Yet Another Reason to Avoid Cryptocurrency: Physical Attacks

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Originally published at: Yet Another Reason to Avoid Cryptocurrency: Physical Attacks - TidBITS

Several years ago, Glenn Fleishman wrote “Understand Cryptocurrency, but Don’t Invest in It” (20 April 2022), explaining the technology and debunking many of its myths. Although cryptocurrency has ceded the role of top tech bogeyman to generative AI, the amount of money sloshing around in the system has ensured that it remains a force to be reckoned with in society. I remain generally dubious of cryptocurrency, and the drumbeat of crypto-related crime reported in Molly White’s Web3 Is Going Just Great blog regularly reinforces that opinion. But I hadn’t realized until now just how personally dangerous it can be to be known to hold cryptocurrency, given that it’s easily transferred and difficult to link to individuals.

Crypto developer and cypherpunk Jameson Lopp has been collecting reports of physical attacks involving cryptocurrency for years, with the first reported in December 2014. The list is far from comprehensive due to attacks not being reported to law enforcement, not categorized as involving cryptocurrency, or not appearing in the media. Attacks peaked in 2021 and 2022, perhaps driven by media coverage of high Bitcoin prices, but haven’t tracked with the subsequent rise in Bitcoin prices starting in late 2023. If you hold Bitcoin or other cryptocurrencies, caution would suggest keeping that information to yourself.

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It seems this classic xkcd comic is appropriate here.

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… and as always, don’t keep your cryptocurrency in a public wallet. Keep it in a private off-line wallet. Only transfer crypto to an exchange when you need to cash-out. And when buying crypto, transfer it to your off-line wallet as soon as the transaction completes.

There have been too many (IMO, even one is too many) reports of people losing money due to problems with exchanges, including hacking from governments, hacking from other sources and one case of the only person with the security keys dying.

If you keep your currency in an off-line wallet, then the only way anyone can access it is with your private security credentials. Just make sure you don’t ever lose them, because there will be no way to recover them afterward.

Of course, all of the above presumes that you should be buying crypto in the first place. Which, for the most part, I agree with Glenn that it’s a bad idea and should be avoided altogether. Not so much because of the concept of cryptocurrency, but because it isn’t backed by anything - a Bitcoin has no physical value. It’s not backed by anything physical, nor by real currency, nor by shares in any stock/bond/commodity.

On the other hand, I don’t have those reservations for those stablecoins that have actual backing (e.g. in a currency or a commodity like precious metals). The prices are going to be tied to the currency/commodity of the backing, so they won’t be crazy volatile, but should otherwise behave like a cryptocurrency.

Of course, you could just invest in the backing (securities, precious metal, currency, whatever) directly or via mutual funds/ETFs and avoid the use of crypto. But if crypto ever catches on as an actual payment method and not just a curiosity, stablecoins will offer an advantage over traditional investment, because it will be much easier to pay for something (say, a pizza) with the stablecoin than trying to transfer shares of a security or using a silver coin.

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I view cryptocurrencies as collectibles, akin to baseball cards, antique furniture, and artworks, not as investment-grade financial assets. So my strategies and rules for holding and trading crypto differ from those I use for equities, bonds, other exchange-traded products, and cash.

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On the topic of the advisability of using cryptocurrencies at all, this article by Bruce Schneier is relevant: On the Dangers of Cryptocurrencies and the Uselessness of Blockchain

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