Cryptocurrency security: how to go crypto without getting caught out

Publicado em 5 de abril de 2022.

Tempo de leitura 11 minutos de leitura

Evolving from their somewhat obscure origins to become a target of investor interest and be seen as potentially the “money of the future,” cryptocurrencies are on the up-and-up, offering bright prospects for the banking and payments market. But as they attract new users, the security of cryptocurrencies has become a top priority.


Unfortunately, as with any other financial service, attempts at fraud tend stalk the footsteps of new solutions, particularly when their user and transaction volumes start to take off. This applies to instant payments, to contactless transactions, and also to digital currencies.

To give an idea, from October 2020 to March 2021, around 7000 people in the United States made complaints to the FTC about fraud and scams involving cryptocurrencies, summing USD 80 million in losses. An increase of 1000% vis-a-vis the same period one year earlier.


At this critical time, when we have a promising model for society but heightened risks for users and issuers, we invited Fabricio Ikeda, Head of Fraud Protection and Compliance for Global Partners & Alliances at FICO, to chat with us about cryptocurrency security. Read on to find out what he had to say.


What are the biggest threats related to cryptocurrencies and what security challenges do users face?

Stories about people who got rich in a matter of months from investing in bitcoin and other currencies are everywhere. It’s a phenomenon that really took off recently and has been attracting a lot of interest. But it’s also a context that attracts fraudsters, who are taking advantage of this wave of popularity to con people out of their money.

Some reports show that cryptocurrency scams have a lot to do with social engineering, which means they use tricks to deceive or confuse users. Because it’s such a new topic, shortage of information makes it easier to catch people out using methods ranging from simple phishing emails to more advanced fraud and organized crime.

For example, in November 2021 there was the curious case of a cryptocurrency called Squid Token, “inspired” by the Netflix show Squid Game.

It was all a big scam: they got away with an estimated three million dollars from thousands of people, who were taken in simply because they were ill-informed and didn’t try to find out what was behind the asset. If there was robust regulation, perhaps it would prevent thousands of people from losing money in hoax currencies like that. But unfortunately, regulation isn’t the only thing we need to solve the problem.

There are all sorts of variations on the basic scam. If you look on Google to find out how many cryptocurrencies exist, you’ll see there are hundreds. If you do the same search again tomorrow, there will be a few hundred more, because each one can do its own initial coin offering (ICO) and mint its own currency. It’s all happening without strong regulation and with no backing, so someone who doesn’t really understand what they’re investing in will not have a clear idea of the risks involved.

But that’s not to say that cryptocurrencies are not secure. In fact, when they’re used correctly, they offer more layers of protection than some forms of payment. For example, when we use a cryptocurrency (like bitcoin), all the transactions are tracked, which means that when they leave one account and enter another, this is recorded in a blockchain, which has precisely this purpose: to validate the transactions for all the parties involved, leaving indelible traces. And just as in some cases you may know the amount in a wallet without knowing who it belongs to, cryptocurrency also permits anonymity.


Do blockchains and anonymity make cryptocurrencies safer?

Yes and no. They make them more secure because they enable a degree of anonymity. Also, the fact that they record purchases/sales or transfers means these transactions can be tracked. With their traceability features and consensus mechanisms, blockchains are starting to be used by companies to manage contracts, for example.

When used correctly, these features make the transactions secure, but the advantage of anonymity can be exploited in unregulated contexts or for illicit purposes. For example, bitcoin is widely used in a given illicit market, where there are lots of ways to cover its tracks. One way of doing this is to make a transfer to x number of wallets multiple times: the money gets diluted as it is transferred from wallet to wallet, hidden in a complex network of transactions.


Does all the talk about making a quick buck whenever a cryptocurrency gains value also make people more vulnerable?

These days, we laugh to think of that classic Nigerian prince scam a few years back. But the only thing that’s changed is the target of the scam, which is now all about cryptocurrency, miracle cures, incredible promotions. The chance to make money fast has always sparked people’s interest, whoever they are.

And in the high-speed digital world we live in, this does make people more vulnerable. After all, the speed of the liquidity or monetization of these scams is almost instantaneous.

In Brazil, we’re already very used to fast transactions, like the central bank’s instant transfer and payment system, PIX. And the same applies to cryptocurrencies, whose transactions are settled in a matter of seconds or minutes and are irreversible. In other words, there’s now a high-speed ecosystem that facilitates scams and the kind of commotion that enable unscrupulous individuals to defraud others.

Scams are evolving all the time, whether they employ social engineering, commotion, or directed attacks, where the fraudsters identify their target and try to hack into their smartphone or computer to take control of it.


What can individuals who invest in cryptocurrencies do to stay safe?

As cryptocurrencies and blockchains become more widespread, people are getting more savvy. That’s already a big help. Find out background information on your broker and the markets where you’re doing transactions. If you search on Google, you’ll read about some recent cases where hackers invaded some markets and stole billions in cryptocurrencies.

So clearly it’s not just about knowing their reputation, but also finding out about the market and how it protects the capital invested. An analogy would be: if I have x dollars invested in a savings account at bank y, I’m investing it there because I know it will protect my money. It’s pretty much the same with cryptocurrencies: I’m investing in cryptocurrencies through a broker, which is why I must be able to trust that there will be the necessary levels of security.

So how can you do that?

Generally, you make this kind of investment on a laptop or an app, which is why you must protect these channels. You can’t go accessing an app or web page to make an investment from a public computer in a library. And by the same token, it’s also important to protect your device, and this rule applies to everything: don’t fall for phishing, don’t open attachments in emails from people you don’t know, don’t click on any link you get on WhatsApp. In other words, protect your access channels and safeguard your credentials.

There are also other more advanced ways of protecting your capital using hardware wallets or even paper wallets. But these don’t necessarily provide enhanced security unless they are used correctly. There is a lot of literature on this subject showing the pros and cons of using a broker, an exchange, a hardware wallet, etc.


You already mentioned the case of Squid Token. How can you tell a good cryptocurrency opportunity from a scam?

It’s hard to say. There have been cases of currencies that have come out of nowhere and seen threefold, tenfold, thousandfold appreciation.

Then there are scams like the ones I mentioned, like the Squid Game cryptocurrency, which ended up defrauding people of millions of dollars.

At the moment, as new currencies are popping up every day, it’s like any investment where the risks are high but the yields can also be very high. So the final decision is a matter of how much risk you’re willing to take.

If a person with high risk tolerance wants to invest, doesn’t need that money, and wants to make a bet, I think it’s a valid investment, just like any other high-risk investment.


What about cryptocurrencies for businesses: what precautions should they take?

Something FICO is looking at closely in crypto is money laundering and compliance. We’re focused on importing data or metadata, real transaction information – who it’s going to, where it’s going, and what its real purpose is – to prevent money laundering. In the case of decentralized finance, one major concern for the entities involved is knowing the participants and how reputable they are, and this involves processes such as KYC (know your customer) or KYBP (know your business partner).

Other issues that businesses should consider are acceptance, liquidity, backing, and regulations. In some countries, like the USA, where there is already some legislation in place, acceptance is beginning to grow, but there will always be the challenge of tracking the assets. For example, if a commercial establishment accepts bitcoin or any other cryptocurrency, the first question has to do with where the assets really come from. As for liquidity or volatility, the high fluctuations in the value of cryptocurrencies may spark bookkeeping concerns.

A few months back, Elon Musk announced that Tesla was going to accept bitcoin, setting off a ridiculous spike in the currency’s value. That demonstrates another concern companies have, which is volatility; which is why you don’t see public contracts worth millions in cryptocurrencies, because they’re so volatile. That’s one of the barriers preventing companies from adopting them as a means of payment for contracts without due legal protections. There are so many challenges.


How do you see the discussion about the security of cryptocurrencies developing in the future? Could their increased popularity make them more risky?

ikeda crypto

It depends on who you ask. I’m an optimist about this, but there are people who are totally pessimistic or more skeptical, who say that they don’t have a future, that they’ll die out because they aren’t regulated and no-one will want to invest in them… There are two sides to the coin.

As you asked me for my opinion, I’m going to give it. Yes, there’s lots to be gained from cryptocurrencies, so much so that we’re here talking about people wanting to find out more about them and use them either as an investment or in their everyday transactions. Now, there are already central bank digital currencies (CBDCs), which are central banks’ answer to digital currencies and blockchains. The future is going to be fascinating. And again: it’s not just investment, it’s also the technology of cryptocurrencies that’s behind this, and will enable a broad range of applications.

Whether it’s as a payment method, an investment, a digital currency, or even a way of validating a contract, there are lots of aspects still to be discussed. If we imagine a futuristic world, if all the transactions were monitored and tracked, there would be hardly any fraud or money laundering, because the origins of all the sums, who they came from, and where they’re going would be known.


Cryptocurrency security: if the future of cryptocurrencies is promising, we want to be part of it!

Here at Dock we’re keeping a close eye on the market and cryptoassets and putting together a team to take a deep dive into this virtual world! Just as we did before for other solutions, we want to decipher the cryptocurrency technology so that our clients can get the most out of the opportunities and grow their businesses.

We’ll be back with more soon!


Do you want to know how we are making the world of finance simpler and more accessible and frictionless? Read our manifesto:


To sum up: cryptocurrency security calls for the same caution we already apply to other high-risk investments

  • Most scams get users to hand over personal information or entice them to adopt insecure online behaviors, such as clicking on links from strangers.
  • As for vulnerability, cryptocurrency investments can be viewed like any other high-risk investment.
  • Blockchains record all cryptocurrency operations, but may facilitate anonymity, such as when the currency is transferred from wallet to wallet.
  • Companies that want to work with cryptocurrencies must pay particular attention to their money laundering and compliance policies.
  • The future of cryptocurrencies, and of cryptocurrency security, is promising, precisely because of their popularity, including initiatives like CBDCs – central bank digital currencies.

 Find out more about digital banks in these related articles:

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