Cryptocurrencies have revolutionized the world of finance by providing individuals with unprecedented control over their money. However, with great power comes great responsibility. The decentralized and digital nature of cryptocurrencies means that you must take extra precautions to ensure the security of your digital assets. In this article, we will explore the fundamentals of cryptocurrency security to help you protect your investments from potential threats
Custodial vs. Non-Custodial Wallets
Before we dive into the specifics of cryptocurrency security, it’s crucial to understand the fundamental difference between custodial and non-custodial wallets.
Custodial wallets are a type of cryptocurrency wallet where a third party, such as a cryptocurrency exchange or a financial institution, holds and manages your cryptocurrency on your behalf. In custodial wallets, the responsibility for the security and management of your cryptocurrency assets largely falls on the service provider, rather than the individual user. While custodial wallets provide certain level of convenience, they carry a counterparty risk, i.e. risk that the service provider fails to secure your funds. This risk grows with amount and the time. That’s why it’s not recommended to keep big balances of cryptocurrencies for long time with service providers.
Custodial services often provide usernames and passwords for account access. To secure your custodial wallet:
- Use strong, unique passwords.
- Avoid reusing passwords from other accounts
- Consider using a password manager to generate and store complex, unique passwords
- Enable two-factor authentication (2FA) for added security.
Non-custodial wallets, also known as self-custody wallets, are a type of cryptocurrency wallet that provides users with full control over their digital assets. In a non-custodial wallet, individuals are responsible for safeguarding their private keys, which are essential for accessing and managing their cryptocurrency holdings. Unlike custodial wallets, which rely on third-party services to manage and secure assets, non-custodial wallets give users greater autonomy and security.
While you may not use username and passwords to access your non-custodial wallet directly, you may still need a strong and unique password to unlock your device or the software that interacts with your wallet.
Use a Secure Wallet
The first step in securing your cryptocurrencies is choosing a reputable and secure wallet. There are several types of wallets:
Hardware Wallets: These are physical devices specifically designed for storing cryptocurrencies. They are considered one of the most secure options because they are offline and immune to online attacks.
We recommend Trezor hardware wallets.
Pros: High security, private keys offline, user-friendly, multi-currency support.
Cons: Cost, physical vulnerability.
Software Wallets: Software wallets come in various forms, such as desktop, mobile, and online. While convenient, they can be susceptible to malware and hacking if not used carefully.
Pros: Convenience, multi-currency support.
Cons: Security risks, dependence on the device.
Paper Wallets: A paper wallet is a physical document that contains your cryptocurrency keys. It’s a secure option if kept in a safe place, but it can be easily lost or damaged.
Wallet generated with Bitaddress
Pros: High security, no digital footprint.
Cons: Initialization challenges, limited currency support, limited accessibility.
Backup Your Wallet
Losing access to your wallet can result in the permanent loss of your cryptocurrencies. To prevent this, always create backups of your wallet’s private keys or recovery seed phrases.
When you create your non-custodial wallet, you’ll typically be given a recovery seed phrase, which is usually a sequence of 12 or 24 words. Write these words down on paper or use metal backup and store them in a secure and offline location. This is the most critical step. Do not store this information electronically or online, as it could be vulnerable to hacking.
For backing up your wallet we recommend a metal backup, such as Cryptosteel, is a physical and highly durable means of securely storing the essential information required to access your cryptocurrency holdings. It is designed to protect your cryptocurrency private keys, recovery seeds, or other sensitive information from various physical threats, such as fire, water damage, and general wear and tear.
“Not your keys, not your coins” stresses the importance of holding your private keys to ensure ownership and security.
Beware of Phishing Scams
Be cautious of emails, messages, or websites that ask for your private keys, passwords, or other sensitive information. Always double-check the URL of the websites you visit and be wary of unsolicited messages.
Keep Your System Secure
Maintain good cybersecurity practices on the devices you use to access your cryptocurrency accounts. Regularly update your operating system and software, use reliable antivirus software, and be cautious when downloading files or clicking on links from unverified sources. Additionally, consider using a dedicated, secure computer for your cryptocurrency transactions.
Be Cautious with Public Wi-Fi
Avoid using public Wi-Fi networks to access your cryptocurrency accounts, as they may not be secure. If you must access your wallet or exchange account on the go, consider using a virtual private network (VPN) for added security.
Stay informed about the latest security practices and threats by following reputable cryptocurrency service, news sources, forums, and communities. Knowledge is your best defense against potential risks.
Cryptocurrency security is of paramount importance to protect your digital wealth from potential threats. By following the basics of cryptocurrency security, you can significantly reduce the risk of losing your assets to hackers, scammers, or other unforeseen circumstances. Remember that while cryptocurrencies offer a new level of financial freedom, they also come with the responsibility of safeguarding your investments through smart security practices.