Cryptocurrency Storage Safety Basics in 4 Minutes
So, you’ve entered the exciting world of digital currency but you’re worried that you may be at risk of having your coins stolen by hackers. This concern is completely valid, and even some of the biggest players in the space have gotten hacked.
There are billions of dollars worth in cryptocurrency that have fallen into the hands of malicious third parties and hacks don’t seem to be slowing down. Coincheck, a Japanese exchange, lost $534 million in NEM coins (523 million NEM) in 2019 - one of the biggest hacks in cryptocurrency history.
As an individual, you might not be such a focal target as centralized exchanges such as Coinbase, but the possibility that someone wants to gain access to your coins is still very real. Here’s how to get and stay protected and keep doing online gambling with bitcoin safely.
What’s Cooler Than Being Cool? Cold Storage
By far, the safest way to keep your coins safe is by keeping it in cold storage, a term that refers to cryptocurrency (or data) kept off the Internet. This can be done in a variety of ways included by paper wallets (literal pieces of paper) or hardware wallets such as a Ledger Nano S or Trezor.
When it comes down to it, you’re probably better off using a hardware wallet because paper wallets can be very easy to lose and often require using an online generator, which sort of defeats the purpose of having an offline hardware wallet.
However, keep in mind that cold storage only protects you from external threats - not the seemingly infinite capacity for human error. There are dozens of stories of unfortunate souls accidentally tossing their cold storage devices in the trash, or in a moving box that ended up getting mixed up and being sent to a Goodwill as a donation.
Call in the Back Up for Your Back Up
The coast isn’t clear even once you’ve got your cold storage set up, but you’re almost there! Hardware wallets usually come with a series of back up words that will help you regain access to your cryptocurrency wallet in the event that you lose the physical hardware wallet.
But, wait - what’s the point of a hardware wallet if someone can just gain access to your cryptocurrency holdings by using your back up phrases?
Exactly - so you need to make sure those are safe as well. The point isn’t to prevent someone from gaining physical access to your cryptocurrency, which requires the same precautions as having a briefcase full of cash or high-end piece of artwork.
Many people decide to rent one or two safety deposit box at a reputable bank(s), which usually costs around $60 per year, and keep their hardware device and back up phrases there for safe keeping. However, this has some burning drawbacks
The first is that you lose the convenience of having your cryptocurrency on you and available for trading at any moment. This is why this strategy tends to be only used by people looking to sit on their holdings, you know - the HODLers, and not by people doing short-term trades or using their cryptocurrency for things such as online gambling with bitcoin on MintDice.
The second is more ideological. Many cryptocurrency enthusiasts are vehement supporters of “being your own bank.” Keeping your hardware wallets in a bank seems diametrically opposed to this, but at the end of the day, would you rather be a hacked or not hacked?
But, what if I don’t want to keep all my crypto locked away?
While cold storage is the safest way to protect your digital assets, it can be inconvenient for people who need access to their holdings on a regular basis.
If you’re in this situation, it’s recommended you keep whatever cryptocurrency you need on hand on a software wallet such as Exodus, and the rest in a cold wallet.
Of course, you also have the option to keep your cryptocurrency on an exchange such as Binance or Coinbase, but then you immediately up the ante of risk. You not only have to worry about hackers getting into your personal wallet, but also those hacking into the exchange itself, or even the exchange deciding to run off with your moolah.
Modern exchanges have taken precautions to safeguard their customers, but this is an article on the best ways to store your crypto, so we need to mention the risks associated with exchanges.
If you do decide to store some cryptocurrency on an exchange or other “hot wallet”, there are some precautions you should take:
- Enable 2FA - This is a MUST. Two-factor or other multi-factor, authentication sets up more safeguards to your private keys. Most people set this up with their phone number, and many exchanges have made 2FA part of their standard procedure. However, there have also been instances where hackers have gained access to someone’s SIM card remotely.
- Google Authenticator - This is a free software-based authenticator that generates new codes every few seconds, making it harder for hackers to use any single code for any period of time.
- FreeOTP - This is a free and open-source software token that can be used for two-factor authentication.
- Keepassxc - a free and open-source password manager.
“Only you can prevent forest fires.” - Smokey the Bear.
Also, only you can prevent your cryptocurrency from getting jacked. Learn the ropes of keeping your tokens safe, and you will be able to live the crypto-libertarian dream of being your own bank - or at least not losing a bunch of tokens that potentially will be (or currently are) worth a fortune. Done correctly, you’ll be protected and gambling online with bitcoin safely.