How to secure cryptocurrency transactions and payments

Even for experienced users of electronic banking and payment applications, sendingDigital currencies are something new. Irreversible transactions, errors and bugs can lead to instant loss of funds. We offer a way to secure work in the field of electronic payments.

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It would seem to send a digital currency or tokenit is possible in two counts. It's as simple as sending an email. But this simple at first glance action has its pitfalls that turn the transfer of cryptocurrency into a risky task.

On the other hand, digital currencies do not haverestrictions and work much faster than banks. You do not need to pay additional fees to transfer funds worldwide, you do not need to open accounts, pass checks, receive confirmation from third parties. However, in a system that does not forgive human errors and does not allow the return of funds, interaction with traders can become a nervous occupation. Errors and loss of funds can occur even if friends exchange currency.

Losing funds and waiting for confirmation

Time goes by and initial enthusiasmCryptocurrency payments gave way to disappointment due to shortcomings. For example, sending digital currency in 2019 did not go as fast as expected due to network congestion and transaction confirmation rules.

At the moment, the Bitcoin network (BTC) is stillA long queue of unconfirmed transactions that increase latency. Of course, the funds are not lost, but it may take several hours to mine and confirm the transaction. The Ethereum Network (ETH) is also experiencing stressful times. Stores and exchanges expect a lot of confirmations to make sure the transaction cannot be reversed.

Whose money is this?

Transactions in the blockchain are anonymous, they are not related toany digital or real ID. The funds belong to someone who has a private key, which is just a long string of characters and numbers, not connected in any way with the identification data of the digital or real world.

Anonymity of transaction processing partiescreates even greater complexity. Miners and node operators remain largely unknown and scattered around the world. Unfortunately, it happens that transactions are mistakenly sent between different blockchains, and it takes a lot of time and money to fix such errors.

Sometimes users make mistakes when sendingcompletely anonymous currencies, for example, Monero (XMR), that is, they send the currency to the exchange without an identification code. This complicates the situation even more, because the support service has to manually search for such a transaction. When sending anonymous currencies to the exchange without a special code, you can lose all funds.

No return possible

As soon as the transaction is sent from the wallet,it cannot be undone. Bitcoins can only be returned if the recipient returns them. If the transaction is sent to the wrong address, then it is impossible to return bitcoins. Hacker programs to intercept information from the clipboard can change the address of the recipient, and if the user does not notice an error, the funds will be sent to the hacker's wallet.

Irreversible transactions are not suitable for online stores and their customers, because returns are an integral part of their interaction.

Risk of double spending

In certain technical circumstances, a hackercan provoke a "double waste". This means that the funds are sent to the address, the transaction goes through, but the hacker finds a way to cancel it. In the case of Bitcoin, this is not possible, but smaller networks are subject to this risk. It is usually said that blockchains cannot be changed, but this is not entirely true, some transactions can be canceled, and the funds involved in them can be reused.

Double spending occurs for various reasons, butthe main one is a 51% attack. In this case, the hacker gains control of 51% of the network hash and can rewrite the blockchain history. Double spending can also occur due to errors in the protocol. Typically, the funds are lost by the exchange or the merchant, who confirm the incoming transaction, but realize too late that their funds have been lost, and the hacker at that time has already spent his money and has long evaporated.

Uninsured assets

Only the largest exchanges can affordinsure digital assets. There is no insurance against loss, technical errors or other contingencies. One reason is that cryptocurrency networks operate without trust, with no party being held accountable for the assets. As soon as funds disappear due to theft or due to a smart contract written with an error» they cannot be returned.

Escrow Services: Avoiding Risk

Escrow services are probably the besta way to manage risk with direct transactions in the case of buying, selling and receiving money. There are many different types of deposits, including anonymous, as well as smart contracts without third parties.

But if you need a proven method of sendingfunds, use tools such as Escaroo, Lockscow, and Setescrow. Escaroo is a relatively new service, launched on October 1, 2019. Initially, it only worked with three currencies. Escaroo offers escrow services for BTC, ETH and TrustToken, and may also work with TrueUSD (TUSD). This dollar-pegged currency is more reliable and its price is not subject to fluctuations.

Lockscrow offers escrow for 13cryptocurrencies, personalized service and advice. Lockscrow has been around for 7 years and is one of the oldest cryptocurrency deposit startups.

Setescrow was launched in 2016 and quicklyAdded support for many lesser-known cryptocurrencies. Now Setescrow offers deposit services for 30 cryptocurrencies and tokens, among them Tether (USDT) - one of the most popular cryptocurrencies tied to the dollar.

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The uniqueness of Escaroo is that thisthe service is completely peer-to-peer, it does not require monitoring and transferring funds to another wallet. The company offers secure software for smart contracts, which is regularly tested. Thanks to him, funds never fall into the pool and are not transferred to third parties. For each peer-to-peer payment, a new smart contract is created, a verification layer, due to which the assets arrive at the final destination without any problems. Non-custodial escrow services eliminate the possibility of human error. The algorithm itself sends the funds to the right owner.

Escaroo initially offers limitednumber of currencies compared to Lockscrow and Setescrow. Setescrow offers many risky and volatile assets, while Lockscrow also supports lesser-known cryptocurrencies and tokens.

Escrow services create an additionalverification level for sending and receiving digital currencies. There are services that offer users to bind a name and account to the funds in order to avoid losses. The most powerful deposit tool is smart contracts. They provide a predefined movement of funds. A smart contract constantly monitors funds and eliminates the risk of double spending or sending to the wrong address.

The author has nothing to do with the projects mentioned in the article.