Security and consumer protection are big topics in cryptocurrencies. Crypto advocates are often quick to point out that decentralized value systems are more private, secure, transparent (in how they operate), and just, while traditional finance has raised valid concerns about the crypto community’s habit of preying on the uninformed and the lack of regulatory protection. Even veterans of the DeFi industry will sheepishly admit to having made a mistake or being swindled once or twice, but does that mean crypto is a minefield for consumers or fertile ground for the savvy trader?
The Good
In spite of the sometimes alarming stories around crypto, there are actually some really positive things about using tokens rather than a traditional physical or digital legal tender:
No intermediaries: crypto can typically be exchanged peer-to-peer with complete privacy (e.g., OpenBazaar).
Easy access: crypto transactions are quasi-instantaneous, available 24/7, and ignore borders (e.g., Bitcoin via PayPal).
Cheap: crypto transactions are typically faster and cheaper than traditional ones (e.g.,. Litecoin and Ripple).
Traceable: while transactions are private, they are not anonymous. It’s actually easier for a bank or authority to trace crypto than cash if you need them to, making it easier to pass KYCs and audits (e.g., VeChain).
Flexible custody: just like stuffing cash under your mattress, crypto can be stored in a personal device or in a variety of more secure arrangements, from safety deposit boxes to exchanges or air-gapped digital vaults. Unlike with a bank, the digital storage of your assets is usually continuously transparent and accessible (e.g., Ledger Nano or Trezor).
The Bad
Crypto’s greatest strengths are also its weaknesses. Here are a few challenges to consider:
No intermediaries: there is no one to help you. Get scammed or lose your passkey? Your money may be gone (e.g., The QuadrigaCX incident).
Easy access: type in the wrong wallet address? There is no delay for you to call your bank and ask for the money back (e.g., Mistyped ETH gas fees).
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Arcane: while there is a lot of flexibility and cost efficiency in crypto, it can also be quite complicated to understand all the ways it can be used, even if legitimate (e.g., The ETH DAO hack). Fortunately, there are also extensive educational resources for those willing to learn.
Exploits: new crypto projects are just that, new, and sometimes they can be vulnerable despite the best intentions of the builders (e.g., Parity Wallet hack).
Under scrutiny: the Wild West of crypto is over. With an increasing number of high-profile lawsuits and new laws, a measured approach—including legal advice—may be necessary (e.g., SEC vs. Ripple Labs).
The Ugly
Like all technology, crypto can be a force for good or evil. These scams are not exclusive to crypto, but crypto makes them faster and easier for crooks to pull off:
Rug pulls: fundraisers use crypto’s complexity to trick people into investing in unrealistic projects. The money is deposited in deliberately vulnerable systems or under carefully worded terms that allow the project owner to take the money, sometimes legally. The challenge can be distinguishing predatory practices from merely incompetent ones (e.g., OneCoin).
Ponzi schemes and greed: “high-return investments,” “great exchange rates,” or “new and discounted token launches.” Remember: if it sounds too good to be true, it probably is (e.g., Bitclub Network).
Employment offers and Nigerian princes: these scams prey on our helpful nature. Whether they use catfishing/romance schemes or pose as a client or supplier, they try to get you to send a small of money to unlock a larger sum, pay for a fake service, or do a favor for someone in need (e.g., Lazarus vs. Axie Infinity).
Cyberattacks and social engineering: man-in-the-middle attacks, phishing, social engineering, and breaking in are just as dangerous in crypto as they are with traditional e-banking. It’s just harder to get the money back once it’s gone (Unit21 has a great, comprehensive article about this; just search for Unit21 Cryptocurrency Fraud)
Conclusion:
As any crypto-enthusiast will tell you, cryptocurrencies are a disruptive technology that can potentially put power in the hands of individuals that used to be the province of corporations and governments. But that ease and flexibility come with associated risks. Many of the decentralized community’s veterans accept these risks as a necessary evil to allow a more just, transparent, and empowering financial system and have taken steps to share their knowledge with consumers. At the same time, governments are increasingly stepping in to require more protections for those same consumers at the expense of the sector’s independence. The bottom line? Do your research and remember that, no matter how promising the technology is, cryptocurrencies are still an exchange of value between people and, therefore, subject to mistakes, manipulation, and theft.
