2017 has been a breakout year for cryptocurrency. Not only Bitcoin, but altcoins such as Ethereum, Dash and Litecoin have also seen amazing increases in value this year. However, this creation of wealth has left many people asking: How can I protect my cryptocurrency?
Cryptocurrencies are decentralized, giving people the opportunity to take away the middleman: you are your own bank. However, this also means that you are responsible for protecting your cryptocurrency.
It takes understanding and responsibility to protect your cryptocurrency and to keep it secure. You don’t want someone to hack your machine and steal your valuable cryptocurrencies.
If this is too much pressure, services like Payza and online cryptocurrency exchanges can be used to hold and protect coins on your behalf. These companies take the responsibility of holding your Bitcoin and altcoins, making it less likely that your coins will one day be lost.
Here are some things to consider when securing your cryptocurrency:
Hacking and phishing attacks are among the biggest security threats to your cryptocurrencies, so you must set strong passwords for your wallets and all accounts that deal with cryptocurrencies.
Keep these tips in mind when setting up or using your cryptocurrency accounts:
- Use different passwords for every account you use to limit any damage that can be done by hackers.
- Use a unique email when opening accounts on each exchange and only use that email address for that specific exchange.
- Enable two-factor authentication for your exchange accounts. This adds a software to your smartphone which adds extra security to your account. Without two-factor authentication, a hacker only needs your username and password to empty your balance.
- Don’t store your wallets and passwords in the same place or an attacker can gain access to both your passwords and your wallet at the same time.
- Never mention what exchange or wallet you use on social media or online forums. Any information you post online can be turned against you.
- Maintain backups of your cryptocurrency wallets and recovery phrases to ensure your coins aren’t lost for good if something happens to your main device. External hard drives, USB sticks, and encrypted backup files can be used to secure your recovery options and programs like VeraCrypt can encrypt these sensitive files.
Difference Between Wallets & Exchanges
When dealing with cryptocurrencies you usually have to deal with private keys. Private keys are used to access your wallet and to authenticate transactions. If you lose access to your wallets, private keys can also help you recover them. A private key is unlikely to be hacked but it can be discovered in other ways, so the most important thing you can do is protect your private key by not sharing it.
When you control your private keys, you have full control over your cryptocurrency. This is the key feature of most wallets. However, securely handling a private key is a big responsibility and when your coins are kept in an exchange, these exchanges will hold your cryptocurrency for you.
Exchanges are made for, well, exchanging. You can use them to convert your cryptocurrency into other cryptocurrencies or into fiat. Because you don’t have as much control over coins held in an exchange, you may face withdrawal limits and processing delays when you are ready to move your coins. When using multiple exchanges, it’s a good idea to divide your cryptocurrency among them. Don’t keep all your cryptocurrency in one place. This will spread out your risk and makes it harder for someone to compromise all of your accounts.
While an exchange is better suited to help you convert cryptocurrencies, a wallet is better for storing and sending coins. With a wallet, you have full control over your coins, and you get to decide exactly when you want to move your coins and where you want to send them.
Understanding the Different Types of Wallets
A cryptocurrency wallet is a secure digital wallet where you store, send and receive your cryptocurrencies. Most coins have an official “core” wallet, usually issued by the same team that worked on the software of the coin itself. As secure as they are, these wallets can be very heavy. In computing terms, this means they contain a lot of data, which uses a lot of space on your hard drive and a lot of your computer’s resources. This is especially true for the Bitcoin core wallet, which contains a record of every single transaction ever confirmed by the Bitcoin blockchain!
If you just need to store your cryptocurrency, that is you’re not planning on trading them anytime soon, you should keep them in a cold wallet. A cold wallet stores cryptocurrency offline, completely disconnected from the internet. This reduces the hacking risk online, as it takes your coins off the exchanges and out of the cloud. With a cold wallet, you can keep receiving cryptocurrency, but you can’t send coins until it’s connected.
A hot wallet is connected to the internet for regular transactions. When comparing wallets, you can think of the hot wallet as the wallet that you carry around in your pocket or your checking account for daily transactions, while the cold wallet works as your long-term savings account or retirement plan.
The different types of cryptocurrency wallets include:
- Desktop Wallet: this is installed on your desktop computer and gives you access to and control over your wallet. This wallet is only accessible from the computer on which it is installed and offers a high level of security. However, it’s at risk if something happens to your computer. Examples of desktop wallets are Exodus, mSigna, and Copay.
- Mobile Wallet: this is run from an app on your smartphone for the most convenient but most vulnerable option. These wallets need to be backed up securely; if you lose your phone, or it is compromised, you could lose your cryptos with it.
- Online Wallet: this is a web-based wallet, which means that your data is stored on an online server, making it easier to access it from anywhere. However, since your private keys are stored online with this wallet, they are more at risk of hacking and theft. Examples of online wallets are Coinbase and Blockchain.
- Hardware Wallet: wallets such as the Ledger Nano S and Trezor are built to specifically hold cryptocurrency and keep it secure. You can turn them into hot wallets by connecting them to your computer, then take it offline once you’re done. You don’t need a specialized device for a hardware wallet, even USB sticks will do.
- Paper Wallet: the most basic form of a wallet involves a pen and paper. Simply write out your private key and you will be able to recover your wallet if you ever lose access to it. You can also print out a QR code for both your public and private key, which avoids storing data digitally, providing a high level of security.
Because of the irreversible nature of cryptocurrency transactions, it is very important to ensure that you have entered the correct wallet address. If you send coins to the wrong address, it may not be possible to recover it.
When using different cryptocurrencies, it is important to understand how they work before making transactions. Certain cryptocurrencies can have special requirements or safety precautions that should be taken. For example, with IOTA you should always use a new address when you send your cryptos, otherwise your security is reduced. With Ripple, there can sometimes be two parts to the address: a wallet address and a destination tag. If the proper destination tag is not included, the coins you send can be lost or end up in the wrong account.
Another risk to watch out for are trojans that have been detected lurking on people’s computers. When the victim copies a cryptocurrency address to send tokens, the trojan will swap the wallet ID that was copied for its own malicious wallet address in payment fields. Therefore, pay careful attention to the cryptocurrency address you are sending your cryptos to.
Phishing attacks, Ponzi schemes, and ransomware are all common types of cyber fraud and theft of cryptocurrencies. There have been reports of cybercriminals sending phishing emails with infected attachments that give the attacker access to the victim’s computer and their wallets. Always be vigilant when dealing with suspicious emails and attachments, especially when you are unsure of their source.
Also, pay attention to the exchanges you’re using. Make sure they’re reputable and secure. Follow the news and avoid those that experience many technical issues or have strange policies.
Lastly, spread the word and tell others about these security measures. If all participants in the crypto community pay attention and take their security seriously, the threat of cybercriminals will be reduced.
As the popularity of cryptocurrencies grows, Payza’s cryptocurrency features and services have grown as well. We are committed to giving our members a complete online payments solution, which is why we’re proud to offer a unique range of Bitcoin and altcoin services.