By Mary Ann Callahan
One of the most important lessons you must learn when entering the cryptocurrency market is how to avoid becoming a victim of theft. Each year, millions of dollars are taken from private investors and exchanges. Although this makes it sound like crypto assets are a security nightmare, they’re really not. Some people are just having more of a difficult time holding their wealth entirely independently than others.
With all this in mind, we thought it’d be useful to put together a short guide on how to avoid cryptocurrency theft as a beginner in the space. This article should serve only as a primer to the subject, however, we also encourage you to do grounded research of digital currency storage as you need to feel comfortable managing your own wealth.
Introductions and disclaimer out of the way, let’s take a look at some easy things you can do today to help protect your cryptocurrency holdings from theft.
Be Attentive To the Security Of Your Private Keys
Crypto wallets consist of two types of keys – a public and a private one. What is the key? Simply put, it is just a long string of letters and numbers. The function of your private key is to make it possible for you to send funds. You can give it out to people, post it on your website for donations, or even include it in works of art to earn from your craft. But it doesn’t work like that with your private key. It is vital to keep it secret to all but those who are allowed to spend or move the funds stored.
If you take just one thing from this article, let it be this point. Your private key is a tool to control your cryptocurrency. Whoever knows your private key can spend your cryptocurrency. Never give it out or leave it vulnerable to exposure.
Practice Good Internet Security
Firstly, it should go without saying but novice computer users often need prompting, always browse with security in mind. Don’t reuse passwords (the one to your cryptocurrency wallet should be entirely unique). Make passwords strong (upper- and lower-case letters, symbols, and numbers), and don’t download any dodgy material (yourself or by visiting untrusted websites).
Get Your Money Off the Exchanges
Since encryption techniques used on cryptocurrency wallets are so strong, an individual’s holdings do not present such an alluring target to a would-be crypto thief. This is why they favor exchanges. Why target $1,000 or $10,000 when you can go after $100 million?
Exchanges are not a secure place to hold your cryptocurrency. In fact, by keeping money there you are actually missing out on one of crypto assets’ strongest selling points – permissionless value transfer. The Bitcoin, Litecoin, and Ethereum network (and many more besides) are all set up to allow users to send and receive transactions without the consent of any central authority. Sending money from an exchange requires its permission, so what if they’re corrupt, seized, or just disappear?
If you do a quick Google search on “cryptocurrency exchange hack”, you’ll quickly discover that exchanges, which security has been breached by cybercriminals are less like an exception and more like a rule. Being largely unregulated, whether the exchange decides to reimburse its customers is going to depend on their own licensing agreements (if they have any), as well as the extent of the attack and the generosity of those running the exchange. Whilst it’s true that high profile exchange hacks have resulted in customers being fulling reimbursed, smaller often disappear into obscurity leaving users affected at a loss.
Get Yourself a Hardware Wallet
If you’re planning on investing or using a larger amount of cryptocurrency – let’s say, over $500 – you might consider a hardware wallet. These purpose-built devices have been built to secure private keys and nothing else. You can send and receive crypto assets to a hardware wallet without ever putting your private keys online.
Hardware wallets are much more secure than desktop or mobile wallets, which are targets for malware attacks. They also have some security issues, but for most novice users they will provide more than adequate security and a decent level of convenience too.
Don’t Store Too Much in Hot Wallets
That’s not to say that a desktop or mobile wallet is completely useless. They’re really convenient for day-to-day cryptocurrency spends. You should think of them more as of a physical wallet, which is comfortable for you to keep $100, $200, maybe even $1,000, but not all funds.
Since pickpockets and carelessness can mean that you actually lose the money in your real-world wallet, smart people tend not to put too much money in them. Desktop and mobile wallets should be thought of in the same light. They’re perfect for storing that small amount, which you might want to use when browsing OverStock or paying your utility bill, but not so much for your life savings!
Consider a Paper Wallet for Serious Holdings
Potentially paper wallet is even more secure than both hot wallets and hardware wallets. However, unless you’re skilled with computers, you might want to rely on a hardware wallet instead. In the process of creating a paper wallet, you potentially invite much more security risk for yourself.
Since you will be using a computer to generate a private key, it is crucial that your computer is entirely free malware. Even with a brand-new computer, how do you know a malicious technician isn’t inserting chips that remotely access your network card to relay every action you take to some malicious actor during the manufacturing process? Unless you’re a highly skilled computer scientist, you basically can’t.
Even respected Bitcoin advocate Andreas Antonopoulos advocates hardware wallet use over paper wallet use. Whilst a paper wallet can be the most efficient way to protect from theft, it is certainly not always the case.
Don’t Brag About Your Holdings
Finally, don’t be a show-off. For one, no one likes a bragger. For two, it could put you in danger. If no one knows about your hoard of crypto assets, you are much safer than if everyone does. There have been loads of examples over the years of known digital currency investors, traders, or general loudmouths being targeted in extortion or ransom attacks.
Since digital currencies are much easier to conceal than hard cash or other typical valuables, they are often a more worthy target for these not-so-digital-criminals. One common ploy is for someone to offer to buy crypto assets from an individual at way over the market price. They ask if they can meet face-to-face and pay cash and then ambush the person on arrival, coercing them into making the transfer without payment.
Just be sensible about it. It’s best to never let anyone know you hold any crypto. However, if you frequent a lot of social media groups or messaging channels dedicated to it, be sure to keep your price holdings to yourself. If people do know about your holdings, be extra vigilant about your security. Also, consider splitting your cryptos up so that if one wallet is targeted, your position won’t be wiped out entirely.