Welcome back! Last week, I wrote up a quick guide on how to get started in the world of Cryptocurrency using Coinbase, Binance, or something similar. Now that all of you have taken the leap, I wanted to discuss the next most important part of Cryptocurrency: Security. Keeping the Coins and Tokens you just obtained safe is a much bigger concern than normal Fiat currency. Because your Crypto lives entirely in a digital world, it is much easier to lose your money by way of hacks or making a mistake. So let’s talk about the most important security measures to follow to keep your Cryptocurrency safe!
Take them off of the Exchange
First things first, remove them from the exchange. I recommend removing them for two main reasons. First, you are relying on their security to protect your assets. Personally, I never like leaving the fate of my money or assets in the hands of others no matter how much I trust them. If an exchange is hacked, it will out of your control to save your coins. The second reason is access. If the exchange goes down for maintenance or halts withdrawals, you are out of luck. If some emergency comes up and you need spend the coins or sell them, you will be stuck and that scares me. During the January boom, there were a bunch of exchange issues handling the large volume increase. Personally, I don’t think those issues are out of the question in the future.
The downsides to removing them from the exchange? You have less access to selling or trading should there be a major market event. This won’t be an issue if you plan on spending the Coins directly or want to hold for a long term. If you plan to swing trade or trade often, removing them from the exchange every time probably isn’t worth it.
Safe and Secure Wallet Selection
So you decided to withdraw your Cryptocurrency from the exchange? Smart. That means you need to set up a wallet for your coins. You can do this using Online, Desktop, or Hardware wallets. They also follow that order in terms of least secure to most secure. While I recommend Hardware Wallets, let’s assume you don’t want to spend the money or no Hardware wallet supports your coin. That means either Online or Desktop. Given the choice, I would always suggest using a Desktop wallet, but for many coins Online is the only option right now. It is important that whatever you decide between the two, you do your research and find the officially supported wallet for each Coin you want to hold. Do not trust random websites. Go to the official coin documentation and see what they support or recommend.
Secure Key or Seed Generation
Once you have downloaded or found the correct wallet, you will generate your Private Key or Seed associated with the wallet. This Key is essentially the password and main security of your coins. If your key is exposed or lost, your Coins are NOT safe. Many wallets will generate it for you. If you made sure you found the correct and official wallet, the security of how the key or seed is generated will not be an issue. However, some Coins allow you or require you to generate your own Seed such as Iota. Do not fall for the mistake of allowing a website to generate it for you. They can easily store that value and steal your Coins later. Generate it offline or using an officially supported generator. Again, thorough research here is always smart.
Key or Seed Safe-Keeping
As I already stated, your Private Key or Seed used to access your wallet is EVERYTHING. Do not give it to anyone or put it anywhere someone might find it. Never post it online or store it out in the open on your computer. In my opinion, the least secure storage method you should use is an encrypted and hidden location on your computer. Many people recommend writing it on a piece of paper, removing all traces of the Key/Seed from your computer, and locking that in a safe. If you do not need to access them for a while, this is smart in my opinion and is known as a Paper Wallet and Cold Storage.
The most secure method of storage that still allows for more access to your coins, is the use of Hardware Wallets. The best options are Ledger Nano S or Trezor. These wallets store your Key/Seed in secure hardware and usually it cannot be removed from the device in plain text. More importantly, they are immune to viruses that steal from software wallets. Finally, they allow you to access your assets in a more interactive way than a paper wallet. With Paper Wallets, you will need to manually type in a Key every time. That being said, you never know if the Hardware has been tampered with prior to you obtaining it. That means NEVER purchase or use a Hardware Wallet that you didn’t get right from the manufacture. The links above are those manufacturers. Not worth taking the risk.
What’s the downside to a Hardware wallet? Well they are often expensive (~$100 USD) for the beginner Cryptocurrency investor. Also, Hardware Wallets do not support every coin (although they are rapidly expanding). That means you will most likely need to use a combination of Hardware and Software wallets if you own a wide array of Coins/Tokens.
Avoid Phishing Websites
One last security tip is to avoid phishing websites. While this may seem simple, there have been a lot of hacks where websites will mimic the look and domain names (very closely) of online wallets or exchanges. Taking Binance.com as an example, a phishing site might match the look and use the domain name of blnance.com. Easy to see if you’re looking for it, but easy to miss if you’re being lazy. If you plugin your login information to one of these sites, kiss your coins goodbye! Make sure you use a trusted bookmark or check quickly every time to make sure you’re in the right place.
That’s all for today! Just a reminder to tread cautiously and everything will be fine! Cheers!