Whether you’re buying, storing, or investing in crypto, keeping your Crypto safe is your biggest priority. In the vast majority of circumstances, losing your money and tokens is irreversible.
Use centralised exchanges that are in regulatory compliance with KYC and AML checks if you want to trade cryptocurrency. The most secure options include peer-to-peer trading and decentralised exchanges with audits.
When it comes to keeping your crypto safe, you have several options. You can store your cryptocurrency on a licenced exchange, which is convenient for newbies and traders. The keys to the pocketbook, on the other hand, are not yours.
A non-custodial wallet, in which you own the keys, is more safe, as is keeping it in a wallet that isn’t linked to the internet, such as a cold storage device. Keep your private keys safe in an offline, secure location in both circumstances.
To strengthen your security, use audited DApps and check whether DApps have authorization to use your wallet on a frequent basis. Once you’ve finished using the DApp, remove these permissions.
Introduction
The concept of self-sovereignty—the idea that a user can operate as their own bank—lies at the heart of cryptocurrencies. If you properly secure your funds, they’ll be more difficult to access than even the most well-guarded bank vaults. If you don’t, you face the danger of having your digital wallet emptied remotely.
As you progress down the bitcoin rabbit hole, you’ll need to learn how to properly secure your digital assets. It’s also not only about storage. In today’s DeFi environment, many cryptocurrency holders connect with DApps, so you should learn how to use your money safely.
You wouldn’t put your money in the hands of an untrustworthy company, and you shouldn’t put your coins in the hands of any random DApp. The same is true of cryptocurrency exchanges, where you may buy and sell cryptocurrency. In this article, we’ll go through some of the finest methods for keeping your crypto assets safe no matter where they are.
Purchasing cryptocurrency safely
Nowadays, you may buy cryptocurrencies in a variety of places. Centralized exchanges, decentralised exchanges (DEX), crypto-ATMs, peer-to-peer solutions, and more are all on the list. Not every option provides the same level of protection, and each has its own set of benefits and drawbacks. For the majority of consumers, reliable, centralised exchanges offer the finest combination of simplicity of use and security.
Choosing a safe exchange
Increased regulation, anti-money laundering (AML) safeguards, and know your customer (KYC) checks provide security for a centralised exchange. While exchanges faced their challenges in the early days of crypto, governments and exchange operators have considerably improved the situation since then.
You must move your assets into an exchange’s custodial wallet in order to use it. Depending on your perspective, entrusting your coins to an exchange can provide some protection. If you’re unfamiliar with wallets or are new to cryptocurrencies, utilising the exchange’s wallet may be more secure. This prevents you from locking yourself out of your wallet and losing all of your cryptocurrency.
Some people, on the other hand, like the security of having direct control over their money. “Not your keys, not your coins” is a saying you may have heard before. Someone else can control your cryptocurrency if you don’t own the wallet. More information on storage can be found in our storage section later.
If you must use a peer-to-peer service, be sure that both buyers and sellers must complete KYC. It should, ideally, also provide an escrow service. While it doesn’t totally eliminate the hazards, having a third party keep your payments in escrow protects both the buyer and the seller from scammers.
How do you keep your account safe?
If you signed up for your exchange or trading technique, follow standard good practises to keep your account safe. These precautions are similar to those you would take while dealing with your online bank account or other sensitive information. It’s simple to keep someone from accessing your account and its funds by doing the following:
1. Make use of a strong password that you change on a regular basis. Your password should not contain any personally identifying information, such as your date of birth. Make it long, unique to that account, and filled with symbols, numbers, lowercase and uppercase letters.
Enabling Two-Factor Authentication is the second step (2FA). If your password is stolen, 2FA with your phone, an authenticator software, or a YubiKey adds an extra layer of security. When logging in, you must use both your password and the 2FA technique.
3. Keep an eye out for phishing scams and email phishing attempts through email, social media, and private communications. To take your money, fraudsters commonly mimic exchanges and trustworthy individuals. You should also avoid downloading software from unidentified sites because it may contain malware.
How can you keep your crypto safe?
After you’ve purchased or traded some cryptocurrency and secured your account, the next step is keeping your Crypto safe. The only other alternative is to keep it in a wallet if you’re not going to leave it on the exchange to trade later. The ownership of your private keys and their connectivity to the Internet vary amongst wallets. The option you choose is based on the level of security you’re comfortable with.
What is the definition of a “private key”?
A private key, like a genuine key, allows you to spend your money. The most crucial aspect of your overall security is keeping your private key and access to it protected. The key is simply a really large number—so large that no one could possibly guess it. You can generate a private key by flipping a coin 256 times and writing down “1” for heads and “0” for tails. Here’s one we just came up with. For a more compact representation, it’s encoded in hexadecimal (using digits 0–9 and letters a–f):
If you Google that number, the only place you’ll find it is in this article (unless it’s been replicated somewhere since then). That should give you an idea of how truly random the number is-the chances of anyone seeing it previously are vanishingly small.
That’s still not enough to do it justice. The number of possible private keys is roughly equal to the number of atoms in the universe. In a nutshell, in cryptocurrencies like Bitcoin and Ethereum, this is a critical security fundamental. Because your coins are hidden in a mind-bogglingly huge range, they are safe.
Public Addresses
You may be familiar with public addresses, which are likewise strings of random-looking numbers, if you’ve ever received payments. These are obtained by doing cryptographic wizardry on your private key in order to obtain a public key, which is then hashed to obtain the public address.
In this essay, we will not go into detail on how this is accomplished. All you need to know is that while generating a public address using the private key is simple, doing the opposite is currently impossible. As a result, you can safely post your public address on blogs, social media sites, and other websites. Without the accompanying private key, no one can spend the funds transferred to it.
You lose access to your funds if you lose your private key. If someone else discovers your key, they will be able to spend your money. As a result, it’s critical to keep your private key hidden from inquisitive eyes.
It’s worth noting that today’s wallets rarely contain just one private key; instead, they’re hierarchical deterministic (HD) wallets, which can store billions of distinct keys. You only need a “seed phrase,” which is a set of human-readable words that may be used to generate those keys.
When you establish a new wallet, unless you choose to use only one private key, you’ll very certainly be prompted to backup a seed phrase. When we talk about key storage later, we’ll use the term “keys” to refer to both private keys and seeds.
How do you keep your seed phrase safe?
It’s critical to keep your 12-, 18-, or 24-word seed phrase private and protected. Anyone who knows the phrase can use it to import your keys into their wallet and take your money. A JSON file or individual private keys can likewise be used to act as a seed phrase. Consider the following suggestions as you consider how you manage your keys.
1. It’s not a good idea to save your seed phrase on a device that’s connected to the Internet. Your password can be compromised if you download a virus or if your computer is hacked and managed remotely.
Online storage is far more secure than offline storage. You might write down the phrase or save it to an offline device. Even if you have a cold storage device, which we’ll talk about later, you should back up the key in case it fails.
3. Consider the material you’ll use and where you’ll keep your sentence if you choose to retain it physically. It is not a good idea to write the words on a piece of paper that can be easily damaged or misplaced at home. Use a safe deposit box in a secure place or keep the phrase on file with your bank. Some folks will engrave their seed phrases on metal or use metal letters on a seed board because it can’t be easily destroyed.
Hot wallets vs cold wallets
There are two types of wallets: hot wallets and cold wallets. Both offer different levels of security. The two types of wallets cover a wide range of options; see Crypto Wallet Types Explained for additional examples. Let’s look at the distinctions between the two.
Hot wallets
Any cryptocurrency wallet that is connected to the Internet is referred to as a “hot wallet” (e.g., smartphone and desktop wallets). The most frictionless user experience is usually provided by hot wallets. When it comes to transmitting, receiving, and exchanging cryptocurrencies and tokens, they’re really convenient. However, convenience frequently comes at the expense of security.
Because of their Internet connectivity, hot wallets are inherently insecure. Despite the fact that private keys are never broadcast, there’s a chance that your online device could be hacked and accessed remotely by hostile actors.
This isn’t to claim that hot wallets aren’t secure; they simply aren’t as secure as cold wallets. Hot wallets are more user-friendly and, as a result, are the preferred alternative for keeping smaller sums.
Cold wallets
Many people choose to keep their keys offline at all times to avoid the huge internet attack vector. They use cold wallets to accomplish this. Cold wallets, unlike hot wallets, are not connected to the Internet. Some cryptocurrency users used to keep a paper wallet, which was a printed piece of paper with the wallet’s private key, usually in the form of a QR code. However, we currently consider this an antiquated and dangerous security strategy. A hardware wallet is unquestionably the finest option for cold storage.
Hardware wallets (like the Trezor One or Ledger Nano S) strive to improve the user experience while following the same premise of keeping the private key offline. These are more portable and less expensive than full-fledged PCs, and specifically designed for cryptocurrency storage.
Your private keys are safely stored on physical devices that never need to connect to the Internet. Private keys never leave the device with a good hardware wallet. They’re normally kept in a separate compartment within the gadget that prevents them from being removed. For a more extensive explanation, see What is a Hardware Wallet (and Why Should You Use One?).
In recent years, the hardware wallet sector has exploded, with dozens of different options on the market.
Non-custodial versus custodial
You can have a custodial or non-custodial wallet. If you have access to and control over your private keys, this is a good thing. If you use an online service like a cryptocurrency exchange, you’re not actually in possession of your coins at the protocol level. Instead, the exchange takes ownership of your money and keys and administers them on your behalf (hence the term “custodial wallet”). To keep your money safe, most exchanges use a combination of hot and cold wallets.
So, if you want to trade BNB for BTC, the exchange reduces your BNB balance in its database while increasing your BTC balance. However, there is no blockchain transaction. You ask the exchange to sign a transaction on your behalf when you intend to withdraw that BTC. They’ll then send your funds to the Bitcoin address you provide.
For consumers who aren’t concerned about their assets being held by a third party, crypto exchanges offer a far more convenient experience. One of the disadvantages of owning your own bank is that if something goes wrong, no one can help you.
You will never be able to recover your funds if you lose your private key. If, on the other hand, you forget your account password, you can easily reset it.You’re still at risk of having your credentials stolen, so make sure you’re implementing the appropriate security procedures we stated before.
What is the safest method of storing data?
Unfortunately, there isn’t a single solution to that issue; if there was, this essay would be much shorter. The answer is very dependent on your risk tolerance and how you want to use your cryptocurrency.
An active swing trader, for example, will have different needs than a long-term HODLer. If you manage a large-scale institution, you’ll generally want a multi-signature configuration, in which several users must agree before funds can be exchanged.
It’s a smart idea to store the dollars you’re not using in cold storage if you’re a regular user. Hardware wallets are the most straightforward solutions, but you should start with small amounts to become used to them. In case the device itself is lost or fails, you’ll also want to back up your keys elsewhere, as per our advice above.
Online wallets are ideal for making small purchases of goods and services. Your mobile wallet is like the actual wallet you carry around if your cold storage is like a savings account. It should ideally be a sum that, if lost, would not put you in considerable financial jeopardy.
Custodial solutions are the best option for lending, staking, and trading. However, before you put your money to work, you should make a plan for how much you’ll spend (e.g., with a position sizing strategy). Always keep in mind that digital money is extremely volatile, so never invest more than you can afford to lose.
Using DApps and Decentralized Finance in a Secure Way
You’ll need to engage with DApps and smart contracts if you want to stake your tokens, utilise them in blockchain games, or participate in decentralised finance (DeFi). DApps must be granted authorization to access funds in users’ wallets.
Giving PancakeSwap permission, for example, allows it to automate tasks such as adding multiple tokens to a liquidity pool. The DApp can perform multiple tasks at once, saving you time. While this is beneficial, there are certain risks involved.
There’s always the possibility of a backdoor vulnerability unless you’ve researched the smart contract in depth and know exactly what it does. Normally, projects are audited to ensure that their smart contracts are secure. Certik is a well-known auditing firm, but its reputation does not always imply safety.
Hacket project
A hacked project will request permission to move large or limitless sums of tokens. Users with less experience are more inclined to accept them and become scam victims. Even if you remove your cash from the DeFi platform, the project may retain control over them and steal them. Smart contracts can also be manipulated and abused by hackers. You could be at risk in this case if you’ve given consent to a project.
As previously said, audited projects are safer investments for your tokens and money. It’s always a good idea to look for projects with audits if you’re dealing with smart contracts, staking in pools, or providing liquidity.
An audit examines the smart contract code of a DApp. Backdoors, exploitable scripts, and security flaws will be investigated by the auditors. These issues are brought to the attention of the project’s founders, who subsequently make adjustments to the code. Any changes are reflected in the final report, ensuring that consumers are aware of the entire, transparent process. After that, the final report can be made public.
While an audit cannot ensure a project’s safety, it does increase the chances that your finances will be more secure. It’s a bad idea to put money into a project that hasn’t been audited. Some smart contracts handle large sums of money, making them appealing to hackers. Auditors who fail to check the code become easy targets.
Certik maintains their list of audited projects, as well as their rating out of 100 and other pertinent information, on a regular basis.
How to Stay Away From Scams
Unfortunately, cryptocurrency attracts a lot of crooks. People try to take advantage of other users by stealing their cryptocurrency, and after the funds have been stolen, there is usually no way to recover them. Scammers take advantage of cryptocurrencies’ anonymity and the fact that many individuals have direct control over enormous sums of money.
Always be cautious and never send money to anyone you don’t know. You should also double-check the identification of anyone to whom you give money.
Here are some of the most typical con games to avoid:
1. Phishing-An email from an exchange or other service you use may ask you to log in or supply personal information. This could, however, be a con artist attempting to steal your personal information.
2. Fake exchanges: These are typically mobile apps or websites that appear to be an exchange.Once you’ve entered your information, a scammer will use it to gain access to your actual account.
3. Blackmail: For a fee, a scammer may send you malware that encrypts your files and holds them hostage.To pay, you’ll almost certainly have to send Bitcoin or another cryptocurrency. It’s possible that you won’t even get the files after paying.
4. Pyramid and Ponzi schemes: You may be invited to join a new project and purchase its coins, or you may be offered a special bargain that requires you to pay in cryptocurrency. On the other hand, a deal that appears to be too good to be true, on the surface, frequently is. Make sure what you’re investing in is safe by doing your own research.
5. Impersonation: Someone may impersonate a government official, a trusted person, or even a friend. They’ll then ask for crypto or other information that you wouldn’t normally share. Always double-check that someone is who they say they are in this situation.
Conclusions
When it comes to keeping your Crypto safe, the blockchain sector now offers a variety of security options. Simple measures are beneficial in keeping your assets safe, from trading to storing and using your crypto. Each storage option has advantages and disadvantages, so it’s critical to understand the trade-offs. As usual, do your homework before putting your money or cryptocurrency into anything.
For more information on keeping your Crypto safe, please take a look at our ‘Crypto essentials‘ course
