Last updated on April 24th, 2024 at 07:18 am
Cryptocurrency, like bitcoin and ether, exists as digital code on servers. Due to its purely digital nature, safeguarding it demands technical expertise. Your choice of storage and vulnerability to hacking are crucial considerations. Security breaches in the crypto world can lead to significant losses. When you own cryptocurrency, Best Practices for safely storing your Bitcoin becomes your responsibility. Unlike bank accounts or broker-managed investments, crypto lacks similar safeguards.
Losing access often means losing your assets, a problem that has persisted since Bitcoin’s inception, with approximately 3.7 million Bitcoin forever lost. You can store crypto using hardware devices, apps, or even paper. Educating oneself on securing digital assets from the start is crucial. Investors often trust third-party platforms, like exchanges, to store their digital assets, which can lead to complications. We’ll explain various crypto wallets and Best Practices for safely storing your Bitcoin.
Losses Due To Crypto Theft
In the crypto industry, hackers and scammers pose the greatest security threat. The 2018 Coincheck exchange breach, which saw $470 million in cryptocurrencies stolen, made headlines for years. However, the 2022 Ronin Network breach surpassed it, with $620 million lost. A recent TechCrunch report noted a 50% reduction in security breach losses, dropping to $204 million in Q2 2023.
Yet, crypto investors still fall victim to scams and rug pulls, with only $4.9 million recovered out of the $204.3 million lost in Q2 2023. To protect against security breaches, investors should take preventive measures, such as using secure wallets and avoiding risky platforms. While cybercriminals remain a threat, Best Practices for safely storing your Bitcoin can significantly enhance security.
Different Types Of wallet: Best Practices for safely storing your Bitcoin
A cryptocurrency wallet’s main job is to store the keys needed for blockchain transactions. Some wallets offer currency swapping. There are three types: desktop, online, and mobile, with overlapping capabilities. Mobile wallets are for retail transactions, but if you lose your device, your coins are gone. Desktop wallets offer control but are vulnerable online. Online wallets, hosted on exchange servers, are convenient but risk your private keys. Then there are physical wallets, like paper or hardware, for added security. Paper wallets are simple, while hardware wallets can connect to other devices. Careful key management is crucial to safeguard your crypto.
Types Of Storage Used These Days
Best Practices for safely storing your Bitcoin hence Crypto exchanges act as digital marketplaces where you can use real money ($AUD) to buy cryptocurrencies like Bitcoin and Ethereum, trade between different cryptos, and cash out. Popular exchanges like Binance, Coinbase, CoinSpot, and eToro are user-friendly and central. They provide convenience, but your assets remain under their control, referred to as a custodial wallet. Unfortunately, if an exchange fails, it can impact the entire industry, as seen with FTX’s bankruptcy due to fraud allegations. To enhance security, consider using cold storage for your crypto assets. While less liquid, cold storage protects your funds from exchange mishaps and hacks.Â
To start with cold storage wallets, you have several options. Not all of them work with every token. Here are some popular choices:
1. Ledger:
– Ledger offers two cold storage wallets: Ledger Nano S Plus for $79 and Ledger Nano X, a bit pricier.
– You can connect these devices to your computer via USB or to iOS/Android mobile devices with Bluetooth.
– They support over 5,500 cryptocurrencies. In 2020, Ledger had a hack, but no crypto assets were stolen.
2. Trezor:
– Trezor provides an entry-level model for $72 and the Model T for $213.
– The $213 wallet is similar to Ledger Nano X but lacks Bluetooth, intentional for security.
– It’s compatible with web browsers, desktop OS, and Android, but not iOS.
3. Ellipal:
– Ellipal’s Titan wallet, starting at $119, uses QR codes instead of USB or Bluetooth.
– It supports over 10,000 types of tokens.
Best Way To Safely Store Crypto Saftely
Here are Best Practices for safely storing your Bitcoin
Tip 1: Create strong, lengthy passwords
Avoid using personal information like birthdays or names. Even randomly mashing keys may not guarantee true randomness. When choosing a cryptocurrency wallet, use a random mnemonic generator for your passphrase, and consider a multi-signature wallet for added security.
Tip 2: Store multisig wallet seed phrases in different places
For Best Practices for safely storing your Bitcoin use BIP 39 to generate mnemonic codes for your multi-signature wallet. Write down your seed phrase on paper, make two copies, and store them separately. Use both analog and digital mediums, and document the process for easy retrieval by current and future owners.
Tip 3: Opt for Cold Storage
For holdings equivalent to one month’s salary, cold storage is wise. A cold crypto wallet is offline and secure, usually a hardware device directly connected to your computer.
Tips 4: Avoid central exchange storage
Holding coins on exchange wallets risks loss due to hacks. Compromised central exchanges can result in the loss of funds and assets.
Tips 5: Choose a secure software or hot/warm wallet
Research and select the best crypto wallet for your needs, as they offer similar features across platforms.
Tips 6: Enable 2FA
Two-factor authentication adds valuable security. Use a PIN and a smartphone for identity verification. It might slow down login but enhances protection.
Tips 7: Transact with known parties
Gather information about wallet addresses before sending cryptocurrency. Use public ledgers and websites to verify details, including IP address, balance, transaction history, and fund volume.
Avoiding scams and public Wifi
Cyberattacks on crypto systems challenge global law enforcement. Crypto investors must remain vigilant to avoid phishing, fake sites, and scams. These frauds can wipe out investments. Security measures matter for all, including exchanges and custody providers. Avoid public Wi-Fi for crypto transactions, and use a VPN for added protection.
Cryptocurrency Security Standards
Cryptocurrency Security Standards (CCSS) offer guidelines for secure cryptocurrency management in information systems. Introduced in 2014 by experts from the crypto industry, academia, and security, they create a framework for assessing security in products like exchanges, wallets, and web apps. The CCSS address ten security aspects, each with three compliance levels:
Basic, Standard, and Advanced. These include key/seed generation, wallet creation, key storage, key usage, key compromise policy, keyholder authentication, keyholder authorization, the number of keyholders, key recovery, and audit. These standards enhance the security of digital assets on exchange platforms, mobile apps, and web services. Following CCSS reduces the risk of fund loss due to hacking, theft, or errors. It also builds trust in the cryptocurrency industry by enabling stakeholders to compare and evaluate products based on their security levels.
How to Store Cryptocurrency ?
Best Practices for safely storing your Bitcoin, you need a crypto wallet. It’s like a digital pocket that holds your crypto assets and private keys.Â
Best Practices for safely storing your Bitcoin in an Exchange
Step 1: Explore different crypto exchanges. Choose one with a good user experience and support for a variety of cryptos.
Step 2: Create an account with your chosen exchange. It usually takes about five minutes but involves Know Your Customer (KYC) requirements.
Step 3:Fulfill the KYC requirements by providing your personal information and supporting documents.
Step 4: Deposit your crypto into your wallet. You’ll need a wallet address, which can be found in your crypto’s transaction page.
Storing Cryptocurrency in Cold Storage
1: Purchase a portable cold storage device with Bluetooth.
2: Install the software.
3: Safeguard your recovery (seed) phrase, as it’s vital for recovery if you forget your PIN or password.
4: Create a new wallet address for each crypto you want to store.
Step 5: Send your crypto to the corresponding address on your cold storage wallet.
Storing Cryptocurrency in a Hot Wallet
1: Set up your preferred wallet, usually taking 10-15 minutes with an internet connection.
2: Complete the KYC process.
3: Ensure your hot wallet is ready for use. You might need to manually add the crypto you want to store.
Step 4: Share your wallet address to receive crypto.
Storing Cryptocurrency in a Paper Wallet
1: Use a malware-free computer or a new one.
2: Visit a paper wallet generator site to generate keys quickly.
3: Generate an address and specify the number of addresses needed.
4: Print your paper wallet, fold it to hide the private key, and protect it from damage.
5: Safely store your paper wallet, keeping it dry and secure. You can receive crypto in any wallet, whether digital, physical, or paper, as long as you have the address.
Choosing the Right Crypto exchange for Storage
Deciding how to safeguard your cryptocurrencies is crucial. You can opt for custodial storage on crypto exchanges or take control with self-custody.
Several exchanges are custodial, but alternatives are emerging. Elbaite, an Australian company, offers a non-custodial model for direct peer-to-peer crypto transactions, keeping your keys in your hands.
Self-custody is preferred by many due to security concerns. Recent incidents, like the FTX breakdown, made investors cautious about centralized exchanges.
Even if you choose self-custody, it’s not a one-size-fits-all approach. Experienced investors often use both hot and cold wallets to:
1. Handle various tokens.
2. Manage different amounts of crypto.
3. Adapt to trading frequency.
To make the right choice, assess factors such as:
1. Platform/hardware security.
2. Costs and limits.
3. Recovery and insurance options.
4. User-friendliness.
Deciding your ideal mix of storage methods requires careful consideration, ensuring your crypto remains secure and accessible.
Conclusion
Best Practices for safely storing your Bitcoin, start by choosing crypto wallets. Use a hardware wallet for most holdings and a hot wallet for easy access. Send your crypto, record recovery phrases, and store them securely. Bitcoin offers financial independence, but secure storage is crucial. Protecting your identity is vital to safeguard your finances. The best method depends on your needs; a mix of hot and cold wallets balances security and usability. Create wallet backups and understand your wallet’s mechanics to reduce user errors. Keep your crypto safe.
