A few days ago, a Chinese company launched a digital currency insurance product that aims to provide security for personal digital currency wallets. Given the increase in cryptocurrencies and the need for enhanced security, this tool would be the perfect product for ensuring customers’ assets are safely held.
Although digital wallets are known to be secure, users need to be cautious regarding the security of the device used and the information added. The security concerns on digital wallets rose in recent years when, after the pandemic, cyberattacks and data breaches increased tremendously and affected millions of businesses and clients.
The Chinese company is not the first to approach digital insurance products; it’s an important step towards promoting the digital renminbi, the official Chinese currency. This comes as a solution to encourage digitalization by offering employee salaries and benefits or paying indemnities through digital currencies.
How this product guarantees safety
The number of digital currency wallets has increased exponentially recently, exceeding 30 million only in the Chinese city of Suzhou. Therefore, this project started as a digital renminbi pilot and has proven to be successful for a release. The insurance product allows customers to lodge a claim if their wallets were compromised during the guarantee period. Often, people forget their passwords or are not prepared to care for a digital wallet, which leads to losing their money.
The company has already started cooperating with stakeholders (governments, banks) to collect insurance premiums or pay indemnities since 2020 as a way to help expand the use of the digital yuan, called the e-CNY. Although this is not a decentralized currency and has been issued by the People’s Bank of China (PBOC), the Chinese insurance program could revolutionize how people use currencies.
Decentralized currencies, such as Bitcoin or Ethereum, don’t have the same issues regarding security because one look at the bitcoin price chart can offer an insight into how much this financial solution is preferred compared with fiat money of national digital currencies. But that doesn’t mean they’re free of security concerns.
Why is this product needed?
The problem with central bank digital currencies (CBDCs) is that the governments could control people’s money in an unmanageable measure since it’s provided purely by these authorities.
Consequently, this could lead to losing customers’ trust and damage the reputation of these central management corps. Plus, the safety of sensitive information regarding customer transactions is questionable, although central entities need to prevent customer harm from fraud, theft and unauthorized disclosure of information.
But besides the risks and challenges for central bank digital currencies, decentralized currencies (cryptocurrencies) are also not in a better position. Given the recent bankruptcy issues of important companies, crypto investors have lost most of their valuable assets and also lost trust in cryptocurrency safety. Although blockchains are not controlled by any authorities and eliminate the risks recorded with CBDSs, they’re also prone to security issues.
How cryptocurrencies approach assets security
Almost any cryptocurrency and its blockchain provide certain security models to ensure customers and their assets are in a good place. But most of them use distributed ledgers to provide trust for all users. For example, Bitcoin’s protocol is equipped with few attributes through which the network consensus is maintained, such as:
- The assurance that new blocks and valid transactions will be added to the blockchain;
- All blocks only include valid transactions;
- A miner is guaranteed to mine the same percentage of blocks according to its contribution of computational power;
It’s safe to say that Bitcoin is more secure than other cryptocurrencies since it’s been around for a while and has proven stable in the long run. However, bitcoin scams, for example, impact people’s trust in storing their assets in a digital wallet. There are two main types of such fraud:
- Accessing user’s digital wallets of authentication credentials (such as security codes);
- Transferring cryptocurrency to scammers as a consequence of impersonation or fraudulent investments;
According to the FBI, phishing scams are still some of the most common attacks, even with blockchain technology. Even NFTs and ICOs are in danger of becoming full of scammers. But users can spot cryptocurrency scammers more easily than it seems.
How to detect a scam
Regardless of your crypto investments, know that you can detect their legitimacy by checking the following:
- Their white paper. Before the development stages of any cryptocurrency release, the creators issue a public document called a white paper that allows clients to read about the protocols, blockchain details and how the network actually works. On the contrary, fake cryptocurrency networks publish poorly written documents that are all over the place and have no structure;
- The member organization. The developing team and all the other members are always identifiable so that you can find them on any GitHub or GitLab forums;
- Their marketing strategies. Most cryptocurrency developers focus on posting upgrades and new documentation regarding the cryptocurrency’s purpose. However, scammers want to get people’s attention through posts about how investing will get you rich or how great and superior their project is;
Learn to protect your cryptocurrencies
In most cases, clients can be fooled by untrustworthy individuals that want to get their valuable assets. However, learning how to protect crypto wallets is essential, and you can try this by:
- Activating two-factor authentication for your exchange app. Some of them already have these options, but for those that don’t, you can rely on the security of your email address and password;
- Using a strong password for your devices to avoid being a malware victim. You don’t have to worry about forgetting it if you have a backup of your seed words (series of words through which you can recover your accounts);
- Being wary of fake web apps. Most scammers create fake websites that look trustworthy, but at a second glance, your browser will recognize the website as malicious since it failed the SSL certification, and you’ll see a red lock to the left of the URL;
Many businesses create new insurance products for clients, which is a great safety net for all crypto customers and digital currency holders. At the same time, trading and knowing the signs of a scam is still a better method of securing your assets.