Cypherpunks, hodlers and rookies: UBC study identifies three groups of crypto-asset users

With over 100 million users and counting, crypto-assets like Bitcoin are more popular than ever. But managing them remains complicated and fraught with risk: investors have lost billions of dollars in digital funds due to misplaced or forgotten security keys alone.

Now research out of the University of British Columbia and the University of Innsbruck provides new insight into the minds and behaviours of crypto-asset users, revealing how they perceive risk and what they do to protect themselves in the largely unregulated world of digital finance.  

The findings could lead to more secure and user-friendly crypto tools, such as personalized digital wallets that safely guide people of all experience levels through their transactions. They may also help craft improved messaging about the proper handling of digital money.

"To prevent further losses in the crypto space, we first need to learn who crypto-asset users are and understand their attitudes towards risk and security," says Artemij Voskobojnikov, one of the study's co-authors and a PhD student in the department of computer and electrical engineering at UBC.

"Why do they invest? How do they store and protect their assets? What are their security and privacy concerns? The answers to questions like these will help us develop more effective solutions."

In the first large-scale study of its kind, Voskobojnikov and his colleagues surveyed nearly 400 crypto-asset users about their backgrounds and experiences with digital funds. Their examination of the results, using a technique called cluster analysis, showed that they fell into three distinct groups which together may represent the entire population of crypto-asset users.

The groups are:  

• "Cypherpunks", who believe they are least vulnerable to security threats and best able to protect keys and wallets on their own. Mostly computer-savvy males aged 25 to 44 who started using crypto-assets before 2018 — not only to make money, but also out of curiosity about blockchain technology — they take care to back up their wallets and use multi-factor authentication.
• "Hodlers", who also report being competent in digital self-protection and using similar security practices as cypherpunks, but are more cautious, having experienced monetary losses more often than the other groups. They are predominantly middle-aged, high-net-worth male traders who are active on conventional stock exchanges and first entered the crypto realm for financial reasons in 2017 or 2018.
• "Rookies", who generally lack confidence in their ability to manage crypto-assets and are less likely to use proper security practices. More likely to be female or elderly than hodlers or cypherpunks, they are casual users of digital funds who acquired them mainly to avoid missing out on a potentially valuable investment opportunity.

Today's digital wallets, which are used to store and transact with crypto-assets, are typically of the "one-size-fits-all" variety and do not meet the diverse needs of crypto-asset users, say the researchers.

To make transactions more secure, wallets need to offer more personalized services: an option for rookies to back up encrypted security keys to the cloud, for example, or security warnings for cypherpunks and hodlers who opt for advanced key management services.

"There was a time when people would ask themselves whether they should keep their savings under their mattress or in a bank," says study co-author Svetlana Abramova, a postdoctoral fellow at the University of Innsbruck. "Today, managing crypto-asset keys presents a similar trade-off between security and convenience. But with more tailored tools and educational materials, there may no longer need to be a need for compromise."

Photo by Art Rachen on Unsplash