It is without a doubt DeFi and cryptocurrencies are a thousand times more relevant topic than it was 10 years ago.
Today, you can find news about the crypto market in almost all media channels, from TV to newspapers. Bitcoin’s market growth rate can now even be seen alongside those of the S&P 500, Nasdaq, and Dow, in leading business newsletters.
Social media platforms are also blowing up with conversations on NFT ownership, the metaverse, and Web3. Central banks and governments have also acknowledged the blockchain industry, in one way or another. Retail investors have also set their sights on DeFi usage, application, and development, acknowledging the potential of this innovation of finance to make a huge impact in the crypto space.
But, this blog won’t be about the newfound massive popularity of the blockchain.
In this blog, we’re going to talk about the growing need for digital asset security and why it should be just as important as ownership and investment.
Please Don’t Leave Your Belongings Unattended#
Surely, you’ve seen this sign before, in your local coffee shop or public transport. Because if left unchecked, our personal belongings can either get lost or stolen. In crypto, this same warning applies.
Don’t get us wrong, the blockchain as a technology is absolutely safe and secure. However, when the use of the blockchain falls short in eliminating vulnerabilities, cybercriminals can take advantage of it.
Protection and security come with the territory of digital asset ownership. Crypto exploits tend to target unsecured digital assets and DeFi projects in development infancy.
For cybercriminals, digital assets like cryptocurrency funds and NFTs are nothing more than just a smart contract vulnerability or two to break. Some use intricate scams to use personal information and get through barriers. In other words, crypto crime can be creative.
In order for DeFi and the entire crypto market to move forward, digital asset protection and crypto market risk mitigation should be ten steps ahead, if not more, against crypto crime.
The fast-growing innovation and development in DeFi protocols, projects, and super practical features. Similar growth in risk reduction and management should also be encouraged. If possible, even catalysed.
In this relatively new industry, it’s crucial that each participant in decentralised finance and the blockchain should give equal importance to ownership and security.
This brings us to the important question of…
How can everyday investors and founders protect their assets and projects, respectively?
How to Secure Crypto Digital Assets#
Let’s begin with discussing digital asset security from an everyday user and/or retail investor’s perspective.
Research Before Anything Else#
Like every investment, DeFi investors should always do their own research. For beginners, this includes understanding the basics of decentralised finance and the blockchain industry as well as the crypto market’s behaviour.
Long-time DeFi investors are encouraged to use their experience and expertise in researching prospect crypto projects and tokens. Check out the legitimacy of the project by exploring its online presence, website, and social media activity. Don’t forget to get to know the team behind the project or protocol. And much more that details what phase the project is currently in at present.
Detect and Prevent#
Most crypto projects and DeFi protocols run on smart contracts, collections of code that perform a specific sequence of instructions that interact with the blockchain.
Smart contracts are fundamental to each project. They are the reason why protocols are innovative and progressive and pack a lot of practical features. Unfortunately, loopholes and vulnerabilities in smart contracts can be entry points for exploitation.
This is why it is important for one to look into and assess the development of a project’s smart contract code.
Look out for dApps and protocols that don’t publicly share their code or aren’t active in resolving security issues in their community. Take a quick peek into their Github repositories.
Identify the practicality of the project. Review their recent developments and explore what their future goals are. Serious DeFi projects continuously update their platform to improve UX, design, and most of all, security.
Legitimate DeFi projects go through intensive smart contract audits. Audits make projects more secure, risk aversive, and ready to launch in the market.
Bottom line: Find out if the DeFi project or protocol you plan to invest in is legitimate, backed, and transparent.
Not all things have to be transparent though, especially your personal information. Whether you’re a frequent user of decentralised finance or just learning your way into it, it is essential to have strong information security in order to keep your digital assets protected.
Avoid storing your passwords in the cloud. Opt for a reliable password manager instead or the good ol’ write it down in the notebook on your desk.
Get Covered#
If all else fails, you can always get covered. Risk prevention and mitigation go hand in hand with each other. With most of the aforementioned ways to secure your digital assets being prevention, it’s time we talk about how one can manage those risks.
DeFi protocol users and investors can reduce their crypto market risk exposure with parametric covers. Unlike traditional insurance, parametric covers don’t put policyholders in the situation of waiting for their claims to get approved. Parametric covers eliminate the need for individual claims assessments by instead, assessing the incident as a whole.
Since parametric covers only need to assess the event to resolve each claim, parametric covers are able to guarantee policyholders instant claims payouts. This way users and investors will no longer have to worry about their claim getting rejected ever again. It’s actually pretty interesting to know how parametric covers work.
How to Protect DeFi Protocols#
On a much larger scale, DeFi protocols can participate in developing their project’s ability to ensure risk prevention and mitigation for its users and investors.
Unit tests are indispensable to every high-quality project testing. These tests help identify vulnerabilities in the smart contract before hackers can set their eyes on it. It is crucial that projects undergo constant and complete unit testing that doesn’t just cover major parts of the code. But, also unnoticed sections that may potentially have an exposed loophole in it.
Smart Contract Security Audits#
Sometimes after reviewing and testing the entire code, from each line to every method, class, and module, developers may not be able to guarantee a project’s smart contract is safe and secure. Security audits can help take the project’s level of security further. A security audit helps prevent hacking by identifying unpredictable smart contract vulnerabilities before a DeFi protocol’s launching. And if one audit doesn’t cut it, perform a secondary security audit.
Unique Coding#
Copy-pasting is the bane of every successful work, especially in DeFi projects. Some pieces of another project’s code may fit into the copying protocol. However, it may never belong as some important lines of code may not work together or be compatible with the protocol. In programming, we call these logic errors. The smart contract may not function as intended. Just like this copy-and-paste error.
Work with Experienced DeFi Developers#
Expert blockchain developers and cybersecurity specialists are useful when it comes to developing a super-secure DeFi protocol. Many of their industry knowledge comes from years of “charging to experience.” Tons of smart contract errors and exploitable code could be detected even before a protocol launches.
It is important that you hire experienced DeFi developers that understand how to counter the most common and unpredictable smart contract vulnerabilities.
A protocol is nothing without its community. With the support of your following audience, you can drive bug bounty and testing campaigns that motivate your users and investors to give feedback on their experience using your protocol. Incentivize their support with rewarding games and events.
You can also create parametric cover pools as well to garner community support through crowdfunding. Both of these will help DeFi protocols and projects build a confident investor community.
Why DeFi and Digital Asset Security Matters#
As with anything valuable, digital assets need reliable security. Investors and owners should always prioritise security right after they acquire a certain digital asset.
Safeguard it according to best security practices and ensure your most valuable crypto investments don’t get taken away from you. Sometimes, prevention may not be enough. Thus, it is crucial to also keep risk mitigation in mind with the use of parametric covers which provide a reliable safety net to fall back on.
DeFi protocols should also prioritise the security of their projects. It is encouraged crypto platforms make an effort at ensuring their users and investors are safe and protected.
In order for DeFi to move forward, we, as a global community, should make a collective effort in making digital asset security a priority and relevant conversation.
