecast forum in October. "When public key cryptography is broken, users could be losing their funds and the whole system will break."

Quantum computers get their power by manipulating data stored on qubits, elements like charged atoms that are subject to the peculiar physics governing the ultrasmall. To crack encryption, quantum computers will need to harness thousands of qubits, vastly more than the dozens corralled by today's machines. The machines will also need persistent qubits that can perform calculations much longer than the fleeting moments possible right now.

But makers of quantum computers are working hard to address those shortcomings. They're stuffing ever more qubits into machines and working on quantum error correction methods to help qubits perform more-sophisticated and longer calculations.

"We expect that within a few years, sufficiently powerful computers will be available" for cracking blockchains open, said Nir Minerbi, CEO of quantum software maker Classiq Technologies.

Fixing cryptocurrencies' quantum computing problem

The good news for cryptocurrency fans is the quantum computing problem can be fixed by adopting the same post-quantum cryptography technology that the computing industry already has begun developing. The US government's National Institute of Standards and Technology (NIST), trying to get ahead of the problem, is several years into a careful process to find quantum-proof cryptography algorithms with involvement from researchers around the globe.

Indeed, several cryptocurrency and blockchain efforts are actively working on quantum resistant software:

• The Ethereum project, which created the biggest cryptocurrency after Bitcoin in terms of total value, has begun charting a post-quantum course. Justin Drake, a researcher at the Ethereum Foundation, detailed quantum resistance ideas in Ethereum 3.0 at the StarkWare conference in 2019. That's likely a long ways off, though: Ethereum's current transition to Ethereum 2.0 is taking years.
• Some people are building new cryptocurrency and blockchain technology designed for the quantum computing era. That includes Quantum Resistant Ledger and Bitcoin Post Quantum, which despite the name is unrelated to the original Bitcoin cryptocurrency. These efforts employ post-quantum algorithms to protect against future quantum cracking.
• Cambridge Quantum Computing, a startup merging with quantum computer maker Honeywell, is working on quantum security technology that "can be applied to any blockchain network." It aims to secure both the communications among computers storing blockchain data and the signatures used to encrypt and sign blockchain data. 
• The Hyperledger Foundation, an open-source software project geared for business uses of blockchain, has begun working on post-quantum cryptography through its Ursa effort, says Daniela Barbosa, Hyperledger's executive director. Ursa is a library of cryptography software Hyperledger projects can use.

A problem with the post-quantum cryptography algorithms under consideration so far, though, is that they generally need longer numeric encryption keys and longer processing times, says Peter Chapman, CEO of quantum computer maker IonQ. That could substantially increase the amount of computing horsepower needed to house blockchains.

The problem with decentralized governance

Many cryptocurrencies, like Bitcoin, are decentralized by design, overseen in effect by anyone who participates in each cryptocurrency network. To update a cryptocurrency's inner workings, people trying to upgrade a cryptocurrency must convince more than half of participants to "fork" the cryptocurrency into a new version.

The real quantum test for cryptocurrencies will be governance structures, not technologies, says Hunter Jensen, chief technology officer of Permission.io, a company using cryptocurrency for a targeted advertising system.

Such governance could reward cryptocurrencies that have stronger central powers, such as Dash with its masternodes or even "govcoins" issued by central banks, that can in principle move more swiftly to adopt post-quantum protection. But it presents a conundrum in the crypto community, which often rejects the idea of authority.

"It will be the truly decentralized currencies which will get hit if their communities are too slow and disorganized to act," said Andersen Cheng, chief executive at Post Quantum, a London based company that sells post-quantum encryption technology.

Other quantum problems with cryptocurrencies

Another risk is that blockchains rely on a digital fingerprinting technology called hashing that quantum computers could disrupt. That's likely to be fixable with more-modest technology updates, though.

The cryptocurrency wallets people use to keep track of their digital assets could also be vulnerable to quantum computing. These wallets store private keys people need to access their assets recorded on the blockchain. A successful attack could empty a wallet.

"How do you force users to upgrade keys? That answer is not so straightforward and likely the most dangerous part," said Joe Genereux, senior cryptography and security engineer at browser maker Brave, which uses its own Basic Attention Token (BAT) cryptocurrency for an ad system that pays users. "I think cryptocurrencies that have better governance or post-quantum designs baked in early can get around this issue better."

Ultimately, though, cryptocurrency's organic, self-directed development suggests people will update the digital asset technology to surmount quantum computing's challenges, says David Sacco, who teaches at the University of New Haven.

"The beauty of the ecosystem," he said, "is that anyone can do it if they understand the technology."

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