Digital currencies represent an innovative leap forward in the way that we store and exchange value. Just like the IT revolution of the early 2000s disrupted the way that we create and share information with one another, decentralized cryptocurrencies remove the need for trust in third-party bankers and other financial middlemen.
This provides users of blockchain-based currencies (and other distributed ledger technologies) with the ability to be in complete control over their funds, without the need for any kind of financial institutions vetting and facilitating transactions.
When used correctly, cryptocurrencies like bitcoin are very secure. However, in recent years, lots of new people have invested in bitcoin without understanding the necessary security precautions involved. Unlike traditional fiat currencies, transactions are irreversible. If you lose your private keys, or send bitcoin to the wrong address, it is most likely gone forever.
This guide takes a look at some of the most important things to keep in mind when securing and protecting your cryptocurrency. By understanding the fundamentals, setting up a reliable storage system and being conscious about how you handle information, you can avoid the most common pitfalls that new investors face.
1. Make sure that your computer is secure before handling sensitive information
Quality antivirus software such as Bitdefender protects against most of the common cyber threats. If you are planning on transacting value through your computer, don’t cut corners when choosing an antivirus provider – it’s just not worth the risk!
“Anti-virus software requires constant updates and a dedicated team of professionals behind it to deliver those updates. Those teams cost money. The bad guys never sleep. You cannot afford to choose free here.”
Schedule your antivirus software to scan your computer for malware on a regular basis, and set it on autopilot so that you don’t forget. Remember to check for updates, and also make sure that you’re always running the latest version of your web browser.
If you are logging into exchanges or signing transactions on a public network, use a VPN (virtual private network) for added protection and encryption. This provides another layer to deter people from targeting your computer.
2. Buying, selling and trading crypto on exchanges
Exchanges and online wallet providers are a major target for hackers. Unless you are actively trading on an exchange, remember to withdraw your crypto as soon as you have completed your trades, and store the majority of your coins in cold storage. If you are involved in trading on a regular basis, only keep what is absolutely necessary on the exchange and consider spreading your funds across multiple platforms. This way, if one exchange gets hacked or goes rogue, you don’t lose everything.
To prevent people from using keyloggers to steal your login details, it is highly recommended that you activate two factor authentication (otherwise known as 2FA). When 2FA is activated, anyone attempting to log into your account is also required to provide a string of numbers that only you can access. This set of numbers changes every 30 seconds, and is displayed on a mobile app such as Google Authenticator or Authy.
There is really no reason why you shouldn’t activate 2FA on exchange accounts. It is easy to set up, and worth it’s weight in gold. Using exchanges without 2FA is like driving a car without wearing a seatbelt – just don’t do it.
Another note on 2FA: some exchanges and wallet providers offer SMS authentication. Whilst this does provide added levels of protection, it is best to avoid this option, as it isn’t very hard to contact your telecommunications provider and port your cell number onto another phone. When using 2FA apps, record your recovery seed in a safe place just in case you lose your mobile device.
Use strong passwords on any website that will be handling cryptocurrency, and never use the same password twice. Take a look at this article for more information on creating strong passwords. Password managers are a great way to generate and store strong passwords without needing to remember lots of complex phrases.
Make sure that you are accessing the right URL when logging into exchanges. To do this, bookmark any exchanges that you use, and navigate to these websites by opening up your bookmark or typing the URL directly into your browser. Check that there is a green https:// before the web address, indicating that your connection with the website is secure and encrypted.
Try to avoid finding exchange sites using search engines, and never click onto an exchange from an advertisement on Google. Phishing scams often catch people out – this is where thieves create an almost identical copy of a website using a similar URL, with the intention of luring unsuspecting users into entering their login details.
If your exchanges support email withdrawal verification, you can enable this as a final precautionary measure. This way, if your exchange account is compromised, hackers will need to access your email address to withdraw any funds.
Some people also recommend setting up a separate email address for cryptocurrency accounts and correspondence. This email account is only used for exchanges and online wallets, and should never be shared with anyone. If you receive any emails relating to your portfolio, passwords or links found online, be extremely suspicious about opening them. By interacting with exchanges and cryptocurrency services, you are potentially a target for hackers.
If you are planning to invest in digital currencies, Cryptosaver is a great way to securely buy bitcoin in Australia. We purchase bitcoin in bulk on a regular basis, and send it directly to customer wallets, removing the exchange risk. Learn more here.
Lastly, if you are investing in ICOs, NEVER send the funds from an exchange account, as this will result in the exchange receiving your newly minted tokens.
3. Choosing the right wallet
There are a range of wallets to choose from, with various benefits and drawbacks for each option. If you are planning on investing any material amount of money into crypto, it is important that you think carefully about the best wallet to fit your needs. Don’t keep all of your crypto in one place – store the bulk of your funds in a ‘cold’, air-gapped wallet. For more guidance on the best type of bitcoin wallet for your needs, check out our bitcoin wallet guide.
4. Keep lots of backups
The traditional banking system places trust in a third party – namely the banks. Whilst this means that you don’t completely control your wealth, one of the benefits of working with banks is that they can recover your account if you lose your password. With decentralized systems such as bitcoin, code is law. In the crypto world, access to the private/public key pairs and wallet seed phrases allows anyone with this information to control your coins.
If you lose access to your private keys (through losing your wallet seed phrase, or simply printing out a paper wallet and losing it), then your funds are gone. End of story.
It is therefore extremely important to be rigorous about keeping multiple backups in secure places. Don’t store all of your backups in one location, and try to keep encrypted backups across multiple mediums (USB, CD, hardware wallet, paper seed phrase etc.). A popular option for those who hold large amounts of crypto is to store their wallet backups in a security deposit vault. This provides extreme levels of fire, theft and flood protection.
And last, but not least – be street smart, both online and in person…
5. Nobody likes a big mouth
In daily affairs, bragging can be quite annoying. However, in the world of crypto, this can result in large financial losses and even physical danger. Over the past few years, significant fortunes have been made by early adopters. From time to time, people have posted online about how much their crypto is worth, or talked to the wrong person about it – only to be robbed at gunpoint.
If you own bitcoin or any other cryptocurrency, it is best not to talk about how much you have, where it is stored, or how you keep your wealth secure. Your coins might not be worth much today, but they could be very valuable tomorrow. Imagine if you understood 5 years ago how much $100 worth of bitcoin would be worth today!
Social media channels are constantly monitored for people talking about crypto. By mentioning that you trade or invest in crypto, you are potentially exposing yourself to the threat of cyber attacks. This might sound extreme, but if you want to avoid being a target of online crime, it is best to keep quiet.
With great power comes great responsibility…
Blockchains are shifting the global financial landscape and placing power and autonomy in the hands of individuals throughout the world. We are witnessing the birth of private money.
Whilst this exciting change is poised to unleash a great deal of innovation and disruption, it also means that you are responsible for keeping your funds safe. Remember to educate yourself before investing large amounts. Practice discipline with your cyber security habits, and use common sense – if it sounds too good to be true, it probably is.
When people complain about losing their crypto due to easily avoidable mistakes such as not activating 2FA or bragging about their wealth online, it tarnishes the wider reputation of the cryptocurrency space. As blockchains become more sophisticated, and more mainstream investors jump onboard, cybercriminals will have a greater incentive to steal people’s digital assets. It is therefore paramount that we focus on understanding how to mitigate security risks and protecting valuable information.
If you found this article useful, please share it with your friends so they can learn more about protecting their funds, and if you have any more tips, leave them in the comments section below.