Cryptocurrencies are termed to be a hedge against inflation, and ever since the arrival of the first cryptocurrency, Bitcoin, we have seen the industry grow exponentially following the launches of many new cryptocurrency projects.
For those who don’t know, cryptocurrencies use cryptography for secure and decentralized transactions. They operate on a technology called blockchain technology. Blockchain is essentially a distributed ledger that records all the transactions across a network of computers.
Blockchain technology ensures that transactions are secure, transparent, and irreversible. It eliminates the need for a central authority, like a bank, to oversee these transactions. Instead, it relies on a network of computers, known as nodes, to validate and record transactions.
Investing in cryptocurrencies has now become a desirable activity for many who want to see good returns on their investments. Mind you, you need to learn many different things before you dip your toes into this pond, like technical analysis, chart analysis, market analysis, learn about different types of trading options like margin trading, spot trading, leverage trading, etc.
The use cases of cryptocurrency are not only limited to just as an investment opportunity. You can also use it to make online purchases and transfer money across borders, eliminating the traditional banking systems in between so that you have complete control of your assets and how you want to use them.
While holding and trading cryptocurrencies looks like a very profitable endeavour, there are risks associated with it that simply cannot be ignored. The crypto market is a very volatile space where prices fluctuate instantly due to any number of reasons, and many people have seen their assets get liquidated simply because they weren’t ready for what was about to transpire in the market. The other risk involved with owning a cryptocurrency is the safekeeping of your assets.
The risks involved with your crypto being susceptible to outside attack is something that we will cover in this article. We will also look at steps that you should take to safeguard your crypto assets so that only you have access to your crypto funds and no other entity can lay their hands on it.
Wallet Security
There are two ways you can store your cryptocurrencies. One way is to keep it in the exchange where you are carrying out your crypto trading activities. Every well-known crypto exchange, like Binance, Coinbase, Bybit, etc., has a wallet embedded in their exchange app or website where you can store your crypto assets that can be used for further trading activities or just storage.
Exchange wallets are more vulnerable to hacking attempts, and we have seen instances in the past where users’ accounts were drained of their funds who were holding their crypto assets in the exchange wallet. We are not saying this is true for every exchange, but history has shown us that this is a possibility and cannot be taken lightly. Apart from hackers, no one wants to see you losing your hard-earned crypto trading profits.
The other approach that you can follow, which is highly recommended by many crypto experts, is to store your crypto in your own private digital crypto wallet.
There are different types of wallets, each with its way of keeping your digital money safe.
Hardware Wallets: Hardware wallets can come in the shape of USBs or portable hard drives that are designed solely to keep your cryptocurrencies safe and secure. The most positive aspect of owning a hardware wallet is that they are mostly offline, which means that hackers cannot have online access to it, which makes it very difficult for them to try and search for any point of attack.
The only way they can try and crack it is if they have physical access to it. The only downside to owning a hardware wallet is that if you lose it, then your crypto funds are lost forever, so make sure to deposit it in a safe place that only you know about so that you keep your crypto funds secure.
Software Wallets: These are apps or software programs that can be installed on your computer or smartphone. They are often easier to use but might be vulnerable if your device is compromised by malware or viruses.
Paper Wallets: These are physical papers or documents that have your keys and QR codes printed on them. They’re considered safe because they are offline and can’t be hacked unless someone physically steals them. However, they also share the same problem as hardware wallets. That is, if you lose them or if they are damaged, then you will have trouble accessing your funds.
Your wallet has a private key that only you have access to. It is like a secret password that you must provide before accessing your crypto funds. It is very crucial that you keep this key safe and not share it with anyone or store it on a device that other users have access to. Taking other security measures like two-factor authentication (2FA) or setting up security questions that only you have answers to is also a very good practice that you should know about. This way, you can make it very difficult for attackers to crack your password, and you will have some peace of mind regarding your stored crypto.
Remember, no wallet is completely immune to risks, so it’s essential to pick a reputable wallet and regularly update your software for better security.
Safe Practices
When dealing with cryptocurrencies, it’s essential to follow certain practices to keep your investments secure. Following such procedures might help you in keeping your crypto assets safe.
Verify Addresses: Before sending any cryptocurrency to or from your wallet, double-check the recipient address you are sending it to because, once you have transferred the funds and the other party receives them, you cannot undo it. If you have sent crypto to the wrong wallet address, they may not be very willing to dig you out of this mistake and might deny sending you your funds back, so always double-check before sending crypto since transactions are irreversible.
Use Reputable Exchanges: Choose well-known or trusted cryptocurrency exchanges with good security records for buying, selling, or trading. A black swan event might occur sometimes, which no one could have predicted, for example, the FTX collapse, where $8.9 billion worth of customer assets went missing. Such instances cannot be expected in advance, so it is possible that things might not be in your hands all the time. Try to search that the exchange you are trading on isn’t embroiled in any ongoing controversy. If this is the case, try moving your funds to another business or store them in your private wallet because you might not have time to move them later if an incident occurs similar to that of FTX.
Secure Transaction Process: Ensure your internet connection is secure when dealing with crypto. Use encrypted and secure Wi-Fi networks to prevent unauthorized access. Try to avoid using public Wi-Fi systems when you are indulging in crypto trading activities. Make sure that the firewall is active on your device so that you don’t have any unauthorized access to your device. Ensure that the Wi-Fi network you are connecting to is encrypted. WPA2 or WPA3 encryption standards are more secure than older protocols. Check your router settings to confirm the encryption protocol in use.
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Beware of Scams: Phishing attempts are common practices employed by hackers so that they can figure out what your password is. Don’t answer strangers who are trying to figure out your details, as they can use those details to figure out your password, or you might even give it to them without even knowing.
Also, don’t give your details to any caller who is pretending to be the representative of the exchange and asking for your account details because no exchange has adopted such practices where they ask users for their account details. Your account details are only personal to you, and you have every right not to share them with anyone.
Regularly Update Security Measures: Different wallet companies release patches and updates for their wallet apps that address any previous vulnerabilities present in their system and enhance security. Make sure you always update your wallet software and don’t ignore any recommended updates. Also, change your password at regular intervals so that hackers will have a difficult time cracking your password and your crypto assets are secure.
Following these practices will significantly reduce the risk of falling victim to scams, theft, or security breaches. Always prioritize security when dealing with cryptocurrencies.
Thwarting Threats
Another way you can keep your assets safe is to know how hackers use different tricks to try and steal your password and gain control over your digital assets. Knowing about these tricks can prove very helpful to you to avoid falling into their traps.
Identifying Phishing Attempts: Phishing is a fraudulent scheme where hackers create and use fake emails and texts to try and extract your personal information. They can also create fake websites that mimic the functionalities of the original website so that it looks like you are on the right page. This is another method that they employ to extract your financial information by trying to pose as a legitimate source. Watch out for such emails, messages, or websites that look real but are fake.
Avoiding Social Engineering: Social engineering is when hackers try to pose as someone you know, typically someone from your friend list. They may try to pretend that you are talking to the actual person and, without knowing, share some details that you think wouldn’t be used for any malicious activity. They can also try to just ask for money as a gift or a loan, promising that they will return it to you at a later date. Once they are successful in this task, they will deactivate that account or number, and it will be too late before you know that you are the victim of a hacking attempt. Double-check that the person who is asking to borrow some crypto assets is someone you know and trust and that he would not try and harm you in any way or run away with your crypto funds.
Protect yourself by staying informed about common tactics used by hackers and always staying vigilant when dealing with your cryptocurrencies.
Backup and Recovery
In the world of cryptocurrencies, it’s important to prepare for unexpected situations, like losing access to your digital wallet or having it stolen. To avoid losing your hard-earned crypto tokens, it’s crucial to have a backup plan.
Regular Backups: Make sure to regularly back up your wallet information. This means keeping a secure copy of your wallet’s important details in more than one safe place.
Recovery Plan: Have a plan in case something goes wrong. If your computer crashes or your wallet gets lost, having a backup will allow you to recover your funds. Losing your crypto wallet isn’t the end of the world for you. There are ways you can recover your funds. As long as you have your seed phrase, which is also called the Private key, stored somewhere safe, and you know what it is, you can gain access to your funds. There are also cloud-based backup services available where you can store information like private keys, seed phrases, or wallet information so that even if you lose your crypto wallet, all is not lost.
By having backups and a recovery plan in place, you can protect your crypto funds from being lost or inaccessible in unforeseen situations.
Diversification & Risk Management
It is always a good practice to have diversification in your portfolio so you don’t risk losing all your money on one single crypto token. The crypto market is very volatile and highly unpredictable. A lot of planning and analysis go behind every crypto decision you take. Making any random move or unplanned decision can either be a hit or a miss. Most times, however, it is a miss. So, look for any risk mitigation factor you can if things start to get difficult.
Diversifying Investments: Spread your investments across different types of cryptocurrencies. Don’t put all your funds on just one crypto token; this helps reduce the impact of one cryptocurrency’s value changes drastically.
Risk Management: Before investing, set a limit on how much you’re willing to invest. Avoid investing money you can’t afford to lose. It’s also wise to keep track of your investments and regularly review their performance.
Staying Informed: Stay updated on the latest news and changes in the cryptocurrency world. This can help you make informed decisions about when to buy, sell, or hold onto your digital assets.
By diversifying your investments and managing risks wisely, you can potentially reduce the impact of any sudden changes in the market and safeguard your assets in the crypto space.
Education and Community
Talking from personal experience, surrounding yourself with a community that has good knowledge of how to navigate the crypto market is always a plus. It is a very good approach to learn from those who share a common passion with you for crypto trading and who have more experience than you in the market. There is a very good chance that they may save you from making some irreversible mistakes. They may also educate you about the dos and don’ts of the crypto trading.
Valuable Resources: Explore reliable websites, forums, and educational platforms that provide information about cryptocurrencies and security measures. These resources can help you stay updated on best practices and potential threats.
Forums and Communities: Join online communities or forums where people discuss cryptocurrencies and share experiences. Participating in these groups can offer valuable insights and help you learn from others’ experiences.
Continual Learning: Stay curious and learn about new trends, security updates, and changes in the crypto space. The more you know, the better you’ll be at safeguarding your investments.
Being part of a community and staying informed through reliable resources can provide valuable knowledge and insights, empowering you to make more informed decisions regarding your cryptocurrency investments and security measures.
