This post is written by David Breiner. Edited by Arun Shakyawar.
Cryptocurrencies have grown in popularity in recent years. However, as cryptocurrencies have grown in popularity, there has also been an increase in the amount of thefts and hacks related to it. As a result, safely storing and protecting your bitcoin and crypto holdings is critical. This post will go through how to accomplish precisely that.
The Importance of Storing Your Cryptocurrency Securely
Cryptocurrencies are decentralized digital assets, which means they are governed by no central authority. Instead, they rely on blockchain, a distributed ledger system safeguarded by advanced cryptographic algorithms. While this increases the security of cryptocurrencies, it also makes them subject to hackers and theft.
Hackers attack cryptocurrency exchanges, wallets, and other storage systems in order to steal coins from unwary investors. According to CipherTrace, cryptocurrency-related thefts, scams, and frauds totaled more than $4.5 billion in 2019. According to another report ‘Crypto Losses in 2022’ by Immunefi, the crypto industry lost $3.9 billion in 2022 due to hacks, frauds, scams, and rug pulls.
As a result, it is critical to take the required precautions to safeguard your Bitcoin and other crypto investments.
Choosing Custodial vs. Non-Custodial Wallets
When it comes to storing cryptocurrencies, you have two options: custodial vs non-custodial wallets. Custodial wallets are those that are managed by a third-party service provider, such as an exchange or a wallet provider. Non-custodial wallets, on the other hand, give you complete control over your private keys, and you are solely responsible for securing your wallet.
Because you are committing your cash to a third-party service provider, custodial wallets are often seen as less secure than non-custodial wallets. Despite the fact that these service providers have security procedures in place to secure your payments, they are nevertheless subject to hackers and thefts. Non-custodial wallets, on the other hand, provide you entire control over your private keys, which are required for accessing and moving your assets. This makes them more secure than custodial wallets, but it also means you must assume complete responsibility for your wallet’s security.
How to Protect Your Cryptocurrency Assets?
There are various steps you can take to safeguard your bitcoin holdings, regardless of whether you use a custodial or non-custodial wallet.
1. Select a Secure Wallet
When selecting a wallet, make sure it is reliable and safe. Investigate the wallet provider’s security procedures and check customer reviews to confirm that the wallet is dependable and trustworthy.
2. Use Two-Factor Authentication
Two-factor authentication (2FA) secures your wallet by asking you to present two pieces of identity in order to access your account. A password and a verification code may be sent to your phone or email. To prevent unwanted access, always enable 2FA on your wallet.
3. Use a Secure Password
A strong password is necessary for wallet security. Choose a password that is at least 12 characters long and has a combination of letters, numbers, and symbols.
4. Safeguard Your Private Keys
You will have total control over your private keys if you use a non-custodial wallet. Keep your private keys safe and never share them with anybody.
5. Back Up Your Wallet
It is critical to back up your wallet on a frequent basis to avoid losing your cash. Keep your backup in a safe place, such as a hardware wallet or a password-protected USB drive.
6. Maintain Up-to-Date Software
Update your wallet software on a regular basis to keep it safe and up to date. This will aid in the prevention of vulnerabilities that hackers can exploit.
7. Be Careful with Public Wi-Fi
Public Wi-Fi networks are frequently unsafe and readily exploited. As a result, it is advised to avoid accessing your bitcoin wallet or exchange account over public Wi-Fi networks. Instead, access your wallet or exchange account using a safe and trustworthy network, such as your home or work Wi-Fi network. If you must use public Wi-Fi, consider encrypting your data and protecting your online activities using a virtual private network (VPN). Additionally, after utilizing public Wi-Fi, always log out of your wallet or exchange account and delete your browser history and cache. You may assist to reduce the danger of illegal access to your bitcoin holdings by being vigilant and adopting these procedures.
8. Diversify Your Storage
Rather of holding all of your bitcoin assets in a single wallet, consider diversifying your storage by employing various wallets or a combination of wallets and exchanges. This can assist to reduce the possibility of losing all of your cash if one wallet or exchange is hacked.
9. Make use of Cold Storage
Cold storage is the offline storage of bitcoin, such as on a hardware wallet or a paper wallet. This is regarded as one of the most secure methods of storing your bitcoin holdings since it is not linked to the internet and hence not vulnerable to online assaults. It is, nevertheless, critical to store your hardware wallet or paper wallet in a secure area.
10. Be Wary of Scams
Scams involving cryptocurrency are common, and it is critical to be vigilant when receiving unsolicited offers or requests. Never give up your private keys or personal information to anybody, and always verify the legitimacy of any offers or requests before acting on them. Read more on crypto scams and how to avoid them.
The Risks of Storing Cryptocurrency on Exchanges
Many people keep their bitcoin holdings on exchanges because they are handy and simple to trade. However, there are inherent hazards because exchanges are frequently targeted by hackers looking to steal assets. Furthermore, exchanges are subject to regulatory inspection, and there is always the possibility that the exchange may be shut down or frozen, preventing you from accessing your assets.
As a result, it is suggested that you just store the amount of bitcoin required for exchange trading and retain the bulk of your assets in a safe, non-custodial wallet.
Storing and safeguarding your bitcoin holdings is critical to avoiding theft and loss. Whether you use a custodial or non-custodial wallet, you must take the required precautions to protect your wallet and private keys. Choosing a trustworthy and safe wallet, activating two-factor authentication, using a strong password, keeping your private keys secure, backing up your wallet, and employing cold storage are all examples of best practices. By following these suggestions, you may assist to reduce the hazards connected with bitcoin storage while also ensuring the protection of your cash.
David Breiner is a passionate advocate for technological advancements and a dedicated investor in cryptocurrencies. He is driven to revolutionize the payment industry and have spent years closely following its evolution, including the remarkable growth of Ethereum and the widespread popularity of initial coin offerings.