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When it comes to cryptocurrency, one cannot overlook the presence of inherent risks. The market’s value can swing wildly, regulators are still playing catch-up, and unfortunate incidents like high-profile hacks, scams, and frauds are still making headlines.
According to Chainalysis’ 2022 mid-year report, a staggering $1.9 billion worth of cryptocurrency vanished due to hacks, while scams left investors reeling with losses totaling $1.6 billion.
Those who are well-versed in the art of safeguarding their crypto assets hold a distinct advantage. Cryptocurrency’s fundamental concept is all about being in control of your own assets without the need for intermediaries like traditional banks. But with great power comes great responsibility, and you must take every necessary step to ensure the security of your crypto holdings.
In this article, we’ll delve into crucial tips that empower you to protect your cryptocurrency investments.
How Cryptocurrency Storage Works
Cryptocurrencies are like digital tokens meant for secure, encrypted transactions on decentralized networks called blockchains. Think of these tokens as valuables locked in a vault. Crypto wallets, on the other hand, are the keys to access these valuables, allowing you to send and receive them between different accounts.
When you move crypto between wallets, it’s like sharing a unique account number for each type of cryptocurrency you own. That account number is known as a public key or wallet address. But the thing is, each ‘account’ also has a private key, which is like a secret code. Keeping this code safe using a wallet is absolutely crucial if you want to protect your assets.
Understanding the importance of safeguarding private keys is often a learning curve for newcomers. Private keys are like long strings of letters and numbers that act as a unique ID card for your wallet. They prove that you own a specific wallet and grant you the power to access and manage its assets. Think of them as the password to your online bank account.
Another thing that you should know about is the “seed phrase.” This is a series of 12 to 24 words that can act like a magic spell to recover your wallet if you ever lose access. It’s similar to the answer to a security question you set up to regain access to an account when you forget your password.
A fair share of crypto theft occurs when sneaky folks get hold of private keys, often through hacks of exchanges or wallets or by tricking people into giving them up. Worse still, if you lose or accidentally destroy your private keys and seed phrases, your tokens may be gone for good.
Security in the world of crypto is vital because once a blockchain transaction happens, it’s set in stone, unchangeable, and permanent. Unlike traditional banking, there’s no safety net of a third-party institution to protect your tokens or ensure your investment if things take a turn for the worse. It’s a decentralized and mostly unregulated landscape where you are your own guardian.
Tips for Keeping Your Cryptocurrency Secure
There are several tips that can help you keep your cryptocurrency safe and secure from any digital predators out there. These include:
Cold Wallet Storage
Here is some good advice if you are a crypto holder: If the value of your cryptocurrencies is equal to at least a month’s salary, it’s high time to consider cold storage. But what exactly is cold storage? It’s basically a wallet for your crypto assets that is not connected to the internet.
These offline wallets go by the name “cold wallets.” Nowadays, they often take the form of physical devices, ranging from USB drives to specialized hardware with top-notch security and convenience features. While cold storage used to include paper-based methods, they’ve fallen out of favor due to the fragility of paper.
The most common and secure type of cold wallet is the hardware wallet. These are compact devices and can link with your computer. When it comes to safeguarding your crypto, they’re the gold standard.
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If the idea of keeping your cryptocurrency on a physical device doesn’t quite suit your style, then software wallets are an option you can explore. These digital wallets also offer robust security and can serve as a secure home for your crypto assets.
One notable advantage is that many software wallets provide the option of cold storage, which means your assets go offline and stay disconnected from the internet when you’re not actively using them.
When it comes to software wallet types, you’ll find three main categories: Desktop, Online, and Mobile. The good news is that many of these wallets are available for free and come with a host of similar features. It’s a good practice to do some research to identify which software wallet aligns best with your needs. Also, don’t hesitate to switch wallets if you find a better fit. Just ensure that the one you choose has a solid reputation and is trusted by other users in the crypto community.
Avoid Storing Crypto on Exchanges
This is a common mistake, especially among crypto newcomers. Many begin their journey by trading on a cryptocurrency exchange and decide to keep their crypto right there. It might seem like an easy choice, but it can also be risky.
We understand that the idea of cold storage might seem a bit advanced and perhaps intimidating, especially if you’re starting. However, it’s crucial to recognize the risks of leaving your coins in an exchange’s online wallet because they’re substantial.
Exchanges are prime targets for hackers. If an exchange gets hacked, your assets are at risk, too. Simply put, their misfortune could lead to losing your precious cryptocurrency holdings.
It’s recommended to keep only what you’ll use for trading on the exchange, storing the rest of your crypto securely offline.
Keep Quiet About Your Crypto Holdings
Discretion is key when it comes to keeping your crypto safe. Just as you wouldn’t boast about your checking account balance or your stock portfolio, it’s best not to broadcast the specifics of your cryptocurrency investments, like what coins you hold, the types of wallets you use, or your trading strategies.
Engaging with your crypto community, participating in discussions, and sharing knowledge is perfectly fine. However, always be mindful of the personal and sensitive information you reveal about yourself and your assets. Your crypto journey is your own, and sometimes, silence can be the best safeguard.
Employ two-factor authentication (2FA) on any online accounts linked directly or indirectly to your cryptocurrency. Yes, it might add a bit of extra time when logging in, but the enhanced security it brings is absolutely worth it.
The beauty of two-factor authentication lies in its double-layered protection. Even if someone manages to somehow obtain your password, they still won’t be able to access your account because of that second lock.
2FA is not limited to just your crypto wallets; it’s wise to implement it for your email and social media accounts as well. This additional layer of security ensures that your digital assets stay well-guarded.
Beware of Phishing Scams
In recent years, phishing scams have been on the rise, particularly within the cryptocurrency community, as more and more people are dipping their toes in the crypto world.
There are numerous ways in which scammers can compromise your device’s security. They deploy fake Google, Facebook, and YouTube advertisements, upload counterfeit applications to the App Store and Google Play Store, and create phishing domains that mimic well-known websites.
When you unsuspectingly share your private key with a phishing scam website, you can bet that your cryptocurrency holdings will vanish in a matter of minutes. The concerning part is that these scams are often intricately crafted, making it challenging even for experienced individuals to spot the fraud. They’re designed to look nearly identical to the real thing.
This is why it’s absolutely crucial never to visit websites you don’t trust or that fall outside the protective scope of your computer’s security. Exercise diligence when downloading applications and make sure they are official, not counterfeit. Your watchfulness is your best defense against falling victim to these scams.
When it comes to ensuring the security of your crypto assets, it’s imperative to take every necessary step. Cryptocurrency operates differently from traditional banks, demanding a deep understanding to bolster security. The tips discussed above offer a systematic approach to strengthening your protection and safeguarding your assets effectively. Always stay up to date with the technology and ensure that you are following the latest security tips to protect your blockchain assets.
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