How to store crypto: Guidelines for Safeguarding Your Crypto Assets
Published Dec 27, 2023 by CryptoDiary
Once you hold on to some cryptocurrency, the security of that currency is entirely your own responsibility. In contrast to the security and protections provided by traditional banking account or investment mechanisms, digital currency is not centralized. The owner has to take precautions on his own initiative.
However, because cryptocurrency is so decentralized and its security measures are somewhat inferior, some people have lost money. The blockchain is where the existence of cryptocurrency lies, and transactions are made by using private keys in wallets.
Finding lost keys and stolen passwords is also very complex, because there's no central authority on decentralized platforms. It's not like traditional banking systems where there is an overseeing entity to help if you lose your money.
For those venturing into the crypto space, selecting a platform for storage and transactions becomes crucial. To be completely honest, Internet offers a variety of crypto tools helping to improve security aspect, but you still need some basic knowledge to sleep peacefully at night. To grasp the significance of this choice, one must delve into the realm of crypto wallets, keys, and adopt best practices for ensuring the security of their digital assets.
Understanding Private and Public Keys:
The term "wallet" in the crypto context might be misleading as these wallets don't physically contain cryptocurrency like traditional wallets hold cash or cards. Instead, crypto wallets manage a set of keys crucial for executing transactions on a blockchain. These keys, specifically private and public keys, play a pivotal role.
A key is essentially a lengthy sequence of random characters. Drawing an analogy, a private key is akin to the PIN or password for a conventional bank account, while a public key resembles an account number that can be shared openly. The security of these keys relies on cryptographic principles, with public keys used for receiving cryptocurrency and private keys serving as proof of ownership.
Unraveling the Mystery of Seed Phrases:
Seed phrase This kind of string of words, also referred to as a recover phrase or mnemonic phrase is used for recovery on both blockchains and wallets.
Crypto wallets also include software to generate seed phrases, and they want you to be sure and write them down for safety. If hardware or data is damaged, the user need only reinstall appropriate software and use its seed phrase to control his funds.
What is crypto wallet?
A crypto wallet, intricately connected to a blockchain, serves as software designed to store public and private keys essential for cryptocurrency transactions. Its functionality extends to holding, sending, and receiving cryptocurrencies while ensuring the security of digital assets.
Custodial vs. Non-Custodial Wallets:
Cryptocurrency wallets fall into two primary categories—custodial and non-custodial. Custodial wallets, offered by centralized entities like cryptocurrency exchanges, manage private keys on behalf of users, resembling traditional financial models. While user-friendly, they entail relinquishing private key control to a third party, introducing risks associated with centralized intermediaries.
On the other hand, non-custodial wallets grant users direct control over their private keys, minimizing central intervention. Although less user-friendly than custodial counterparts, they enhance security by eliminating dependence on external entities.
Hot vs. Cold Wallets:
Choosing between hot and cold wallets involves balancing convenience and security. Hot wallets, accessible online, offer user-friendly interfaces, simplifying cryptocurrency transactions without the need to switch between offline and online platforms.
Conversely, cold wallets, requiring physical devices like hard drives or paper wallets, necessitate more effort for transactions. The added layer of security stems from their offline nature, demanding physical access to the cold wallet and its private key for fund retrieval.
In essence, cold wallets, being offline, boast enhanced security against cyber threats, making them less susceptible to hacking. Hot wallets, while considered less secure, offer speed and convenience, making them preferable for swift transactions and crypto storage by some users.
Best Practices for Safeguarding Cryptocurrency
Many newcomers initiate their cryptocurrency journey through popular exchanges like Coinbase or Kraken, often entrusting their assets to the custodial wallets offered by these platforms. However, such hubs, processing substantial daily transactions, are susceptible to attacks involving billions of dollars. To be informed about such cases, it is important to follow popular crypto communities, as they are always the first to inform followers about upcoming and the latest threats. To ensure the protection of your cryptocurrency, implement the following practices:
Guard Your Password/Seed Phrase:
Treat your seed phrase akin to the PIN for your credit or debit card. Sharing it grants access to your wallet, risking potential loss of all funds. Since seed phrases are designed for the sole security and access of the owner, never share them, regardless of any claims by individuals or entities requesting them.
Two-Factor Authentication (2FA):
Employ two-factor authentication (2FA) for all wallets and associated accounts. This dual-layered security method typically involves a username/password combination for the first step and a unique user-specific factor, such as a phone or personal security questions, for the second.
Multisignature Security:
Enhance cryptocurrency security through multi-signature (multi-sig) measures. This approach uses multiple keys to validate a crypto transaction, ensuring the account's safety even if one linked device is lost or stolen.
Secure Passwords:
Bolster security with a robust password. Avoid using personal words or numbers and opt for a combination of unrelated terms in varying cases, incorporating numbers and characters. Password managers can be beneficial, but maintain exclusive access to the device or browser housing your password manager.
Regular Data Backups:
Routinely back up your accounts and store backup copies securely, known only to you. Maintain access to linked accounts and associated email addresses, especially for recovery purposes using the "Forgot my password" feature.
Physical Record:
Safeguard your wallet's private key by physically documenting and concealing it. In the event of a forgotten key or hardware failure in your cold wallet, having a physical copy of the private key in a secure location provides a fallback option.
