Investing into Bitcoin? Beware of your wallet!

Matti Suominen

December 21, 2017 at 12:23

If you have been following the media at all, you no doubt have run into the topic of Bitcoins and how their value keeps on skyrocketing. Stories of early adopters becoming millionaires are in the covers of just about every publication these days. With the stories comes thousands upon thousands of people looking to invest and cash in on the phenomenon.

Let’s make a deal and forget about all the technical complexity behind Bitcoin and crypto currency in general. For the purposes of this article, we’ll simply think of Bitcoins as money and only dive into the details where it makes a difference for the topic at hand.

Bitcoin

Bitcoins are often stored in various types of Wallets. Wallets work much in the same way as the wallet you may own – or used to, anyway, when cash was more common. You can put money in to store it or take it out when you need to pay for something. Unlike wallets of the yore, Bitcoin wallets can be stored locally on your own device or even in the cloud. At the end of the day, we are only storing pieces of data into the wallet – physical location doesn’t matter. Another conceptual difference here is that Bitcoin wallet can store enormous amounts of money. They are not there just to store few notes while rest of your money is safely in the bank as is the case with physical wallets.

Bitcoins and Bitcoin wallets create an interesting new threat to individuals engaging in the market. Before, hacking into a personal computer would only net the attacker access to things like e-mail or possibly various services you paid for. Valuable, for sure, but harder to convert into money by a criminal. Most hacking today happens for monetary gain of some form. Stealing your vacation pictures is not really a sound business strategy for a criminal.

Enter Bitcoins and wallets. If I can break into your personal device containing a Bitcoin wallet, the money in it basically liquid currency that I can take and convert into another asset of my choosing. The conversion ratio between face value of stolen Bitcoins and laundered money is close to 1:1. It’s logical to make the conclusion that an attacker would be far more interested in stealing Bitcoins than they would, say, poems you wrote and stored on your laptop. The value – to the attacker, that is – of your poems would be a tiny fraction of any monetary value you would assign to it. There is no exchange that accepts stolen poems and converts them into cash.

There is no one Bitcoin wallet – you have plenty to choose from. The tricky part is, which one should you choose? While the comparison to real-life leather wallets is usually a good analogue, there is one thing where they differ wildly.

Whereas your leather wallet is a container for storing cash and can’t do anything autonomously, your Bitcoin wallet is a piece of software that is fully autonomous.

Let that sink in for a moment. Your traditional wallet can’t pay your bills every second Thursday. It cannot destroy or lose the currency in it. It cannot send your money to the other end of the world without you knowing. Bitcoin wallets could, in theory and in practice, do all of this quite easily. Pick the wrong wallet application and you might as well hand your money to criminals directly. It may be more apt to think of your Bitcoin wallet as an agent that is authorized to operate with your funds and the main control preventing misuse is the trust between you. If you pick a criminal to be your agent, you may never see your money again.

Where there is money, there are criminals. Lately, news about fake Bitcoin wallets being used as methods to steal money are getting increasingly more common. Here’s a recent case from early December where a fake wallet for another cryptocurrency called Ethereum became rather popular within application stores.

https://coinjournal.net/fake-myetherwallet-app-becomes-top-3-finance-app-apple-store/

Need more evidence that Bitcoin and wallets are on the radar of the same people who are leading in the statistics for all kinds of Internet fraud? Look no further than into Google’s search trends for “bitcoin wallet”

Map

Now, you could argue that Lagos just happens to be driving the world-wide Bitcoin adoption for some reason and everyone there is all excited about new prospects. Personally, I would lean towards the usual suspects who have made a name for themselves in online scams and e-mail fraud having identified a new way to gain access to money that is easier to transfer and launder. Either way, it should be clear that Bitcoin hasn’t gone unnoticed within the criminal circles either.

How to protect yourself if you are jumping to the crypto currency craze and looking to buy either Bitcoins or other similar currencies?

Here are some things to consider:

  • Avoid wallets – local or cloud-based – which aren’t very well known or recommended by trusted figures in the crypto currency area
  • Make sure you get your trusted wallet application from a trusted source – it’s easy enough to make one that looks about the same to casual observer but ends up stealing from you
  • Watch out for scams – crypto currencies are new to most people and there are new variations of scams coming out regularly
  • Understand the risks – while the rewards can be astronomical at times, operating in the crypto currency business carries huge risks as well

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