Gilbert Saldana Hopefully your company isn’t one of the many small businesses which waste time and money when first using crypto1. Bad news, if so. But there’s good news: these issues are avoidable. This post will teach you how to avoid the time-wasting and money-draining mistakes plaguing other crypto beginners. So follow along and learn the ‘5 Steps to Use Crypto the Safer Way in Your Small Business’. Once you do, your company will have a solid blueprint for safer crypto adoption success.
Safer crypto adoption starts and ends with using a “safer” crypto, though. Let’s start there.
Bottom line, up front: A safer crypto is easy to use2, has a professional and active community3, and is a viable purchase in your jurisdiction. These three concepts can help keep you safer, so we’ll dive into each one below. However, they are not the ultimate determinants about any crypto’s safety. Rather they help you assess its relative safeness, based on your risk appetite. Since I don’t provide investment advice, I’ll show you how to assess these concepts in this post.
And you start the simple way by asking yourself:
“How easy is this crypto to use?”
Step 1 – Start the Easy Way
The first step to using crypto in a safer way is to determine how easy it is to use. Simple enough, right?
Yes…if you keep this in mind: An “easy-to-use” crypto means you can use it as it was designed, when you need it.
“Easy” means accessible and user-friendly: the cornerstones of an “easy-to-use” crypto. But it has to be available, too.
So, network accessibility and GUI user-friendliness are the first things to look for if you want to start the easy way.
Here’s how you look into a crypto network’s accessibility.
Accessible
First things first, this section is referring to public, permissionless, and decentralized blockchains, such as Bitcoin or Ethereum. These network types maintain free and open public access. An important trait for commercial crypto users, like you. After all, if you can’t access a network when you want, why would you want to use it?
I wouldn’t.
Because unlike typical financial institutions, most crypto networks operate 24/7. And if you’re like other globally-based crypto users, chances are you’ll want access to your funds, when you need it. An accessible network allows you to transact during the times you expect (24/7 in most cases) without hindering your ability to access and utilize your wallet.
This includes accessibility in your state or jurisdiction. Different authorities impose restrictions on crypto wallets and their availability in your area. A quick internet search will help you identify a wallet available to users living in your area. Just remember that if you can’t access a wallet to use the crypto, you can’t use the crypto.
So when investigating access, first locate a wallet that supports the crypto you want to buy and make sure you can access it. Shoddy access and shoddy trust is shoddy crypto.
Once you can access and use a wallet, any network “downtime” is likely to hinder your trust, as well. We refer to this as ‘liveness’. Liveness and accessibility are related, so make things easier on yourself and avoid cryptos used on networks with accessibility and liveness concerns.
Why?
Because a safer network has a consistent, growing transaction ledger within a robust (and hopefully also growing) user base. On the flipside, beware a native network which shows inconsistent activity, egregious downtime, or nefarious actors. Such a network may present unnecessary risk due to lost funds or permanent downtime.
If you need a more detailed rundown or refresher, check out this academic paper I wrote detailing how crypto networks operate.
A great way to easily review any crypto’s liveness is to visit its native network’s block explorer. Then, review the transaction history to see recent activity. Here’s the transactions page on Etherscan, a popular block explorer used for the Ethereum network.
Transaction page on Etherscan.io
User-friendly
Exploring a network’s liveness puts you on track to using crypto the safer way. Now, it’s time to test out the crypto for yourself. But not with your own money. Impulsive crypto purchases or wallet downloads are not recommended. Alternatively, try to learn from others’ mistakes, first. That’s why, after you check the network liveness, you should look into the graphical user interfaces (GUIs) people use on it.
Here’s an example of a popular and user-friendly GUI, made by Exodus.
Exodus wallet GUI screenshot from Exodus.com
You encounter GUIs often using your smartphone. A GUI is an interaction point between you (the user) and the network. Think of them as apps. Some GUI examples are exchange websites, mobile hot wallets, and decentralized applications (dapps). GUIs enable your overall ‘user-experience’ and allow you to use your crypto on the network.
Make sure any GUI’s characteristics meet your criteria, before committing. Look at the GUIs website for FAQs, knowledge centers, or demos. Familiarize yourself with its features and unique selling proposition. GUI aspects such as layout, error rate, extensibility and speed can mean the difference between a great experience or lost crypto.
If you’re having a hard time learning about a particular GUI, that may be a good indication of how your overall experience will be. After all, if using a crypto wallet or exchange is too cumbersome, don’t you want to find out before you waste time or money setting it up?
I sure do.
Youtube videos, Quora Q&As, and LinkedIn posts can provide insight into other’s experiences with a particular crypto, too. Witness dapps in action by watching videos. Quora Q&As help you spot common problems. You can even talk to developers using social platforms like Discord and LinkedIn. The important matter is to gain a solid understanding about both producer and user experiences.
A safer crypto has reputable and accessible dapps, apps, and sites, all made easier with user-friendly GUIs. Build trust and feel more confident by reviewing the GUIs you’ll use and making objective observations about the network, first. Then use social media to learn more about user sentiment regarding the GUI’s performance, second.
User-friendliness combined with an accessible network is safer than the alternative.
Step 2 – Learn the Key Players
The next step to use crypto the safer way in your small business is to find out who’s in charge of the network. Learning about the people behind any crypto project builds awareness and trust. The groups you want to focus on are the key role players.
Six groups of key role players sustain network liveness through incentivization, access, and control mechanisms. In many instances, organizations hold multiple roles on a crypto network, as well. For example, some exchanges act as crypto network developers, gateways, and participants.
If you need a refresher about the key roles, check out this post.
And to find out who’s “in charge”, look at the administrator and participant roles, because they control user access and transaction validation, respectively.
Administrators control the network via governance mechanisms and protocol layer rules. Including user access rules. Meaning they can change those rules, too. So, check out published documents, white papers, Github repositories, or the crypto’s website for insight. If something doesn’t feel right about governance, you may want to avoid the network entirely.
Administrators control wallets via protocol rules. Recall how users transact cryptos using wallets. Participants validate users’ transactions by following the protocol established by administrators.
Participants validate and process user transactions while following consensus rules. They’re incentivized to behave honestly, too.
In the case of Bitcoin, for example, successful miners earn a block reward as incentive. That way they’ll process transactions so long as user needs and core protocol remain in balance.
An easy way to gauge if its a safer crypto network is to answer these questions:
– Where are the users located and how many are there?
– Who can issue the crypto and under what conditions?
– Can administrators fork, revise, or otherwise edit the ledger?
– Do developers use free and open source software (FOSS) or proprietary software?
– How do participants join the network and reach consensus?
– Are gateways reputable and user-friendly?
Answer the above questions to learn about the key players on a network. Increase your awareness and potentially lower your risk.
At this point, you’ve learned that your chosen crypto is accessible in your region. You’ve dabbled with the GUIs and feel like you’ve got a handle on them. You also trudged through social platforms, like LinkedIn and Discord to spot valid complaints and issues. Then, you rounded out your efforts by answering a few questions to get to know the roles.
Next, you’ll familiarize yourself with any known risks associated with any crypto. Because it’s better to be safe than sorry.
Step 3 – Note the Known Risks
Think about the last time you drove anywhere in your vehicle. It may seem effortless to quickly and safely get around your city, but in reality the roads present many dangers. That’s why you earn a license to drive: so you’re aware of the rules and risks of the road. Then, you can drive around feeling more confident and safe so long as you keep the dangers in mind.
Using crypto should be no different. So make sure you’re aware of a crypto’s rules and risks before you use it, too. Then you can use it with more confidence and safety.
If you agree, you’ll understand why step three is so important. This step requires you familiarize yourself with common vulnerabilities about any crypto before using it. Your company’s compliance and internal controls can be impacted by these risks, too.
So, let’s go over some known risks inherent with using crypto; it’ll help you better defend your digital treasury against loss, theft, or inaccessibility. That’s why step three is to ‘note the known risks’ associated with a crypto before you use it.
The list below represents risks which may be unique to using crypto tech. And they generally fall into the following categories: hacks, forks, smart contract bugs, crashes, network attacks, and phishing.
Hacks
Hacking is one of the top known risks with using crypto. Not surprising, huh? Hackers use faulty code to disrupt, amend, or obfuscate ledger activity, which may result in stolen or lost funds. That’s why many crypto platforms use common computer languages and FOSS: to ‘outsource’ bug or glitch hunting. The knowledgeable masses can offer greater protection against hacks than a smaller, private team. Thus, the logic goes,“If programmers use a common software en masse, odds are any vulnerabilities will be discovered quickly.”
Therefore, the key to lowering your hacking risk is to use an established crypto platform. One with a solid track record and an experienced community of professional developers which support it. Oftentimes, a hack doesn’t necessarily target an entire network, but an exchange wallet or smart contract. So be sure to follow common sense cyber security rules when using new wallets and dapps.
Even though you can hedge against hacks, they can be a pain. For example, take a peek at what happened to the Ethereum blockchain after the DAO hack. These hacks can result in costly problems like tricky governance dilemmas or forks.
Forks
Cointelegraph has a good refresher about forks, if you need one. But mainly, two types of forks, hard and soft, can increase your risk. Soft forks are upgrades which allow backwards compatibility with your wallet. They’re generally less risky and disruptive.
Hard forks, however, lead to at least two permanently separated chains. As you can imagine, these chains lack compatibility but possess a certain quantity of similar transaction history. Hard forks can lead to lost funds, confusion, or lack of technical support for the “old” chain and/or wallet.
That’s why you want to know if your chosen crypto’s chain has forked, may fork, or if governance rules even allow for forking. A safer crypto may be more resistant to forking or outline a process for all users to retain their crypto should a fork occur. In fact, when a successful hard fork occurs, legacy chain users often end up with double money!
Even though forking risk may seem nascent, be aware of the reasons other chains have forked. Like the Ethereum example above. You’ll better understand key players’ interactions and gauge user sentiment with greater precision. Important aspects for safer crypto use.
Smart contract bugs
Similar to hacking, cyber criminals use bugs in smart contracts to make away with your hard earned crypto. In fact, that’s precisely what happened with the DAO hack. A function in the code (‘split’) contained a vulnerability for the criminal(s) to steal crypto. The DAO’s smart contract was even “verified”.
Verified smart contracts are generally considered safer than the alternative. Find out by visiting a block explorer, like Etherscan, and look for a check mark next to the ‘contract’ tab on the overview screen.
Use the tech to your advantage. Use block explorers and other free tools like Tokensniffer to gain a sense of smart contract security. Unfortunately, smart contract bug exploits do happen and can crash entire networks. So, be smart about smart contracts.
One item to note about bugs: algorithms within smart contract code can have bugs, too. Stablecoins can lose their peg due to flaws in automated market makers (AMMs) algorithms, for example. The Terra stablecoin crash comes to mind.
Crashes
Everyone knows about crypto crashes. They’re self-explanatory: the network goes down (for whatever reason) and transactions grind to a halt. If you can’t send your crypto, you can’t spend your money. Unusable money can lose value, fast. Network crashes are by far the worst outcome of any known risk, because they can result in permanent loss of funds, wasted capital equipment, or supply chain disruptions.
Hedge your crash risk by using cryptos on networks which have proven consensus mechanisms and many disparate, disaggregated participants.
One final note about crash risk: be mindful about the centralized exchange you choose. Namely, note those which have received notices (like cease-and-desist orders) from regulatory bodies. Perform a quick search about any lawsuits directed at your chosen exchange, too. Compliance issues can be red flag warnings about underlying problems. Problems which could lead to a crash.
Network attacks
A network attack is another risk. Different types of network attacks may impact different layers of the protocol. I wrote a paper to help you better understand cryptos’ protocols. Common attack types are Sybil attacks, 51% attacks, long range attacks, and Denial-of-Service (DOS) attacks. They are similar in they all attempt to disable or disrupt the network from performing as intended for users.
Here’s a great resource regarding blockchain security, published by Hacken.
More mature and decentralized networks are generally more protected from network attacks than otherwise. The takeaway is to keep your ear close to the ground around your chosen crypto’s network and its participants. Participants usually stand to lose more than the typical user, so understanding their activities gives you quick actionable insight about any potential network problems.
A good way to do this is to use a tool like Arkham to monitor exchange wallets. I recommend setting up alerts about large transactions or from flagged wallets or entities. Could be a good way to remain aware of potential vulnerabilities.
Phishing
Last on our list are plain ‘ol phishing attacks. Yep, you guessed it: crypto users can be particularly vulnerable to phishing attacks because thieves prey on the unsuspecting. You can prevent becoming a phishing victim by understanding how and where these attacks occur. That way, you’ll know how to spot them and can avoid the attack entirely.
Similar to spam emails, crypto wallets are susceptible to spam crypto airdrops. Generally, they seem innocent and may even look like a reputable coin, such as a stable coin. It is airdropped into your wallet and made to appear legit.
But it’s not.
These deposits may contain links to fake sites, accounts, or codes. Unwittingly you’ll provide private key or login credentials via these fake GUIs when you follow the prompt. You’re handing your keys directly to the thief. No bueno.
Remember, whoever controls the private keys controls the crypto. So the most effective way to keep yourself safe from phishing attacks is to:
– Know your cryptos’ activity in your wallet;
– Don’t trust unsolicited airdrops;
– Use tech (like Tokensniffer or block explorers) to verify security, if things don’t feel right;
– Never share your private keys or seed phrases with anyone.
By applying these tips, you’ll use crypto in a safer way.
At this point, your due diligence helped you identify an easy-to-use crypto. You’re satisfied with its reputation and trust its consistent performance. You’ve validated the professional development and support community, too. Finally, you familiarized yourself with its known risks and feel ready to buy.
You are…almost.
Before you can buy crypto with your company, you’ll need to gain access to a viable exchange. Follow these tips while vetting the exchange to foster improved compliance. Not all exchanges are the same, so we’ll review the things you’ll need to keep in mind when choosing the right one.
Step 4 – Access the Exchange
The fourth step is to access a centralized exchange so you can buy crypto with USD. Although many small business owners may contribute crypto funds directly from personal wallets, for the purposes of this article we’ll discuss initial purchases made with company funds. That way, you can have a solid understanding of how to remain in compliance with regulations and what to expect when you want to account for it.
Establishing an account with a centralized exchange allows your company to use it as a ‘fiat on-ramp’. This type of exchange has know-your-customer (KYC) processes in place to help businesses comply with financial regulations. A fiat on-ramp is where you’ll exchange fiat currency, like USD, for crypto.
One thing to note: some decentralized exchanges (DEXs) partner with third-party services, like Moonpay and offer fiat on-ramp services to their users. Such third-party services also use KYC compliance processes and are also centralized entities.
I wrote this blog post detailing how to choose a centralized exchange for your company. Similar to most banks, centralized exchanges ask you to create an account, then complete the KYC protocol. The process can take a few days and their customer service team may reach out to you. So be sure to check your email with regularity.
If the exchange is not licensed to serve customers in your region, don’t give up! Most US states and territories are served by at least one reputable fiat on-ramp.
My crypto advisory services make things simple and can help you navigate these complexities.
Once your account is ready for compliant activity, the next step is to fund your account. So make sure to review the funding process on the exchange’s website. Oftentimes, the exchange will assign you an account to wire funds from your company’s bank. Reach out to the exchange with any questions before you make any funding mistakes.
One note about funding new crypto wallets or exchange accounts: get in the habit of sending test transactions before you (or your treasury manager) send money to an incorrect account. It’s easy. Just send a small amount of money in a test transaction, then the full amount after confirmation. Better to avoid a mistake than lose money.
Once you’ve funded, congratulations! You’ve got USD in your exchange account and are ready to make your first trade. But before you do, you’ll want to make sure to implement a custody program. Even if it’s informal.
Step 5 – Custody with Confidence
A custody program includes the processes and procedures you need to ensure responsible crypto ownership. It’s part of your wallet management system and helps you outline how you (and your team) control your crypto. Remember: you should implement an organized system to keep track of seed phrases, wallet addresses, and special logins. My services can help you establish your custody program, too.
You have options to custody your crypto. Some small businesses opt to outsource their custodial activities to a reputable third party. The exchange you chose may offer such services, for example. Other SMEs decide to self-custody their operational funds but outsource cold storage for longer term investments. Whichever you decide, make sure to have a solid plan in place. That way, you’ll spare yourself the headache of wasting time and money making beginner mistakes using crypto.
A Safer Way to Use Crypto in Your SME
By following these five steps, you’ll be well on your way to using crypto safely and efficiently in your small business:
- Start the Easy Way: Choose a crypto that is accessible, user-friendly, and has a reputable professional community.
- Learn the Key Role Players: Understand the administrators, participants, and other key roles within the crypto network.
- Note the Known Risks: Familiarize yourself with common vulnerabilities such as hacks, forks, smart contract bugs, crashes, network attacks, and phishing.
- Access the Exchange: Establish an account with a viable centralized exchange to buy crypto with company funds in a compliant way.
- Custody With Confidence: Implement a custody program to securely manage your crypto assets.
By taking these steps, you can minimize the risks associated with using crypto and maximize its potential benefits for your small business. Remember, a safer crypto is one that is easy to use, has a professional community, and is viable in your jurisdiction. Then, you’ll just need to set up your crypto ledger and update your accounting stack.
My services help you throughout the adoption, integration, and bookkeeping process. It’s the convenient way to put crypto on the books. So, reach out today to learn how simple we make it for you to stay compliant without the headache.
Sources
- Mahjoub, Y. Idel, M. Hassoun, and D. Trentesaux. “Blockchain adoption for SMEs: opportunities and challenges.” IFAC-PapersOnLine 55, no. 10 (2022): 1834-1839.
- Zhang, Rui, Rui Xue, and Ling Liu. “Security and privacy on blockchain.” ACM Computing Surveys (CSUR) 52, no. 3 (2019): 1-34.
Manski, Sarah, and Michel Bauwens. “Reimagining new socio-technical economics through the application of distributed ledger technologies.” Frontiers in Blockchain 2 (2020): 29.