Cryptocurrency has recently gained immense popularity as an alternative to traditional financial systems. But with cryptocurrency comes a unique set of security risks that don not exist with traditional banking. 2022 was a terrible year for cryptocurrency investors. According to blockchain research firm
Chainalysis, hackers stole a record $4 billion in cryptocurrency last year. Chainalysis has identified that cryptocurrency hacks in 2021 total $3.8 billion, showing a 15% increase from the previous years $3.3 billion, and a significant jump from the mere $0.5 billion stolen in 2020. As the general public's exposure to cryptocurrencies has expanded in recent years, their online holdings have become larger and more attractive targets for hackers. Therefore, its important for anyone who owns digital currency to understand how to ensure their crypto holdings are safe from malicious actors. In this guide, you'll learn more about storing your crypto safely so you can get the most out of your investments without compromising security. But before that, lets learn more about crypto wallets – or where crypto is stored.
What is a crypto wallet?
A crypto wallet is a software program to store your private and public keys, receive and send digital currencies, monitor balances, and interact with various blockchains. Having a cryptocurrency wallet is essential for managing and securing your crypto assets. There are two types of cryptocurrency wallets - hot or cold- depending on whether they are connected to the internet. Hot wallets can be accessed anytime, including all online cloud wallets, most software and mobile wallets, and exchanges. Although you can receive funds anytime with a cold wallet, no one can transfer them. On the
other hand, cold wallets are not connected to the internet and allow you to store your funds offline. Offline storage devices, hardware wallets, offline paper wallets, USBs, and physical bearer items like bitcoins are all cold wallets. Most cryptocurrency holders use both hot and cold wallets. Hot wallets are ideal for frequent trading, while cold wallets are better suited for the long-term holding of crypto assets.
How to store your crypto securely?
Here are some ways you can store your crypto assets securely:
Commercial Non-Custodial Cold Wallets
If you are not actively trading your cryptocurrency, it is recommended not to keep it on an exchange. Online crypto exchanges, both major and minor ones like FTX, are frequent targets for hacks and misconduct due to inconsistent regulation and security. It is essential to be cautious and prioritize security while dealing with exchanges. A basic password is all that stands between a hacker and your funds. To safeguard your cryptocurrency, it is best to store it in a physical "cold wallet" offline. These wallets (specifically hardware wallets) are physical devices that store your crypto
offline. These can only connect to the blockchain through your private key. Hardware wallets like Ledger and Trezor, which resemble USB drives, can store multiple cryptocurrencies for under $150, offering enhanced security and greatly reducing your risk of being hacked. It is crucial to always enable two-factor authentication (2FA) on all wallets and exchanges that support it, and never disclose your private key to anyone.
Enable Two-Factor Authentication
2FA is an increasingly popular way to secure your accounts and identities. 2-Factor Authentication (or 2FA) is a form of Multi-Factor Authentication (MFA) that provides an extra layer of protection in verifying who you are online. It adds an extra security measure beyond just quote something you know & quote; (like a password) by also requiring & quote something you have & quote (like a dynamically-generated code from an authenticator app) or "something you are" (biometrics like retina scan or fingerprint). 2FA is the best defence against account breaches or crypto theft. Just remember to always adhere to the best 2FA practices suggested by providers. With 2FA, users can rest assured that their accounts and data remain safe and secure!
Store your seed phrase securely
Having full control over your cryptocurrency means having the ability to secure it in your way. The most significant aspect of securing your crypto funds is related to your crypto wallet's seed phrase, also known as a recovery phrase. The seed phrase is a 12, 18, or 24-word phrase that is central to the generation of private keys for all cryptocurrencies you hold. It is similar to the master key that hotel managers possess. This means that your seed phrase is the only backup to your private keys, which gives you access to your crypto assets. If you lose your hardware wallet or forget your PIN, you can
restore access to your private keys and crypto assets by using your seed phrase. Thus, you can see how critical the seed phrase is. When copying the seed phrase, it is essential to ensure that you copy it word for word, exactly as displayed on the wallet. Any minor mistake, such as a wrong letter or word, can
lead to the loss of your cryptocurrencies. It is critical to carefully store your seed phrase in a document or on paper to prevent losing it.
To ensure maximum security, it is advisable not to store your seed phrase on any device or application that is connected to the internet. Storing the seed phrase offline is the safest option, as it minimizes the risk of it being accessed by unauthorized persons.
Update your software
Keeping software up-to-date is one of the key ways to secure your cryptocurrencies. After all, hackers are always looking for weak points and software patches are designed to help protect against those vulnerabilities. As your software gets older and older, the likelihood that loopholes have been discovered increases. So its important to stay current on software updates by regularly checking for new possibilities in terms of applications and also
operating system updates.
The ability to keep your cryptocurrency safe and secure is a crucial skill to learn on the journey to becoming your bank. The sooner you learn it, the better.