As investments in cryptocurrency have grown in popularity, and value, security breaches have increased in parallel, with millions of dollars in Bitcoin and other digital currencies stolen from digital currency wallets around the world. In a fintech environment, there are numerous standards that are followed to maintain a level of data security to protect people’s assets. Payment Card Industry Data Security Standard, or PCI DSS compliance for short, is a requirement that credit card companies have imposed on businesses that accept Visa and MasterCards. The PCI Standard is administered by the Payment Card Industry Security Standards Council, and it requires companies to submit to compliance validation on an annual basis. External Quality Security Assessors (QSA) and Internal Security Assessors (ISA) will review larger companies and their systems for compliance, while smaller companies may submit a Self-Assessment Questionnaire (SAQ).
Implied Security for Cryptographic Assets
No such standard exists in the cryptocurrency industry. Digital tokens are largely decentralized, and by design, their cryptographic nature would suggest that a level of data security is implied. While this is generally true, security vulnerabilities exist wherever private keys may be exposed, such as when utilizing software wallets.
Generally, it is best to keep digital assets in cold storage. Exchanges and third-party wallets are primary targets for hackers and thieves who seek to capture the coveted private keys that give them access to a wealth of cryptographic assets.
Cold storage protects your coins by storing private keys in an offline environment, such as a hardware wallet. Unlike software wallets, where an internet connection may enable a thief to access your computer, and the private keys stored on your hard drive, it’s nearly impossible to steal coins protected by a hardware wallet without infiltrating a device at the exact moment when a hardware wallet is plugged in, or by physically obtaining the device and associated PIN or other access information.
In the credit card industry, companies are beginning to move away from traditional authentication methods. Card swipes at the point of sale have been replaced with EMV, where Europay, MasterCard, and Visa have developed on-card chip technology to authenticate transactions. While this technology does not protect Card-Not-Present (CNP) transactions, it significantly reduces fraud at the point of sale in a retail environment.
Financial institutions are also moving towards biometric authentication methods, using fingerprints and facial recognition to access tokenized payment information. This evolution continues to progress in fintech, and it is making its way to the cryptocurrency marketplace.
Digital wallet companies, and ICO projects are moving in the direction of biometric authentication. Some of these projects amount to coins built using Linux Hyperledger and other underlying technology. Other projects use proprietary methods. And some of these projects market themselves as compliant with federal and national AML (Anti-money laundering) and KYC (Know Your Customer) requirements that are imposed on banks and other financial institutions.
Over the next year, we may see some of these cryptocurrency platforms become adopted by the industry as a whole. When this happens, compatible coins may also capture marketshare, while those not accepted by the more secure platforms will lose their trading volume, and ultimately, their value.
The takeaway here is to pay close attention to the coins that are adopted by the most secure systems. If we look at hardware wallets, we can see a number of obvious trends. For example, Trezor hardware wallets are compatible with almost 700 coins. This sounds like a lot, until you consider that there were at least 1600 known cryptocurrencies as of August 2018. This being the case, one datapoint to consider when evaluating ICOs and potential coins to invest in is whether they are compatible with popular hardware wallets. If not, then it might be worthwhile to put your money into other tokens and cryptos. Similarly, if you are part of an ICO team, and your coin is not compatible with cold storage devices, such as the Ledger Nano S. Similar to the Trezor, the Nano S is compatible with just over 700 crypto assets.
Consider following this basic methodology when picking coins, and take them off of the exchanges when you’re not actively trading. Eventually, we’ll see more standards arise in the digital currency marketplace in the neverending battle against online fraud.
Dennis Consorte has an appetite for news and information about cryptocurrencies, blockchain, IoT, fintech, adtech, martech and other technologies. He also has over 20 years’ experience in digital marketing and content strategy.
The views and opinions expressed here are for informational purposes only, and should not be confused with professional financial advice. These opinions are solely those of the author and do not necessarily reflect the views of CashTechNews.com. Every investment and trade involves risk. You should conduct your own research, and contact your professional financial advisor before making any investment.
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