NewsIn Focus

Actions

Security precautions in cryptocurrency

An in focus look at how crypto was created to remove the 'trusted middleman'
Cryptocurrency security.jpg
Posted at 6:15 PM, Oct 19, 2021

BALTIMORE — The first, and likely most well known, cryptocurrency, Bitcoin, was created back in 2008, just as the global economy plunged into a great recession.

The idea was to remove the middleman, according to University of Maryland Assistant Professor Ian Miers.

"It was created in 2008 as a means of building a more robust and decentralized financial system," he tells WMAR-2 News. "The main point that people who are into cryptocurrencies get out [of it] is that you shouldn't have to trust some other person to run your financial system. The idea is that this should be out there and run by everybody and therefore reliable."

Satoshi Nakamoto, the founder of Bitcoin, wrote in their paper introducing the crypto, "What is needed is an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party."

Nakamoto is an alias for the still unknown person or persons behind Bitcoin, but they clearly wanted to create a system that would eliminate the need for a trusted third party, like a bank or the government.

"You want things to be decentralized enough that there's some resiliency, you don't want something that's too big to fail, right," explains Miers.

But if you're looking to get into cryptocurrencies, like Bitcoin, going at it on your own could be dangerous.

You could do it in person, says Miers.

"Those are obviously a little risky because you're volunteering with strangers on the internet to show up to say some corner with cash on you. And it's not unheard of for people to get robbed. So be careful," he advises.

"The other options are you get some sketchy or exchange and you managed to find some way to transfer money into it," he says. "So you have to do wire transfers or money grams or other convoluted steps that are not advisable."

But if you turn to a sketchy exchange, you also have a chance of getting scammed out of your money.

The safer options? Well-known exchanges that have built up a reputation of trust with users.

Companies such as Venmo, Coinbase, Gemini and Robinhood, that have all spent years building trust with customers.

But companies with a good reputation isn't enough, you need to look closely at the security details.

"You want to look for, like reasonable security practices. So doing two factor authentication, preferably not with a phone number," he says. "The real litmus test is what what happens if you forget your password and lose your phone? How many hoops do you have to go through to recover your account? And paradoxically, you want that to be very hard if you have a lot of money."

Also, find out what happens when something goes wrong. Some companies have some insurance in case the company is hacked and you lose money but it doesn't apply in all circumstances and the insurance might not be able to cover all of the money.

And one well-traveled avenue if a company closes down and you can't get your property or a refund is closed to cryptocurrency holders.

The Federal Government, doesn't regulate or back cryptocurrency and doesn't hold it as a legal form of money.