Knowing key information about storing cryptocurrency could be the difference between falling for a scam or being profitable with your crypto trading. We look at some crucial information that is great for beginners and good for veterans to brush up on, as well as at the various wallet types available. Operating in a safe and secure manner as the first point of order is a sure-fire way to protect your crypto investment.
Rule One – All cryptocurrency is REAL currency, so protect it in exactly the same manner as you would protect the physical money you have in your wallet currently.
The Reasons Why You NEED to Protect Your Cryptocurrency
Before we get into the details about wallets, keys etc., it is important that you understand that protecting your cryptocurrency should be at the core of everything you do when trading crypto. Hackers are always coming up with ingenious and elaborate ways to part people with their hard-earned crypto, and each year millions of dollars’ worth of cryptocurrency are stolen. Sometimes this is part of wider sting operations on poorly protected crypto exchanges, but there are lots of cases where hackers have targeted individuals via their personal computers or mobile devices.
Because cryptocurrency retains value and sometimes, at peak periods, tokens can be extremely valuable, hackers see it as a viable and profitable way to extort money from unsuspecting individuals. Crypto theft is a lucrative and widespread crime. Taking precautions to prevent it will enable you to transact safely and enjoy the wonderful features cryptocurrency trading has to offer.
Public and Private Keys
Once you have your cryptocurrency you will notice you have two keys. One is a public key and can be shared with other crypto users to facilitate transactions. It is secure to share a public key and there have been a few issues with public key sharing, none of which is particularly noteworthy. So, it is safe to say you can divulge this information.
The second key is your private key, and this is where we now delve into a more precarious set of situations. The traditional rule is that you should NEVER share your private key with any entity or individual. This is because a private key allows access to your wallet and therefore compromises any funds you have stored.
This has become even more precarious in recent times as some networks that look to patch or route around problem areas with cryptocurrency do ask for private keys to facilitate the workaround. A key example of this is Bitcoin users being frustrated with the speed and scalability, and thus moving onto the Lightning Network to keep transaction fees down and speed up transactions. The advice is to still retain and keep your private key secret when using such networks as workarounds. Divulging private keys is inherently risky no matter how secure or how many failsafe measures have been implemented by the network.
The fact remains that a network will still be holding private key information on an online platform and there is simply no way to get around that crucial fact.
Web Wallets – Software Wallets
Web wallets come in a range of different forms. Some are installed onto our computer as software and can then be disconnected from the internet (the window hackers need to infiltrate), others are cloud-based (held on online servers) or exchange wallets.
Each web wallet has a differing level of control and security, with exchange wallets being notoriously susceptible to hacking attempts. It is best to NEVER leave cryptocurrency in an exchange wallet, and if you do use a software wallet – carefully look at the security features put in place. Even if you think you are using the most secure exchange that has never been hacked, it is still advisable to be cautionary when storing currency with them.
Cloud wallets are equally as susceptible to attack as exchange wallets. Though depending on the size, they may not be targeted because it might not work out to be lucrative enough for hackers to spend time and exploit. Software wallets that are installed on your computers are a little better as you can personally limit the exposure to theft by remaining offline as much as possible. Realistically, this is easier said than done, especially when you consider how dependent on the internet access we have become.
They are by far the best wallet option available. Often these are external hard drives that can be plugged into a computer or mobile device to transact as and when needed. This makes them operate in pretty much the same way as using a debit card. You get it out and plug it in when needed and other times keep it safe and secure away from anyone who would want to steal it.
They are more expensive than software wallets but, in my opinion, worth every penny for added protection and peace of mind.
Mobile wallets have primarily become popular with non-cryptocurrency users. Things like Apple Pay and Google Pay have become all the rage for people wishing to use their mobile phones when making payments. These are software wallets that are encrypted and use security features on your mobile device.
Not all mobile wallets are created equal though, and many have upper transactional limits. Functionality for cryptocurrency varies across platforms as well, with some being exclusively for crypto and others incorporating it into a wider financial platform.
Mobile wallets could well be the wallet of the future and there is definitely merit for them being used as crypto wallets. Still, always be cautious as they are software-based, and as such, are not as secure as a good old-fashioned hardware wallet.