Cryptocurrency because it is a peer-to-peer, decentralized alternative currency does not have systemic safeguards like those built into traditional, or fiat, currency financial systems. There are no guarantees of security or government regulations to protect the financial system from fraud or theft. So if coin is lost or stolen then it may not be recoverable.
The fundamental risk in cryptocurrency is that a huge amount of digital money can be stored in virtual reality (online) or on devices (offline), which means that anyone who has access to the storage can easily move any amount of money.
Online storage is referred to a hot wallet or hot storage while a cold wallet or cold storage is not connected to the internet. Access to a hot wallet is controlled with an encrypted private key, which means that the inherent risk of hot storage is that if the private key is stolen, then someone else can access the money. Online threats include hacking, phishing attacks, social engineering, and insider fraud. The Tokyo-based cryptocurrency exchange mentioned earlier had stored coin in a hot wallet, which was one of the vulnerabilities that allowed the hackers to access the currency.
Cold storage means that both the currency stored offline and the private key are vulnerable, although someone still could not access the coin without also having the private key. The threats against cold storage are more familiar to those in the cash security industry: forcible robbery, break and enter, loss of physical possession, and adequate controls.
Another less direct risk is cryptojacking, where hackers use another person’s computer (without their knowledge) to mine cryptocurrency coins, which often requires a lot of electricity. The coins are then delivered to the hackers’ accounts with no cost to them. Hackers will target any devices, from personal computers to large data centers and cloud services providers, even internet-enabled devices such as cameras and household appliances.
