Crypto mining and security: how to minimize risks
If you decide to become a crypto miner, then it will definitely be very exciting. However, there are some risks that accompany crypto mining and that you should definitely keep in mind. In this article we will talk not only about them, but also about how to protect your assets.
Risks associated with crypto mining
The risks associated with mining are quite diverse, but below we have tried to give them a complete list and classify:
1) Volatility of value : despite the fact that cryptocurrencies are partially advertised as a store of value (digital gold), they are subject to very strong fluctuations in value and have not yet proven themselves as a safe haven during the crisis.
Thus, as a means of investing cryptocurrencies should be considered as highly speculative. The chances of private investors to predict the next ups and downs are close to zero, which in some cases led to the acquisition of cryptocurrencies, which subsequently completely lost their value.
2) Volatility of costs: fluctuations are also characteristic of transaction costs. This applies to both the cost of transfers and the cost of energy consumed for mining.
3) Uncertain market: which supplier, currency, system will prevail? There is currently no answer to these questions.
4) Technical problems: what if something goes wrong when dealing with cryptocurrencies? For example, the loss of a private key or wallet will lead to the fact that you will no longer be able to access your bitcoins. In this case, there is no bank, appellate body or state institution to which one could apply.
A separate sub-item here are hacker attacks, whether on public or private blockchains. The most common hacker attacks are: phishing, routing attacks, Sybil attacks, 51% attacks. But there are also options to become victims of crypto mining using JavaScript or Malware.
5) Non-serious market players and fraud: there are also unreliable trading platforms on the Internet that try to attract investors with profitable investment deals, for example, in cryptocurrency.
6) Legislative risks: legislation regarding cryptocurrency mining in most countries still cannot be called developed, which could potentially lead to great difficulties and financial losses.
How to avoid risks
Risks 1-3: For the first three risks, the advice to minimize them will be – diversification. Having all the coins in one application or on one exchange is certainly a risky option. Similarly, it is risky to invest your entire budget in only one cryptocurrency – as in the case of stocks, the budget must be distributed.
It is also necessary to correctly approach the selection of the necessary equipment so that the mining process does not become unprofitable due to the lack of necessary capacities and too high energy bills. Much less attention can be paid to this issue only if your field of activity is cloud mining. In other cases, we want to warn you that the sad stories about fraud and substitution when selling less powerful miners instead of more powerful ones by replacing the label on the box, unfortunately, are by no means unique.
Risk 4: Current recommendations to reduce technical risks should adhere to the following golden rules:
- avoid public Wi-Fi networks and use a VPN;
- do not visit unknown web pages, do not click on advertisements or suspicious banners;
- do not download or open unknown files from unsafe sources;
- install a reliable antivirus, update it regularly and conduct a security audit.
But it should also be remembered that there is no universal protection against hacker threats and illegal mining of cryptocurrencies. And even world fame will not help you in this struggle, as happened with the website of Cristiano Ronaldo, which was attacked by illegal mining software.
In order to provide more reliable protection, it is much more necessary to rely on a combination of different security solutions to combat threats. But perhaps the safest way to store cryptocurrency is a hardware wallet, it has encrypted software and remains disconnected from the Internet, which makes it inaccessible to hackers.
Risk 5: In order not to suffer from non-serious market players, it is recommended to work only with reliable exchanges and sites, it is also advisable to read expert reviews and consult with them, study well-known ratings such as at Ultramining that display the safest pools for mining.
In order to more likely protect yourself from a collision with scammers, it is recommended to pay attention to the presence of identity verification on the site, escrow, customer support, and url design.
According to the FBI 2022 Internet Crime Report in the USA investment fraud complaints increased from $1.45 billion in 2021 to $3.31 billion in 2022, which is a 127%. Within those complaints, cryptocurrency investment fraud rose from $907 million in 2021 to $2.57 billion in 2022, an increase of 183%.
Risk 6: To reduce the risk of encountering problems of a legislative nature, before starting mining in a particular country, it is necessary to familiarize yourself as much as possible with the legislation and existing practice. A similar recommendation applies to taxation issues.
You can always find the most up-to-date news regarding these issues here and to be aware of changes on time is more than just important. For example, if you search for the right location for your crypto mining base, Montana might be a good shot, because it’s close to passing a law on miners’ rights, did you know that?
Conclusion
According to experts, mining cryptocurrencies and investing in them is one of the riskiest occupation options. However, those who are prepared and aware of the possible risks have every chance to successfully engage in crypto mining and not lose, but gain.
