What Is Cryptocurrency?
Bitcoin has introduced the world to a kind of currency that discards existence in any physical shape or form and not controlled by any government body. So, how does one secure it ?
As the value of cryptocurrency increases, so does the threat of thefts or hacks. Often, these thefts happen in clear sight with hackers rerouting tokens bound for one wallet to another, the victims helplessly watch as their tokens get stolen with no means of getting them back.
Since the launch of Bitcoin in 2009, the world of cryptocurrency has become famous at its peak in price in 2017 and later fading from popularity, Bitcoin experienced a modest rise again in 2019, and sadly with this grew the number of thefts and hacks.
Notwithstanding, Money has continuously changed forms over the years; from gold coins to paper bills, to proof of credit, and although these forms of money are physically different, they constitute the fiat currencies of the official monetary system and are all backed up by the government.
As of December 7, 2017 Coinmarketcap.com gives a record that they were approximately 16.7 million bitcoins in circulation with a market capitalization of $260 billion US dollars over 300,000 transactions a day taking place in Bitcoin.
Now, considering the fact that the system is quite foreign to most investors, they may worry about how to keep their investment safe because hackers are always thinking and sprouting up with clever ways to steal funds. This thus brings us to todays article of how best we can safeguard our cryptocurrencies.
How To Store Your Cryptocurrency;
To store your cryptocurrency; you will need a wallet. Just like keeping cash in a physical wallet, cryptocurrencies are secured in a digital or crypto wallet. This digital wallet is either web- based or hardware based. A cryptocurrency wallet is a software program designed to store your public and private keys, as well as send and receive digital currencies, monitor their balance and interact with various blockchains. The wallet can be kept on a mobile device, a computer desktop or kept safe by printing the private keys and addresses used for access on paper.
The safety of these digital wallets basically depends on how the user manages the wallet. A perilous mistake in bitcoin security is the individual user perhaps losing the private key, having it stolen or maybe even through computer malfunction by hacking or by physically losing a computer where the digital wallet was kept. If the private key is intercepted there is often very little that the wallet owner can do to regain access to coins within. Still, You need to have a cryptocurrency wallet to manage your crypto assets and keep them secure.
For the crypto currency user, wallets function in a somewhat similar way to physical wallets that holds cash. However, most wallets are not tangible/physical items and neither are the bitcoins they hold. Rather, they are digital storage tools which have both a public key and a private key. The public key is similar to a username, and identifies the wallet so that other parties know where to transfer coins during a transaction. On the other hand, the private key; similar to a password, is the wallets owner’s special access code and acts as a security device to help ensure others cannot access the bitcoin stored within.
There are basically two forms in which these wallets exist, it is either; Hot Wallet or Cold Wallet.
HOT WALLET includes all online cloud wallets, most mobile and software wallets and exchanges. Hot wallets are handy for frequent trading, they are usually connected to the Internet and can be accessed at any time.
COLD WALLET involves storing bitcoins offline; entirely separate from any Internet access.
Types Of Cryptocurrency Wallet.
This is a “Cold storage” method because it needs no access to the Internet. Desktop wallets can only be accessed with your private computer and with personal security keys stored just on that machine and this reduces the exposure of your security key online. However, Desktop wallets are still liable to hacks if your machine gets infected with malware designed to root out keys and steal Bitcoins. Some examples are CoPay, BitPay or Exodus Wallet.
These are bits of external devices like USB sticks which you can easily carry around. Hardware wallet guarantees you anonymity during transactions. There is no personal information linked to the hardware and hardware wallets are resilient to malware; if perhaps you lose your wallet you’ll be able to recover the funds using a seed phrase but if you lose the hardware wallet there is no recourse to retrieve your bitcoin.
Hardware wallets are designed to make transactions easy and convenient; you plug it in any online device, unlock your wallet, send currency and confirm a transaction; it is that simple. It is best to buy hardware wallets direct from the manufacturer rather than from people and it is advisable to initialize and reset your hardware wallet yourself even if you got it from a producer.
If you want to store your cryptocurrency for a longer period and you want to ensure the highest form of security then hardware wallet is best for you. However, for security, it is advised that coins are not stored in an exchange wallet for an extended period of time. Nonetheless, hardware wallets provide the most secure way to store your cryptocurrency, although it may not be conveniently accessible especially when compared to software or exchange wallets.
Hardware wallets being a cold storage eliminates the need for trust between yourself and the exchange ensuring that you do not have to worry about your tokens being hacked or stolen, if your wallet get stolen or your computer gets hacked the hacker would not be able to transfer your funds without knowing your passcode. There are hardware wallets to use like Ledger, Trezor, Keepkey.
The term “paper wallet” typically refers to a physical copy or paper print of your public and private keys. Other times, it refers to software used to generate a pair of keys along with digital files for printing. Paper wallets are generally classified as cold storage and they can grant you a relatively high level of security. Although they easily can be damaged or even duplicated. To make paper wallets more secure, most people laminate them and also create multiple copies and store them in different locations.
Sample paper wallet
Cloud wallets permits you to access your funds from any device or location. They are hot wallets and are super convenient e.g Guarda, Coinbase, Blockchain.info etc. Although, with cloud wallets your private keys are more vulnerable to attacks because they are stored online and can be controlled by third parties. Nonetheless, A more secure version of cloud wallets is non- custodial online wallets like; Crypto.com Defi wallet, Local Cryptos etc… They are a part of exchange platform which means you are allowed to trade your coins in a safe and secure manner.
This is another way to secure virtual currency tokens. Although not very common, sound wallets technology has to do with keeping the private keys in encrypted sound files in a Compact Disc( CD’s) and Vinyl disks. The Code hidden in the audio files can only be decoded with a spectroscope app or using a high resolution spectroscope.
Software wallets are non-physical programs downloaded onto your computer. It is encrypted and requires a password to access the coins you have stored in it. They are accessible and convenient for users to send and exchange currencies all you need is the password for the software and the user interface will make sending and exchanging cryptocurrencies extremely simple.
However, they cannot protect you against hacks and viruses, you should try to stay malwarefree. A major problem with these wallets is that they are always connected to the Internet, making it vulnerable to any Malware or virus that may be roaming around. Unlike a hardware wallet which gives you a chance to recover your coins by utilizing the recovery phrase if maybe you forgot your password or your computer is damaged, Whatever recovery phrase or passcode that appears on the screen of your software wallet, although highly unlikely, but it could be seen and recorded by a hacker.
There are some software wallets which stores all coins while some are modeled for a particular currency. Like Copay; designed specifically to store Bitcoins. Others are Exodus, FreeWallet, Electrum wallet etc… most software wallets are free and available in the app store to download, they are also fairly straightforward to set up and use.
Deep Cold Storage:
This was introduced by a London-based company which offered the security of a bank vault for securing the keys of bitcoin wallets. It is insured by an Underwriter thereby providing protection against theft or loss of bitcoins. The flaw of this service is that it requires the identity and address proof of the person seeking the service and this tends to discourage those who would prefer to be anonymous owners from using the service. An example of deep cold storage is the Custody service by Elliptic Vault.
Safety Tips To Storing Your Crypto
Here are some safety measures to keep you on the safe side:
1. Always remember to treat your computer or smartphone screen with caution because your device can get endangered anytime.
2. Use the Concept of “ multi signature”: This involves an approval from a number of people, at least 3 to 5, for a transaction to take place. Thereby limiting the threat of theft because a single controller cannot carry out the transactions. The people who can transact are decided in the beginning and when one of them wants to spend or send bitcoins, they require others in the group to approve the transaction.
3. You could separate your funds by making use of one or several cold storages for long term holdings and at least one hot wallet for trading and transactions.
4. Be aware of phishing sites and always double-check crypto addresses before making any transaction.
5. Do not brag or try to show off your crypto holdings publicly under your real name or identifiable address. Some swindlers mange to swindle funds even if properly secured in a cold storage.
6. Only login to secure websites with a valid HTTPs certificate. Most legit sites have one. For more security, try browser plugins like “HTTPs Everywhere”
7. Enable two-factor authentication (2FA) function
8. Keep your software up to date. If your software is updated with the latest security fixes and protocol, you may escape a big crisis because of the enhanced security of the wallet.
9. Backup your entire bitcoin wallet early. In case of a computer failure, a history of regular backups maybe the only way to recover the currency in the digital wallet. Make sure to backup at multiple secure locations like on a USB, a hard drive and on CD also set a strong password on the backup.
10. If you are using a hardware wallet, choose a pin code difficult to decipher and do not make the mistake of putting your 24 word recovery sheet online.
11. If you have a static IP address use it for your safety, making sure you alone can access your accounts and funds.
12. While taking various precautions for our crypto currency safety, let us remember that it is better to strive for an appropriate balance between complexity and security. Only make use of security measures that you can handle, while you might want to do everything possible to guarantee full security of your crypto currency, do not complicate things and jeopardize your security forgetting that you can lose access to your accounts funds or wallets.