- Some of the biggest challenges facing crypto today include hacks and rug pulls, very high volatility, scammers and the use of crypto in illicit activity.
- Regulations have also become a big challenge, with some being too restrictive and other jurisdictions lacking regulations altogether which keeps institutional investors away.
The crypto market has continued to grow, be it in the number of wallets, mainstream reach, media coverage, trading volume, related financial products and market capitalization. However, even with all this growth, the industry is still relatively nascent. With this, the market still faces plenty of challenges, some of which still hold it back and keep it from soaring to the heights that it should.
Some of the biggest challenges that crypto faces today include:
Scams, hacks and rug pulls
As with any relatively young and majorly unregulated industry, crypto has become riddled with scammers and cybercriminals.
For starters, there are outright scammers. These rely on various measures including fake giveaways and phishing scams to defraud users. YouTube, Twitter and Facebook are full of these scammers who target those who are new to crypto. Some ask the victims to send them the funds while others ask for the private keys (never give your private keys to anyone!!!) and end up draining the wallets.
Then there are those that rely on rug pulls. These tend to be developers and project founders who have no intention of working for their money. They market a project as the next Bitcoin or Ethereum and claim to be working on cutting-edge features. Some even come out and say that they will pump the project and you’ll make massive amounts of money if you invest in their tokens.
However, once the investors put their money into the project, the developers shut it down or abandon it, drain the funds from the wallets and take off. Remember Squid Game Token (which CNF called out even before it sank into oblivion)?
Lastly, there are the hackers. These are outright criminals who infiltrate wallets and exchanges and take off with the funds. Interestingly, most hackers don’t conduct brute-force attacks since most wallets are built with sufficient security measures in mind. Rather, they rely on social engineering tactics to get users to share their details – be they private keys or 2FA passcodes. Some also exploit vulnerabilities left by protocol developers, which has become worryingly common with DeFi platforms.
Read more: Hackers are using one-time password bots to steal millions in crypto – here’s how
The way forward: Security starts with personal responsibility. As a crypto holder, ensure that you use a strong password, preferably one that you haven’t used elsewhere. Two-factor authentication can also ensure that your stash is protected.
Kevin Dunne, the president of the tech firm Greenlight, advises, “Limit your exposure by having a unique, strong password for each, with two-factor authentication and password rotation enabled where possible. Using a trusted password manager can help to automate this process and take the guesswork away.”
Using a hardware wallet also keeps your crypto stash more secure. These wallets have become much cheaper in recent years, with a Ledger Nano S going for as low as $100. When using such a wallet, Terence Jackson advises storing it in a secure place such as a safe deposit box.
Jackson, who is the chief information security officer at Washington-based tech firm Thycotic, added, “I would also suggest separating the private and public keys. Both should be secured with strong passwords and multifactor authentication when possible. ”
Illicit activity
Another ill that has plagued the crypto industry is the presence of illicit activities facilitated by cryptocurrencies. However, this is one aspect of crypto which has been misrepresented widely.
There definitely exists crime in crypto. Bitcoin has long been the choice currency for the dark web, with marketplaces like Silk Road bringing this to the fore. Ransomware operators have also raked in billions in the past decade through Bitcoin as well as private coins like Monero and Dash.
But even with these aspects of crime, there has been a lot of misrepresentation by those outside the crypto community. Regulators globally have painted the industry as a criminals’ haven. One European regulator once described Bitcoin as “a very dangerous animal that’s only used by criminals.”
Crime only makes up a very small percentage of crypto transactions. According to Chainalysis, in 2021, illicit transactions only accounted for 0.15 percent of all transactions. This was the lowest proportion ever, down by 75 percent from 2020 when it stood at 0.62 percent. It’s also a massive drop from 2019 when it was its highest ever at 3.37 percent.
The way forward: One of the biggest tools against crime in crypto is the use of blockchain analytics tools. Companies like Chainalysis and Elliptic are leading this charge, with their tools being used by authorities to crack down on hundreds of criminal enterprises. Chainalysis was a key player in the U.S Department of Justice’s recovery of ransom paid by Colonial Pipeline.
Another important deterrent to crime is regulations, and one of the critical sectors that regulators need to crack on is BTC mixers. As CNF reported recently, Tornado Cash has become one of the biggest components of the crypto money laundering chain. In 2021, Tornado Cash mixed $10 billion in crypto, an astonishing sum that has regulators concerned.
Read More: Are Bitcoin mixers illegal? A storm is brewing over Tornado Cash and co. as billions are laundered
Watch out for Part 2…
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