How to Secure Your Cryptocurrency/ What is a private key?/ Hot vs. cold...

You must usually keep your crypto comfy whether you’re shopping, storing, or making an investment. dropping your cash and tokens is, inside the massive majority of instances, permanent. In case you change cryptocurrencies on centralized exchanges, use ones that might be regulatory compliant with KYC and AML checks. Peer-to-peer buying and selling and decentralized exchanges with audits have an excellent chance of security.

How to Secure Your Cryptocurrency

There are a couple of alternatives when it comes to storing your crypto securely. you can preserve your crypto on a regulated alternate, which is practical for learners and buyers. but, you don’t own the keys to the wallet.

A non-custodial wallet wherein you personal the keys provide more safety, and the greater relaxed option is to preserve it in a wallet no longer linked to the internet like a cold storage tool. In each case, keep your private keys secure in an offline, comfy region.

Use audited DApps to enhance your protection and frequently test which DApps have permission to use your pockets. get rid of these permissions as quickly as you’re finished the usage of the DApp.

What are Cryptocurrencies

At the core of cryptocurrencies is the idea of self-sovereignty – the notion that a user can act as their own bank. Secure your funds properly, and they’ll be harder to reach than even the most well-guarded of bank vaults. Fail to do so, and you run the risk of someone remotely emptying your digital wallet.

Learning to secure your digital coins properly is a vital step as you journey down the cryptocurrency rabbit hole. It’s not just all about storage, either. Nowadays, many cryptocurrency holders interact with DApps in the DeFi world, so you should also learn how to use your coins securely.

Just like you wouldn’t allow an untrustworthy business to handle your money, you also shouldn’t trust your coins with any random DApp. The same goes for exchanges where you purchase and trade crypto. In this guide, we’ll discuss some of the best techniques for keeping your crypto assets safe wherever they are.

What is cryptocurrency

A cryptocurrency, crypto-currency, or crypto is a digital currency designed to work as a medium of exchange through a computer network that is not reliant on any central authority, such as a government or bank, to uphold or maintain it.

Individual coin ownership records are stored in a digital ledger, which is a computerized database using strong cryptography to secure transaction records, control the creation of additional coins, and verify the transfer of coin ownership. Despite their name, cryptocurrencies are not necessarily considered to be currencies in the traditional sense and while varying categorical treatments have been applied to them, including classification as commodities, securities, as well as currencies, cryptocurrencies are generally viewed as distinct asset classes in practice.

Some crypto schemes use validators to maintain the cryptocurrency. In a proof-of-stake model, owners put up their tokens as collateral. In return, they get authority over the token in proportion to the amount they stake. Generally, these token stakes get additional ownership in the token over time via network fees, newly minted tokens, or other such reward mechanisms.

Cryptocurrency does not exist in physical form

Cryptocurrency does not exist in physical form (like paper money) and is typically not issued by a central authority. Cryptocurrencies typically use decentralized control as opposed to a central bank digital currency (CBDC). When a cryptocurrency is minted or created prior to issuance or issued by a single issuer, it is generally considered centralized. When implemented with decentralized control, each cryptocurrency works through distributed ledger technology, typically a blockchain, that serves as a public financial transaction database.

A cryptocurrency is a tradable digital asset or digital form of money, built on blockchain technology that only exists online. Cryptocurrencies use encryption to authenticate and protect transactions, hence their name. There are currently over a thousand different cryptocurrencies in the world, and their supporters see them as the key to a fairer future economy.

Bitcoin, first released as open-source software in 2009, is the first decentralized cryptocurrency. Since the release of bitcoin, many other cryptocurrencies have been created.

Purchasing crypto securely

There are many places where you can purchase cryptocurrencies nowadays. The list includes centralized exchanges, decentralized exchanges (DEX), crypto-ATMs, peer-to-peer options, and more.

Not every choice offers the same amount of security, and each has its advantages and disadvantages. For most users, using reputable, centralized exchanges provides the best mix of ease-of-use and security.

Picking a secure exchange

For a centralized exchange like Binance, increasing regulation, Anti-Money Laundering (AML) measures, and Know Your Customer (KYC) checks provide security. While exchanges in the early days of crypto had their issues, governments and exchange operators have since improved the situation significantly.

To use an exchange, you’ll need to transfer your funds into its custodial wallet. Giving the exchange responsibility for your coins can provide some security depending on your outlook. If you aren’t familiar with wallets or are new to cryptocurrencies, you may be more secure using the exchange’s wallet. This saves you from accidentally locking yourself out of your wallet and losing your crypto.

However, some people prefer the security of controlling their funds directly. You may have already heard the phrase “not your keys, not your coins”. If you don’t actually own the wallet, then someone else can control your crypto. You can check our storage section later on for more information.

If you’ve decided on using a peer-to-peer service or a decentralized exchange, there are a few signs to look for to improve your security. With a DEX, check for an audit from a reputable source. We’ll dive further into audits later on. Binance also offers a DEX leveraging the company’s security and reputation.
If you need to use a peer-to-peer service, make sure it requires KYC for both buyers and sellers. Ideally, it should also offer an escrow service. While it doesn’t remove the risks completely, a third party holding your funds in escrow provides both the buyer and seller more protection from scams.

How to secure your account

If you signed up for your exchange or chosen trading method, follow standard good practices to keep your account safe. These tips are no different from those you would use for your online bank account or other sensitive information. Preventing people from getting access to your account and its funds is easy by:

1. Using a strong password you regularly change. The password shouldn’t include identifiable personal information like your date of birth, for example. Make sure it’s also long, is unique to that account, and contains symbols, numbers, and lowercase and uppercase letters.

2. Enabling Two-Factor Authentication (2FA). If your password is compromised, 2FA using your mobile device, authenticator app, or YubiKey acts as a second level of protection. You need to use both your password and the 2FA method together when logging in.

3. Watching out for phishing attacks and scams via email, social media, and private messages. Fraudsters frequently impersonate exchanges and trusted individuals to try and steal your funds. You also shouldn’t download software from unknown sources as it may contain malware.

For more details on keeping your account secure, read our Secure Your Binance Account in the 7 Simple Steps guide.

How to store your crypto securely

Once you’ve purchased or traded some crypto and secured your account, your next priority should be placing it somewhere safe. If you’re not leaving it on the exchange to trade later, the only other option is a wallet.

Wallets differ in the ownership of your private keys and their connection to the Internet. The choice between them depends on the level of security you’re comfortable having.

What is a private key?

A private key, like a real key, unlocks your cryptocurrency for you to spend. Keeping your private key and access to it safe is the most important part of your overall security. The key is just a really long number – so large that it would be impossible for anyone to guess.

If you flip a coin 256 times and write down “1” for heads, “0” for tails, you’ll end up with a private key. Here’s one we’ve just generated. It’s encoded in hexadecimal (using numbers 0-9 and characters a-f) for a more compact representation:

8b9929a7636a0bff73f2a19b1196327d2b7e151656ab2f515a4e1849f8a8f9ba

If you look that number up on Google, you’ll see the only occurrence is in this article (unless it’s been subsequently copied elsewhere). That should give you an idea of how truly random the number is – the odds of anyone having ever seen it before are astronomically low.

That example still doesn’t do it justice. The number of possible private keys is close to the number of atoms in the known universe. In a nutshell, this is a vital security principle in cryptocurrencies like Bitcoin and Ethereum. Your coins are safe because they’re hidden in a brain-meltingly large range.

If you’ve received funds before, you’ll be familiar with public addresses, which are also strings of random-looking numbers. Those are obtained by doing some cryptographic magic on your private key to get a public key, which is hashed to get the public address.

We won’t get into depth on how this is done in this article. All you need to know is that, while it’s easy to generate a public address with the private key, doing the reverse is impossible today. That’s why you can safely list your public address on blogs, social media, etc. No one can spend the funds sent to it without the corresponding private key.

If you lose your private key, you lose access to your funds. If someone else learns your key, they can spend those funds. As a result, keeping your private key away from prying eyes is of paramount importance.

How to secure your seed phrase

Your 12, 18, or 24-word seed phrase is extremely important to keep secure and safe. Anyone who has access to the phrase can import your keys into their wallet and steal your funds. You may also have a JSON file or individual private keys that act the same as a seed phrase. Think extremely carefully about how you manage your keys by following our tips below.

1. Keeping your seed phrase saved on a device connected to the Internet isn’t recommended. If you download a virus or your computer is hacked and controlled remotely, your phrase can be compromised.
2. Offline storage is much more secure. You could store the phrase physically or on an offline device. Even if you have a cold storage device that we’ll discuss later, you should also backup the key if your device breaks.
3. If you decide to store your phrase physically, think about the material you’ll use and where you’ll keep it. Writing the words on a piece of paper that can be destroyed or easily lost at home isn’t a good idea. You might want to use a safety deposit box in a secure location or store the phrase with your bank. Some people will even engrave their seed phrase onto metal as it can’t be easily destroyed or use metal letters on a seed board.

Hot wallets vs. cold wallets

Wallets fall into two categories: hot wallets and cold wallets. Both differ in the security that they offer. The two types encompass a broad range of different solutions – check out Crypto Wallet Types Explained for some examples. Let’s now explore the differences between the two.

Hot wallets

A hot wallet is any cryptocurrency wallet that connects to the Internet (e.g., smartphone and desktop wallets). Hot wallets tend to provide the most seamless user experience. They’re convenient when it comes to sending, receiving, or trading cryptocurrencies and tokens. But this convenience often comes at the cost of security.

A hot wallet is a cryptocurrency wallet that is always connected to the internet and cryptocurrency network. Hot wallets are used to send and receive cryptocurrency, and they allow you to view how many tokens you have available to use.

Hot wallets are inherently vulnerable because of their Internet connectivity. Though private keys aren’t broadcast at any point, there’s a possibility that your online device can be infected and remotely accessed by malicious actors.

This isn’t to say that hot wallets are completely insecure – they’re just less secure than cold wallets. Hot wallets are superior on the usability front and thus are the generally preferred option for holding smaller balances.

Cold wallets

To eliminate the significant online attack vector, many opt instead to keep their keys offline at all times. They do so with cold wallets. Unlike hot wallets, cold wallets don’t connect to the Internet. Previously, some cryptocurrency holders would keep a paper wallet: a printed piece of paper containing the wallet’s private key, usually in the form of a QR code. However, we now see this as an outdated, risky security method. Your best option for cold storage is definitely a hardware wallet.

Cold storage is an offline wallet used for storing bitcoins. With cold storage, the digital wallet is stored on a platform that is not connected to the internet, thereby protecting the wallet from unauthorized access, cyber hacks, and other vulnerabilities to which a system that is connected to the internet is susceptible.

How to avoid scams

Cryptocurrencies, unfortunately, attract many scammers. People look to exploit other users and take their crypto, and once the funds are stolen, there is usually no way of getting them back. Scammers abuse the anonymous nature of cryptocurrencies and the fact that many users directly control large amounts of funds.

You should always be vigilant and never send money to users you don’t know. You should also always check the identity carefully of anyone you do send money to. Here are some of the most common scams to look out for:

1. Phishing – You may receive an email from an exchange or other service you use, asking you to log in or provide personal information. However, this may be a scammer looking to steal your information.

2. Fake exchanges – These are often mobile apps or websites which imitate the look of an exchange. Once you enter your details, a scammer will then use it to access your real account.

3. Blackmail – A scammer may send you malware that holds your files for ransom. To pay, you will most likely have to send Bitcoin or another currency to get them back. You may not even receive the files after payment.

4. Pyramid and Ponzi schemes – You may be offered to participate in a new project and purchase its coins or enter a special deal requiring you to make a crypto payment. However, a deal that’s too good to be true often is. Do your own research to make sure what you’re investing in is safe.

5. Impersonation – Someone may pretend to be an official, person of trust, or even friend. They will then ask you for crypto or information that you would not typically give out. In this case, always double-check someone is who they say they are.