Is Avalanche (AVAX) Safe?

Last Updated January 24th 2022
8 Min Read

Is Avalanche Safe to invest in? This is one of the most critical questions every investor asks and that you too should consider asking before deciding to buy AVAX tokens. And in answering it, you start by examining the internal security vulnerabilities the AVAX network has been exposed to previously if its source code is audited by reputable crypto security agencies and external security risks that threaten your AVAX holdings.

Lucky for you, Avalanche is safer than the average smart contract blockchain. The network has never been breached, and its open-sourced code has been audited by multiple security firms and certified as safe. It also has more validators than any other smart contract platform, effectively providing users with a security guarantee well above the 51% industry standard.

Externally, Avalanche operates in one of the riskiest industries - the crypto market. It is not only massively volatile, which has a direct impact on AVAX price but is also exposed to multiple security threats - especially relating to hacks and scams. This means that even with a network as secure as Avalanche, it still is incredibly easy to lose AVAX investment to hackers and scammers.

In 2021, for instance, cryptocurrency security investigative platform - Chainalysis - indicates that crypto investors and traders lost a record $14 Billion to hackers and scammers. This is relevant to Avalanche is actively seeking to expand its foothold and ultimately exert in the DeFi space, given that 72% or over $10 Billion of the stolen funds came from DeFi protocols. In fact, this loot includes more than $38 Million stolen from two DeFi protocols - Zabu Finance and Vee Finance - housed on the Avalanche network.

Before buying Avalanche, therefore, you need to understand the threat that rising DeFi crime poses to your investment. You also need to learn about the other risks your Avalanche investment is exposed to and how you can keep your AVAX tokens safe.

Read on to learn about all these.

What To Consider Before Buying Avalanche (AVAX)

Two things; first is that AVAX tokens are susceptible to price fluctuations, and the other is you have the biggest role to play if you are to keep your funds safe.

For starters, you need to appreciate that Avalanche, like all other cryptocurrencies, is a massively volatile crypto asset. Its prices are always fluctuating and out of your control. There simply are so many variables acting on the price of Avalanche, which makes predicting its next move near impossible.

It is a constant battle of sentiments where variables that contribute to positive sentiments send AVAX token prices on an uptrend and vice versa. Nevertheless, the two key factors that have the biggest influence on AVAX’s price action have to be news and crypto market performance.

By saying you have the biggest role to play in keeping your altcoins safe, we imply that your choices, actions, and inactions will ultimately determine the safety of your crypto investment. This starts with the choice of a crypto trading platform, a password, and the choice of a digital wallet. By failing to vet a trading platform or digital wallet thoroughly or by using a weak password, you increase the risk of losing your crypto investment.

Read Also: Is Avalanche A Good Investment?

Crypto asset investing is highly volatile and unregulated in some EU countries. No consumer protection. Tax on profits may apply.

What Are The Risks Associated With Avalanche (AVAX)?

The two most common risks facing Avalanche investors today have to be the risk of losing your AVAX investment to hackers or volatility. Let us address each below:

Hacking: Loss of AVAX investment to hackers, though not an everyday affair, is quite devastating because there is often no recourse to getting the tokens back. Today, there are three common ways through which you can lose your AVAX tokens to hackers. First is after a breach of your digital wallet, second has to be a hack to a crypto exchange where you store your AVAX, and third has to be a breach of the DeFi smart contract protocol where you have staked your AVAX. In the case of DeFi protocols, Chainalysis reports that most hacks were made possible by exploiting a weak smart contract code.

Notable hacks in 2021 included the $200 Million PancakeBunny platform hack in May, $600 Million hack of the Poly Network in August, $34 Million theft from Cream Finance wallet in September, $200 Million BitMart trading platform hack in December, $120 Million breach of the Badger DeFi platform in November, and $140 Million theft from a blockchain gaming company Vulcan Forged in December. Not to mention the compromise of 6000+ Coinbase wallets between March and May 2021. 

Volatility: Avalanche is a massively volatile crypto asset, and you have to deal with its unpredictable value fluctuations daily. On a typical day, AVAX will gain or lose single-digit percentage values. But on special occasions, especially after positive or negative news affecting the altcoin individually or the larger crypto market, these gains and losses may cross the double-digit percentage lines fast on in a matter of hours or a few days.

Here is an example: A few days after the crypto market crash in mid-May 2021, Avalanche shed more than 70% of its peak value. Five months later, the AVAX token’s value grew by more than 230% in the first three weeks of November to hit its current all-time high of $146. And if you bought at this peak, you are currently in the red by more than 40%. The upside to this, unlike losses to hackers, is that there is a high likelihood of recovering the lost investment if you hold and AVAX prices rebound and begin to recover.

Other Types of Scams to Look Out For

Rug pulls

The 2021 crypto crime report by Chainalysis indicates that of the more than $10 Billion lost to DeFi protocol-related crimes, about $2.8 Billion can be directly attributed to rug pull scams. In this scam, a developer comes with what seems like a legitimate crypto investment project, only to later pull the rug from underneath the program and vanish with investor funds. Note that almost all of this amount was lost after the Thodex’s (a centralized crypto exchange in Turkey) CEO stopped withdrawals and escaped with user funds in April 2021.

Ponzi schemes

In a classical Ponzi scheme, developers create a seemingly legit crypto investing project. They then bait their unsuspecting victims with the promise of above-average returns on their crypto investments.

But just like the case of rug pulls, these scammers often pull down the program or simply limit withdrawals and escape with investor funds. In 2021, the biggest crypto Ponzi scheme dubbed FINIKO was unearthed in Russia and resulted in the loss of an estimated $95 Million of investor funds.

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How To Keep Your Avalanche (AVAX) Safe?

Vetting, thorough vetting, and more vetting

You will be surprised by the amount of crypto that can be saved if only the investor/trader was more careful and took the time to vet the trading platform or DeFi protocol. Hence the overemphasis on the need for everyone to vet a platform before trusting it with their personal information and crypto-assets.

For instance, in the case of Finiko, individuals continued pouring funds into the Ponzi scheme long after Russian banks called it out as a scam. When vetting, you will want to ensure that you only interact with audited exchanges and protocols with known and highly reputable founders and developers.

Hardware wallet and unique passwords

Do not leave your crypto assets in a hot wallet or an exchange. Instead, invest in a hardware wallet that stores the private keys for your AVAX tokens offline. The 6000+ breaches to Coinbase wallets wouldn’t have resulted in losses if the investors hadn’t overtrusted Coinbase products and held their coins online. Further, regardless of whether you are using a hot or cold wallet, use highly unique passwords. This applies to crypto trading platforms too.

Keep up to date with crypto crime reports

Crypto crime investigating agencies like Chainalysis, CipherTrace, and Crystal Blockchain do not just publish statistics of crypto investments lost to hackers and scammers. They, and such other regulatory agencies as the Federal Trade Commission (FTC), always publish reports about existing and emerging scams. They also share tips on how such scams can be detected and avoided.

Avalanche (AVAX) Security Vs. Privacy

Note that while blogs and websites you have come across before may have used the terms Avalanche security and privacy interchangeably, the two couldn’t be more different.

Throughout this post, we have been addressing Avalanche security, which revolves around guaranteeing the safety and integrity of your crypto assets. When discussing Avalanche, as we have been throughout this article, we look at the different in-network and external factors that pose a risk to your Avalanche investment and check how these can be detected and avoided.

On the other hand, Avalanche privacy relates to how your personal and transaction data are handled on both the Avalanche network and third-party platforms. If we were addressing Avalanche privacy, for instance, we would have looked at the level of anonymity provided to Avalanche network users, the type of personal data collected by Avalanche network and trading platforms that list the altcoin, how that data is stored, checked who has access to the stored data, if that data is shared.

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Crypto asset investing is highly volatile and unregulated in some EU countries. No consumer protection. Tax on profits may apply.

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