What are cryptocurrencies?
Cryptocurrencies are digital assets designed to function as a medium of transaction, similar to conventional fiat currencies. In contrast to conventional currencies, however, cryptocurrencies are decentralised and operate independently of central banks and government authorities. Instead, they are based on a decentralised network of computers and employ sophisticated cryptographic techniques to secure transactions and control the currency’s supply.
Bitcoin, the first and recognized cryptocurrency, was established in 2009 by an unknown person or group using the pseudonym Satoshi Nakamoto. Since then, tens of thousands of additional cryptocurrencies have been developed, each with unique features and use cases.
The decentralisation of cryptocurrencies is one of their defining characteristics. Unlike conventional currencies, which are administered by central authorities, cryptocurrencies are based upon a distributed ledger known as the blockchain. This ledger is managed by a global network of computers, each of which verifies and logs transactions in the real time.
Due to the decentralised and transparent nature of the blockchain, it is resistant to hijacking, frauds and deception. Transactions on a blockchain also happen to be irreversible, which means that once a transaction has been recorded, it cannot be modified or undone. This makes cryptocurrency transactions more secure and reliable than conventional methods of payment.
The limited supply of cryptocurrencies is another essential characteristic. The majority of cryptocurrencies have a fixed supply, meaning there is a limited quantity of the currency in circulation. This makes cryptocurrencies intrinsically deflationary, meaning their value may increase as demand exceeds supply over time.
Additionally, cryptocurrencies are extremely divisible, meaning they can be divided into extremely small units. Bitcoin, for instance, can be subdivided into units that are as small as one hundred millionth of a Bitcoin, which is known as a satoshi. Thus, cryptocurrencies are well-suited for microtransactions and other forms of digital commerce.
Wallets for cryptocurrency storage
Despite their numerous advantages, cryptocurrencies are a relatively new and an evolving technology. They are prone to volatility and other hazards, and mainstream institutions and businesses have yet to fully adopt and embrace them. In spite of this, a number of experts believe that cryptocurrencies have the potential to transform the global economy and financial system, and their usage is anticipated to increase in the future years. Without requiring a central authority, cryptocurrencies offer a decentralized, secure, and transparent method of transferring funds. With the increasing prevalence of cryptocurrencies, however, comes a higher risk of larceny and cyberattacks. To ensure the safety and security of your crypto assets, it is essential to store them correctly. In this guide, we will examine the various methods for securely storing your crypto assets before discussing the precautions you should take to protect your crypto assets. There are two types of crypto wallets - Software and Hardware wallets. Hardware wallets are considered to be the safest crypto wallets.
Software wallets can be downloaded & installed on a computer system or mobile device. These are called as hot wallets. Both desktop and mobile wallets provide a high degree of security, but they cannot prevent you from viruses and hacks, so you should do your best to avoid malware.
In general, mobile wallets are much more compact and straightforward than desktop wallets, but you can easily manage your funds with either. In addition, some software wallets enable simultaneous access to funds via multiple devices, such as smartphones, laptops, and even hardware wallets. Among the software wallets are Exodus, Electrum, and Trust wallet, among others.
Hardware WalletsHardware wallets, as opposed to software wallets, hold your private keys on an external USB device. They are completely secure and cold. Additionally, they are enabled to make online payments. Some hardware wallets support various currencies and are compatible with the web interfaces.
Crypto hardware wallets are designed to make transactions simple and convenient, so all you must do is insert the card into any online device, access your wallet, transfer currency and confirm a transaction. Hardware wallets are regarded as the most secure way to store crypto assets. The only disadvantage is that they are not for free. They cost anywhere between 50-200 USD in general but are considered safer than software wallets.
Popular crypto hardware wallets include the Ledger, Trezor, and Safepal, among others.
There are numerous promising startups developing secure crypto hardware wallets, such as Cypherock and Keystone.
It is essential to select a cold storage wallet that not only meets your requirements but also provides robust security features to protect your assets from theft and other cyberattacks.
If you do not take the necessary precautions to secure your crypto, it may be susceptible to theft, hijacking, or loss. In the past, individuals and cryptocurrency exchanges have lost significant amounts of crypto due to security breaches and other vulnerabilities on multiple occasions.
2014’s infamous Mt. Gox breach is one example. At the time, Mt. Gox was one of the major cryptocurrency exchanges, processing over 70% of all Bitcoin transactions. However, it was discovered in early 2014 that the exchange had been compromised, resulting in the loss of 850,000 Bitcoin, which at the time was worth more than $450 million. Multiple security flaws, including inadequate password administration and a lack of encryption, led to this hack.
Another instance is the 2016 Bitfinex breach, in which 120,000 Bitcoin, worth over $72 million at the time, were stolen. The Bitcoin was stolen due to a flaw in the multi-signature purses of the exchange, which allowed the hackers to gain access.
In addition to exchange breaches, there have been instances of individual investors losing their cryptocurrency due to weak safety measures. In 2018, a British man purportedly threw a hard drive containing 7,500 Bitcoin, worth more than $250 million, because he neglected the password. This incident emphasises the significance of correctly saving up and storing private credentials.
Additionally, there have been instances of hackers gaining access to individual wallets and stealing cryptocurrency. In one instance, a user lost more than $200,000 worth of crypto after a hacker has acquired access to their wallet via deception. That hacker was able to acquire the user’s private key and withdraw funds from the wallet.
These incidents demonstrate the importance of storing crypto with adequate security measures. Failure to do so can result in significant financial loss and even the loss of cryptocurrency permanently.
Security measures to implement to safely safeguard your crypto assets
Use a hardware walletA hardware wallet is regarded as the safest way to store crypto. Hardware crypto wallet is a compact device that holds your private keys offline, preventing intruders from accessing your funds. Best hardware wallets include the Cypherock X1, the Trezor, and the Ledger Nano S. Hardware wallets enhance the security, portability, and usability of cryptocurrency storage. They are designed to store private keys offline, away from potential online threats, making it challenging for cybercriminals to access your funds. In addition, many hardware wallets support a wide variety of cryptocurrencies and include built-in recovery options, giving you peace of mind that your funds are protected and secure.
Utilize two-factor authenticationTwo-factor authentication increases the security of your online accounts. Accessing your account requires additional information, such as a code sent to your mobile phone. Enabling two-factor authentication on all of your accounts, including your email and cryptocurrency exchange accounts, can substantially reduce the risk of unauthorised access.
Maintain your private keys offlineYour private keys are the most crucial information required to access your cryptocurrency. Use a hardware wallet or print them out and store them in a safe location, such as a safe deposit box, to keep your private keys offline.
Don’t neglect or misplace your seed phraseMost cryptocurrency wallets require seed phrases, also known as recovery phrases or mnemonic phrases. A seed phrase is a series of 12, 18, or 24 syllables used to regain access to a cryptocurrency wallet in the event that its private keys are lost or stolen. Although seed phrases are intended to be a secure and reliable fallback mechanism, there are risks associated with neglecting or losing seed phrases. You will lose access to your funds, which could result in their irrevocable loss.
Seed phrases are typically used as a fallback for hardware cryptocurrency wallets, but if they are lost or stolen, they can become a singular point of failure. Moreover, seed phrases can be prone to brute-force attacks or theft, especially if they are stored online or in a digital format.
Concerns regarding the security and dependability of seed-phrase-based recovery mechanisms inspired the concept of a hardware wallet without a seed phrase. By developing a hardware wallet that does not rely on seed phrases, Cypherock intends to provide users with a more secure and reliable method of storing and accessing their cryptocurrency assets.
Use stronger passwordsA stronger password is required to prevent unauthorised access to your accounts. When establishing a password, it is advised to use a combination of uppercase and lowercase letters, numerals, and special characters. Avoid using information that is readily guessed, such as your name or date of birth, and do not reuse passwords across multiple accounts.
Use a reliable VPNA reliable VPN encrypts your Internet connection, making it more difficult for the cyber hackers to intercept your data. When using a VPN to access cryptocurrency exchanges or other accounts, the risk of unauthorised access is significantly reduced. A virtual private network (VPN) establishes a secure and encrypted connection between the internet and your device, preventing third parties from intercepting and monitoring your online activity. This makes it considerably more difficult for hackers to access your private credentials or compromise your cryptocurrency wallet. In addition, a VPN allows you to circumvent geo-restrictions and access websites and cryptocurrency exchanges that may be blocked in your region. Overall, utilising a VPN is an easy and effective way for enhancing the security as well as privacy of your crypto transactions.
Keep your software up to dateIt is essential to keep your software up-to-date to secure your devices from security vulnerabilities. Included in this are your operating system, web browser, and antivirus software.
Exercise caution when sharing informationShare information about your cryptocurrency holdings with caution. Avoid disclosing sensitive information such as private keys, passwords, and wallet addresses. In addition, be wary of scams such as phishing and other social engineering attacks designed to deceive you into divulging your personal information.
Utilize a dedicated deviceConsider using a dedicated device, such as a laptop or smartphone, for your cryptocurrency activities. This reduces the likelihood that malware or viruses will infect your device and compromise your cryptocurrency.
Use a password managerUsing a password manager can assist you in generating secure, unique passwords for each account. Additionally, it eliminates the need to remember multiple passwords, which reduces the likelihood of using weak or readily guessed passwords.
Back-up your walletIt is essential to back up your wallet on a regular basis so that you can access your cryptocurrency even if your device is lost or stolen. The majority of wallets allow you to generate a seed phrase backup that can be used to reinstate your wallet.
Be careful when using public Wi-FiWhen accessing your cryptocurrency accounts, avoid using public Wi-Fi networks. Public Wi-Fi networks are frequently unprotected, making it simpler for hackers to intercept your data and access your accounts.
Enable email notificationsEnable email notifications for all of your accounts to receive alerts whenever activity is detected. This can help you rapidly detect unauthorised access and respond to it.
In conclusion, protecting your cryptocurrency requires behavioural safeguards. Utilizing a hardware wallet, enabling 2FA, storing your private keys offline, utilising strong passwords, utilising a VPN, keeping your software up to date, using discretion when sharing information, utilising a dedicated device, utilising a password manager, backing up your wallet, avoiding public Wi-Fi, and enabling email notifications are all important steps to take to protect your assets against theft and cyberattacks.
Despite the fact that these precautions can substantially reduce the risk of unauthorised access and hacks, there is no guarantee of complete security. To ensure that your cryptocurrency remains safe and secure, it is essential to remain informed of new security threats and to routinely evaluate and update your security procedures. In addition, if you possess a substantial quantity of cryptocurrency, it may be prudent to consult with a cybersecurity expert to devise a more comprehensive security strategy.