Bitcoin and other cryptocurrencies traditionally attract the increased attention of hackers, who use them in their illegal activities and steal them from exchanges and ordinary users. With the help of sophisticated techniques, hackers find more and more ways to steal your cryptocurrency holdings. And even the best smart contract auditors cannot protect them from all vulnerabilities. Still, the secure and time-tested methods remain the same.
So, when using cryptocurrency, it is necessary to protect your digital coins reliably, and it is crucial to understand not only their storage. Today, many crypto investors and holders interact with DApps in the DeFi world, so you should also know the rules for the safe use of your funds.
How to store cryptocurrencies securely?
After buying a digital currency and securing an account, it is essential to put it in a safe place. Are you not going to trade? Then, you need to use a crypto wallet. Wallets differ in ownership of private keys and Internet connection, and the choice between them depends on the level of security that suits you.
Hot Wallets For Cryptocurrency Storage
A hot wallet is any cryptocurrency wallet with an internet connection (such as wallets on smartphones and PCs). Hot wallets are the clearest and most user-friendly. With their help, you can easily send, receive and trade cryptocurrencies and tokens. Unfortunately, this convenience often comes at the expense of security.
Internet connection makes hot wallets vulnerable. Although private keys are not broadcast anywhere, your online device can be infected with malware and hacked remotely by attackers. It does not mean that hot wallets are not safe at all. They are just less reliable than cold ones. However, hot vaults are more convenient, so they are usually chosen for managing small amounts.
To protect against online attacks, many prefer to store their keys offline using a cold wallet. Unlike hot digital wallets, a cold wallet is not connected to the internet. Previously, some cryptocurrency holders used paper vaults: printed sheets of paper with the wallet’s private key, usually in the form of a QR code. Still, a cold wallet is now considered outdated and risky. So instead, the best cold storage solution is a hardware wallet providing the proper digital security.
Hardware wallets (Trezor One, Ledger Nano S, etc.) are a more convenient alternative and keep the private key offline. Besides, they are more portable, cheaper than a full-fledged PC, and are designed to store cryptocurrency. Some hardware wallets have a multi-sig feature for additional protection and utilize multiple keys.
These physical devices store your private keys securely and do not require an internet connection. A good hardware wallet ensures that private keys never leave the device, and they are usually stored in a special section of memory that does not allow them to be deleted. As a result, the hardware wallet industry has grown exponentially in recent years, with dozens of different offerings on the market.
Custodial & Non-Custodial Wallets
Your crypto wallet can also be custodial or non-custodial: it depends on whether you gain access and the ability to manage your private keys. For example, if you use an online service like a cryptocurrency exchange, you don’t own your digital assets at the protocol level. Instead, the exchange stores and manages your digital money and keys on your behalf. In most cases, the exchange uses a combination of hot and cold wallets to protect your cryptocurrency and data.
Cryptocurrency exchanges facilitate account management for users who are willing to entrust their funds to third parties. Remember: when you manage crypto transactions on your own, no one can help you if something goes wrong.
Safe Cryptocurrency Purchase & Choosing A Reliable Exchange
Digital currency is growing exponentially and trying to take over fiat currency. So, there are many ways to buy cryptocurrency:
- centralized crypto exchanges,
- decentralized exchanges (DEX),
- cryptocurrency ATMs,
- P2P marketplaces, etc.
Each has certain advantages and disadvantages and its degree of security. For most users, reputable centralized exchanges offer the best combination of convenience and safety. They provide security through enhanced regulation, AML measures, and KYC checks. It makes sense to take into account:
- If you decide to use a P2P service or a decentralized exchange, pay attention to a few critical signs of a reliable and secure platform. So, when using DEX, check for an audit from a reputable source;
- If you want to choose a P2P service, make sure that it provides mandatory KYC verification for buyers and sellers and has its escrow service.
Of course, our advice will not eliminate absolutely all risks, but the safe purchase and storage of funds provide additional protection against fraud.
Take The Proper Measures To Protect Your Account!
If you have registered on an exchange or other trading service, use standard methods to protect your account and additional confidential information. Keeping such information and funds safe is quite simple:
- Use a unique password and change it regularly. The strong password must not contain personally identifiable information such as your date of birth. Come up with a long password specifically for this account and add symbols, numbers, lowercase and uppercase letters to it. Use password managers if necessary;
- Turn on two-factor authentication (2FA). If your password is at risk, 2FA on your mobile device, authentication app, or YubiKey will serve as a second layer of protection. If a service provider doesn’t allow Yubikey, use an authentication app like Google Authenticator. Use both a password and two-factor authentication when logging in;
- Beware of phishing attacks and scams via email, social media, and private messages. So, fraudsters often pose as exchanges and proxies to steal your cryptocurrencies.
You should also avoid downloading software from unknown sources as it may contain malware.
How to avoid crypto scams?
The decentralized nature of Bitcoin and other digital currencies allows you to have complete control over your crypto investments. However, there is no involvement of central authority. If the scammers manage to get you to commit rash acts with Bitcoin, they will eventually be able to steal your BTC, and there is little you can do to get your funds back. So, in 2019, the Japanese exchange BITpoint announced that hackers had stolen $32 million from its hot wallet.
First, however, it is necessary to understand how scammers work. Here are some of the most common scams:
- Phishing. You may receive an email from an exchange or other service asking you to log in or provide sensitive information. It could be a scammer who wants to steal your data;
- Fake sites and exchanges. Often these are mobile applications or websites that mimic the design of the exchange. If you enter your details on them, then scammers will be able to use them to access your real account;
- Blackmail. The scammer may send you malware (which will restrict access to files) and promise to return them after receiving a ransom in bitcoin or other digital currencies. At the same time, there is no guarantee that after payment, you will receive your files back;
- Financial pyramids or Ponzi schemes. You may be invited to participate in a new project, purchase its crypto coins, or enter into a special deal that requires a cryptocurrency deposit. However, if an offer seems too good to be true, it often isn’t. Do your research and make sure you are investing in a safe project;
- Impersonation of another person. Someone can pretend to be a service employee, confidant, or even your friend and then ask for cryptocurrency or information you usually do not disclose. Always double-check whether your interlocutor is the one he/she claims to be.
Unfortunately, a lot of scammers are hunting for cryptocurrency. They try to take advantage of other users and take their cryptocurrency while returning the hacked funds is usually impossible. Fraudsters abuse the crypto anonymity, and many users directly control large amounts of funds.
Stay vigilant, never send money to strangers, and carefully verify the identity of those to whom you transfer funds. Besides, take care of the private and public keys. Otherwise, you can lose access to your wallet address.
Bitcoins’ security issues have remained fundamentally relevant ever since they were created in 2001. Bitcoin is also relatively easy to hack because blockchain technology is supported. Since the bitcoin industry constantly reviews blockchains, hackers are not likely to get in the way.
Axie Infinity’s executive announced Tuesday that hackers had seized more than 650 million in bitcoins in an attack targeting its platform.
The crypto world has introduced several new cryptocurrency investment options for consumers worldwide. However, there is also the risk of failure. Hacking Cryptocurrency wallets also include it. While such attacks are significant, there are ways to protect oneself.
Sure, they are! Today, blockchain offers many solutions and security measures to protect digital assets. So, when trading, storing and using crypto funds, trust simple but effective methods and choose crypto markets, considering each option’s advantages and disadvantages.
If you need to store a large amount, it is better to buy a hardware wallet. Those who trade on the exchange can store cryptocurrency directly to avoid fees and quickly make transactions. Desktop or mobile crypto wallets are suitable for everyday use, payment, and receiving transfers.