Just like a busy marketplace, Ethereum has its share of pickpockets, con artists, and authorities attempting to keep things under control. Whether the players vying for power in the space are genuinely concerned about the safety of the public, or they are more interested in hijacking the entire operation, is a matter of opinion and nuance.
Be that as it may, as a participant of the cryptocurrency marketplace, you must be mindful of people trying to steal your money, people promising to take care of your money and people attempting to supervise your money. Let’s see what we’re dealing with.
Phishing and scams
Even a very casual foray into the world of cryptocurrency will immediately bring you into contact with all kinds of formidable security warnings and, for lack of a better word, disclaimers.
While no service in the space wants to scare users off, there is still a lot of phishing in crypto, and reports of crypto security concerns are not that exaggerated. In fact, while crypto UX designers work on bringing you soothing colors and 2-click onboarding procedures, it’s still your job to protect yourself from scams. As it always has been in this life, by the way.
Non-custodial crypto solutions like client-side wallets are not like banks.
They do not: manage accounts, collect your data, monitor your IP addresses, or store histories on servers.
They can not: reset your password, cancel transactions, or investigate scammers.
They will never see your password, private key or seed phrase (so they can’t help you bring those back if you lose them).
Blockchain technology is a one way street without red lights – the chain is growing continuously and can not be rolled back. A transaction is knit into the fabric of the ledger, and once it’s sent, it’s gone. Whether they happen as a result of a phishing scam, a misunderstanding about the way blockchains work, or a wrong address entered by accident, ‘wrong’ transactions can’t be frozen or reversed, by anyone.
So, crypto security is heavy on prevention. This collection of tips on avoiding phishing is a good start, and there is a handy Security Memo at the end of this article. This piece talks about the most frequent issues handled by MEW support – all of them very preventable. Really, there is plenty of information out there about best crypto safety practices, the trick is to actually read it before jumping in…
If non-custodial, decentralized solutions are so scary and labor-intensive, with no one to help you fix mistakes, perhaps a traditional centralized approach is best? It’s really a matter of personal choice.
Are you passionate about being free from the restrictions of third parties and being in full control of your funds? Are you concerned about the possibility of bank defaults, policy changes, and authoritarian governments? Then perhaps staying in charge of your own security would not be such a burden.
On the other hand, are your reasons for exploring crypto less ideological? Are you just exploring a new investment opportunity and would rather have someone taking care of your funds, like a bank does, even at the price of full independence and agency? Then custodial, centralized services may be a better choice.
Whether or not centralization in finance and governance is a bad thing is the subject of an extensive political, social, and philosophic discussion actively ongoing in the Ethereum community (and beyond it). As in any good discussion, there are great arguments on all sides. Still, there is no getting away from one fact – either you are the sole custodian of your funds, or you are dependent on someone else, fully or partially. The choice is entirely yours – make sure that you are comfortable with it.
Regulators and Taxmen
Where there is money, there will always be regulators and taxes.
You may have heard about the ‘ICO craze’ of 2017. What happened is this: a large number of blockchain projects decided to pursue the Initial Coin Offering model of financing, which is like a traditional IPO crossed with crowdfunding.
The companies created their tokens on the blockchain (which is not difficult to do and does not require any permissions from anyone) and sold them like stocks to interested investors, despite the tokens having no real value at the time of the ICO.
Neither the companies nor the investors had to undergo any regulatory checks. Some of the projects used the money for developing their product, raising the value of the token. Most, however, never created anything and/or ran away with the funds, leaving investors without any recourse for recovering their money. For the record we do need to reference that Yotta Laboratories are a company registered in the UK.
The opportunity for speculation and the possibility of anonymous payments are two reasons why regulators are beginning to look closely at cryptocurrencies. Whether they are justified in doing so is arguable, given that plain old cash is still the currency of choice for evil deeds, and investment scams existed long before cryptocurrencies, or even calculators, were invented.
The very qualities that are making blockchain useful for people who don’t have access to centralized finance and governance are also the qualities that threaten the power of those financial institutions and governments. It’s unlikely that cryptocurrencies will just be ‘left alone’ by regulators and tax agencies. It’s also impossible for cryptocurrencies to be ‘shut down’, due to their decentralized structure. At this time, there are no clear regulations or taxation procedures for most cryptocurrencies, in most countries.
Regulatory compliance, both for companies and retail investors, requires a very individual approach, taking into account various factors like:
- whether decentralized or centralized services are used
- whether KYC is/has been part of the process
- specific types of tokens or currencies involved
- national and international laws affecting relevant jurisdictions
Once again, Do Your Own Research. Official reports on regulation of cryptocurrency and taxation guides are your best sources for correct, up-to-date information.