Cryptocurrency Security when you engage in DeFi Strategies

Cryptocurrency Security when you engage in DeFi Strategies

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As the value rises, so does concern for security.

Private Keys
Seed Phrases
Wallet Storage online hot storage and offline cold storage

Those who missed the previous bull run to 20k are in uncharted territory now. But second timers remember how important security becomes when your crypto value soars and crypto crime soars also. While most security efforts focus on securing your private keys, seed phrase and selecting secure cold storage wallet measures, these are not the only security concerns for your cryptocurrency.

Exhange Security

No insurance
Hot or Cold Storage
Exchange Hack History
Exchange Private Key Security
Exchange wallet and trading policies

The concept of safety while trading is very important and sometimes overlooked because we have certain guarantees of safety and security when dealing with traditional financial institutions like banks and brokers. These centralized institutions have guarantees of restitution should the banks be robbed or the brokerages fail.
But in the crypto world no such guarantees exist, so you have to be very careful when moving your cryptocurrency on and off cryptocurrency exchanges to trade there, and you must be careful storing your cryptocurrency there. Unlike centralized exchanges with fairly uniform safety measures and guarantees, there is significant diversity between exchanges. Plus they vary in terms of their control over your cryptocurrency and sometimes restrict you access to and ability to trade, and withdraw your cryptocurrency.

Special Concerns for DeFi or Decentralized Finance Trading

Custodians
Tokenizers
Wrap and Un-Wrap Processes
Audited Code

When you engage in DeFi you have entered yet again an even newer realm of the cryptocurrency universe, and like all new and unknown territory it is characterized by new dangers to learn about and new strategies for safeguarding your cryptocurrency. While I am not an expert in this field I will share certain cautions with you and encourage you to take the time to study these security concerns and ask question of more experienced hodlers like @oldtimer @onealfa @nealmcspadden and @khaleelzaki just to name a few, and if any of you know of others please name them in the comments below.

Wrapping: Custody
When you engage in cross blockchain trading, such as trading Leo on Uniswap in the Wrapped Leo-Ether trading pair, your trading Leo on another blockchain, Ethereum and you must utilize the services of a Tokenizer: an entity which can be human or code. In either case trust is an issue, as you surrender your Leo and you are given WLEO, an ERC token or NFT which trades on Ethereum blockchain platform Uniswap instead of your native Leo. So in this process you are trusting your valuable cryptocurrency to a person or computer code to hold your Leo and return it to you when your done trading.
It’s important to realize that while we trust @khaleelzaki with our Leo, he is taking many measures to insure the security both of your stored Leo in his custody, others may not be so trustworthy and once they have your cryptocurrency, they could disappear into the night, never to be seen again.

Wrapping:Tokenization
It’s also important to understand that the process by which the wrapped tokens are created is a security concern, because should someone hack it and print or create thousands of such tokens, then sell them into the wrapped token pair, you could lose all of your matched trading pair such as all your etheteum and the buying pressure could render both the wrapped token and unwrapped token valueless. I mention this because such occurrences are nit uncommon both on cryptocurrency exchanges both large like Uniswap and the smaller like the Tron blockchain version of Uniswap called JustSwap.
Because of this certain standards like code audits and wrapped token minting number caps are becoming standard practices in the Tokenization industry. But once again you must remember that your not involved with traditional institutions like banks and brokers, so standardization doesn’t exist. The statement : ”... with great power comes great responsibility.” is extremely applicable to cryptocurrency.

Wrapping: Audited Code
Because of the susceptibility of Tokenization and wrapping processes to hacking and theft of cryptocurrency, it has become commonplace for such code to be reviewed by third party developers, as in developers who were not involved in writing the code, to review the code for so called vulnerabilities or portions of the code which allow malicious coders to gain control over the Tokenization process and steal the original token or print more wrapped tokens. This process has become known as Auditing.

Thorchain and Blocknet
You have probably seen articles about these two cryptocurrency projects. They are popular amongst many seasoned cryptocurrency traders and Hodlers, as well as having enthusiastic members of their own communities. They both propose trading systems which safeguard your cryptocurrencies against some of the loss mechanisms detailed here. Mainly by eliminating the amount of times and reasons for your cryptocurrency to leave your wallet. The future for cryptocurrency trading looks much safer because of them.

Summary

I have attempted to keep this post brief, but yet highlight some important areas of potential vulnerability specific to cryptocurrency in general and decentralized finance in particular. I must admit that a few years ago many of these concerns were unknown to me and some of them were revealed to me more recently then that mere months. One thing you will notice is that the more seasoned the cryptocurrency trader is, the more paranoid about security they seem. But I believe their seemingly over cautious behavior is based on the fact that they have seen the many ways you can lose all your cryptocurrency investments. When it comes to cryptocurrency remember your not paranoid, if they are out to get

Written by @shortsegments

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