The blockchain led to huge changes that made bitcoin and other cryptocurrencies possible. However, despite the incredible security that blockchain affords, cryptocurrency thefts and scams are still very prevalent. Fortunately, new advances in machine learning technology can help mitigate many of these risks.
If you have invested in Bitcoin or another cryptocurrency, then you are going to want to make sure that your digital coins are properly secured. Therefore, you will want to make sure that your cryptocurrency wallet or service is protected by machine learning technology.
Machine learning technology can do wonders to help reduce the risk of cryptocurrency thefts
Over the past few years, we have seen a growing number of hackers weaponize artificial intelligence. This means that anybody that is possible victim will need to leverage AI-driven cyber security measures to protect their digital assets. This includes anybody that purchases cryptocurrencies.
But can cybersecurity measures predicated on machine learning actually help stop cryptocurrency scams? A growing body of research actually indicates that they may be the most important thing that cryptocurrency investors can use.
A team of Researchers from Henan Key Laboratory of Network Cryptography Technology from China summarized the existing body of research on this topic and emphasize that machine learning could do a lot to help keep digital coins safe.
In 2018, researchers used data mining and machine learning to detect Ponzi schemes in Ethereum. They examined Ethereum’s smart contracts and used eXtreme Gradient Boosting (XGBoost) to build detection models. They identified 45 smart contracts that carried out Ponzi schemes and estimated over 400 Ponzi schemes on Ethereum. In 2019, another team tested the new fraudulent behavior Honeypot in Ethereum. They built a method called HONEYBADGER that uses symbolic execution and heuristics to automatically detect Honeypot fraud based on Honeypot’s taxonomy.
In spite of its sometimes contentious reputation, cryptocurrency has the potential to grow your assets and is definitely worth exploring if you’d like to enhance your investment portfolio. If you don’t know how or where to start, however, it’ll be difficult to truly use cryptocurrency to your advantage and involve it in a sound investing strategy.
In this article, let’s explore one of crypto’s essential features: the crypto wallet. Here’s a guide to understanding what a crypto wallet is, how it works, and the role it plays in protecting your crypto investments.
What are Crypto Wallets and Can Machine Learning Actually Help Keep Them Safe?
Crypto wallets will serve as your gateway to the world of cryptocurrencies. They’re digital tools that allow you to securely store, manage, and interact with your digital assets. They also give you the means to hold your private keys, or the cryptographic codes that grant you access to your funds on the blockchain.
There are four types of crypto wallets, and each one has its own advantages when it comes to helping you safeguard your digital currency. Let’s take a look at these wallets to determine which type suits your preferences:
- Hardware wallets. These allow you to store digital currencies in devices to keep your private keys offline. They provide you with enhanced security, making them an excellent choice to protect your assets from the Bitcoin blockchain.
- Software wallets. These types of wallets can be installed on your computer and various mobile devices, giving you control over your wallet whether you’re using your laptop or smartphone.
- Paper wallets. Using a paper wallet involves printing your public and private keys on a piece of paper, providing you with a reliable form of offline storage.
- Online wallets. These are offered by cryptocurrency exchanges or online platforms where you can buy, sell, and store your digital assets.
Machine learning has helped to make cryptocurrency wallets safer and more convenient. One of the most widely publicized news stories about advances in artificial intelligence and cryptocurrencies stated that machine learning has helped connect digital wallets with AI-powered chat bots.
However, artificial intelligence can improve the quality of crypto wallets in more important ways. The most important benefit is that they can help stop hackers.
This technology relies on some of that same machine learning algorithms used to fight other forms of fraud. Most importantly, AI can help optimize cybersecurity apps to help stop hackers.
How Do Crypto Wallets Work?
Crypto wallets work by securely storing the private keys that are necessary to access and manage your cryptocurrencies. Private keys are essentially cryptographic codes that grant ownership and control over the digital assets associated with a wallet. To better understand the role of private keys in crypto transactions, here are a few things you can expect when you create a new wallet and initiate transactions:
Creating a Crypto Wallet
Upon creating a new wallet, you’ll be given two types of cryptographically generated keys: a public key and a private key. The public key serves as your wallet’s address, and it is meant to be openly shared with others. This makes it easier for others to search for your wallet and add cryptocurrencies to it. The private key, on the other hand, is used to access and control the currency in your wallet. As such, it’s crucial that your private key must be known only to you.
Making Transactions with Your Crypto Wallet
To complete a crypto transaction with your wallet, you’ll need several distinct pieces of information, including the recipient’s public key (address), the amount being sent, and a digital signature generated using your private key.
When you initiate a transaction, you’ll need to find the recipient’s crypto wallet first to know where to send the funds. Since public keys are openly shared, they’re easy to find. Once you’ve found the right address, you can send funds into the wallet by inputting your private key. Before your crypto transaction is completed, it must be broadcast to its proprietary network for validation.
Interacting with the Blockchain
Once you hit send, the wallet broadcasts the transaction details to the blockchain network, which will then be checked by miners. After the transaction is verified and confirmed, it can be marked complete. Afterwards, the details of the transaction will be added as a block in the blockchain.
How Crypto Wallets Can Protect Your Crypto Investments
What makes cryptocurrency and crypto wallets so appealing to a new generation of investors is their decentralized and immutable nature. This means that there’s no centralized entity—like a bank, investment company, or government body—controlling your currency. Another key characteristic of the blockchain’s digital ledger is that its records can’t be deleted or altered. That makes it safer for you to complete transactions and shield you from various online threats like fraud.
Crypto wallets can also protect your coin investments through the following benefits:
- They’ll provide you with secure storage. Crypto wallets give you a variety of storage solutions to secure your private keys. From storing your key offline (in the case of hardware wallets) to having it encrypted on your device (in the case of software wallets), you’ll have plenty of ways to reduce the risk of unauthorized access and theft.
- They’re stringent about transaction authorization. Because of crypto’s cryptographic process, any transaction initiated from your address can’t be completed without your authorization. This gives you an additional layer of security against unauthorized transfers.
- They give you complete control and ownership over your assets. When you own crypto wallets, you won’t have to rely on third-party systems to manage your funds. You’ll have complete control and ownership over your digital currency, reducing your risk of losing your investment due to exchange hacks or platform failures.
Now that you know how crypto wallets work, it won’t be long before you get used to managing your digital assets and assessing your evolving risk appetite. You will appreciate the importance of using machine learning to help mitigate the risk of fraud.
You’ll also be better empowered to protect your assets using your chosen type of crypto wallet. Take this knowledge with you as you navigate the complexities of the crypto space and make informed decisions towards fortifying your crypto investments. Make sure your wallet uses the right machine learning tools to help stop fraud in its tracks!