Over the past several years, crypto has become incredibly popular. Banks, social media giants, universities, and even governments are now using cryptocurrencies. This is due to the host of benefits that crypto offers over fiat currencies as well as other payment methods.
However, the real value of cryptocurrencies depends not only on their advantages but also on their security. While it’s clear that there are no payment methods that are 100% safe, crypto transactions carry certain risks that are inherent to this particular form of payment.
With that said, let's start with why crypto payments are so popular.
Benefits of crypto payments
Here are the four main reasons why cryptocurrencies are skyrocketing as a form of payment in 2021 and beyond.
- Speed: a huge advantage of using crypto is the speed of transactions. Crypto transactions take place almost immediately – and they cost little to nothing. This is why numerous companies are abandoning traditional payment methods for crypto-based solutions.
- Transparency: another notable feature of crypto payments is their transparency. Anyone can verify any crypto transaction using any online device. All crypto transactions are public.
- Anonymity: although crypto transactions are transparent, the individuals or businesses behind these transactions can remain fully anonymous (if they’re smart about it). Governments may not like it but many open-source fans greatly appreciate the privacy afforded by crypto anonymity.
- Ease of transactions: in a crypto transaction, the sender or the receiver doesn’t need to go to a vendor, provide identification details, or even have a bank account. You just create an online wallet and start sending or receiving crypto payments across the globe.
The sheer ease of crypto payments makes it the preferred method for most new start-ups for keeping the costs low and the process seamless.
How do crypto payments work?
Typically, you simply register at an online crypto exchange. After registration, you’re provided with a digital wallet in which you can store and receive crypto coins. Alternatively, you can also use a device-based wallet (“cold wallet”) that lets you hold your coins offline.
A crypto wallet comes with a public key and a private key. The private key allows you to access the wallet, kind of like your password or login security. The public key lets others send you coins (it changes with each transaction).
When you want someone to send you crypto, you just share your public key with them. Using this key, the sender can immediately and directly send the crypto payment to your online wallet.
Similarly, if you want to send crypto to another person, you simply look up the public key of the recipient. Many companies share their public crypto keys in the form of QR codes. Once you scan the code, the software recognizes the relevant account. You can then send a crypto payment or a payment request.
The process is very simple and takes little time.
Are crypto payments secure?
Despite the great benefits of using crypto payments, this method comes with its cybersecurity hazards.
Typically, you register on an online crypto exchange to send or receive coins. To purchase coins, you have to provide your bank details or credit card information. While these details aren’t shared with other users, a threat actor or scammer can steal that information, or it can be subpoenaed. This has happened before and is fairly common in the crypto world.
Since most crypto transactions are publicly displayed on the blockchain, it’s also possible to trace them back to the wallets of both the sender and the recipient. While knowing the wallet address doesn't necessarily mean that you can identify the person behind the wallet, you should keep in mind that crypto transactions are not always completely anonymous.
The other issue is that there’s generally no recourse if you want to get a refund after paying in crypto or having your coins stolen by someone else.
How to better secure crypto payments?
Hot and cold crypto wallets
A hot wallet is one that’s connected to a crypto exchange or is otherwise online. Such a wallet is more prone to cyberattacks. If you decide to use a hot wallet, make sure to protect it with a strong and complex password so that potential attackers can't brute-force your credentials and plunder your crypto balance. Or, better yet, use a password manager to generate strong passwords and store them securely for you.
On the other hand, a cold wallet is an offline wallet and is relatively more secure in comparison.
You can use a combination of the two to enhance the security of your crypto transactions. Ideally, you should keep most of your crypto in a cold, offline wallet. Use the hot wallet to store only the amount you need to use on a daily basis. Even if your hot wallet is compromised in a cyberattack, you only lose a small portion of your coins.
Offline private keys
Your private key provides you access to your crypto wallet. In many cases, that private key is stored online or on the network where the wallet is hosted. This means that in case the network is compromised, the attacker can access your private key as well. Once they have the private key, they also gain access to your wallet.
To prevent this, use offline storage for your private key. Ideally, store the key in a device that’s not connected to the web. This effectively prevents any hacker from laying hands on your private key.
However, offline storage comes with some hassle. Every time you need to complete a crypto transaction, you’re required to carry the transaction over a USB drive. The USB is then connected to the offline device where you use the private key to verify it.
Although not exactly convenient, this method is very effective at protecting your crypto transactions.
Virtual Private Networks (VPNs) have long been used to secure online communications. Not only do VPNs reroute your traffic – they also encrypt the data that travels between your device and the online endpoint, such as a website or a server. VPNs are widely used by privacy-sensitive groups – hackers, journalists, activists, etc.
Using a quality VPN is a great way of improving the security of your crypto transactions. It ensures that no one is able to monitor your online traffic or intercept your data (such as your private key) when sending or receiving payments.
Read more: What is a VPN and how does it work?
Crypto transactions offer a huge range of advantages over other payment methods. Still, these transactions are prone to a number of risks as well.
The good news is that you can mitigate these risks by following some basic security measures such as a combination of hot and cold wallets, using offline storage for your private key, and masking your online traffic with a VPN. Adopt these strategies before disaster strikes and safeguard your online transactions.