General Security Principles
Cryptocurrencies have brought lots of exciting possibilities, but they are also full of risks and dangers for the inexperienced.
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Cryptocurrencies have brought lots of exciting possibilities, but they are also full of risks and dangers for the inexperienced. Follow the three main security principles outlined below to mitigate some risks associated with using, holding, and trading cryptocurrencies.
Maintain your privacy
Thanks to the nature of the internet, information can propagate very quickly, and sometimes, in undesirable directions.
There are plenty of people with malicious intent employing nefarious tactics in an attempt to steal your cryptocurrencies. Most threats and attacks are typically broadly targeted and work as a net — trying to catch everyone gullible and distracted enough, but not necessarily targeting a specific individual. However, if you unintentionally make yourself a target by revealing sensitive information, more sophisticated and focused attacks are possible.
It is recommended:
- To consider the risks of boasting about your successful trading rallies
- Not to share your previously used addresses
- To be careful mentioning your balances
- To avoid sharing information which is connected to your offline identity
- To use encrypted communication channels
Think long term. Those few satoshis on your addresses can be worth significantly more in the years to come. Or not. You may even get rid of your cryptocurrencies in the meantime. But does it matter? A potential attacker, distant relatives, or just envious strangers and acquaintances may not get the memo in time.
Protect yourself
Users of both the traditional banking system and cryptocurrencies are often victims of similar scams and frauds. However, with cryptocurrencies, various factors are pushing the burden of responsibility on the shoulders of the end-user — mainly an inherent lack of trust and immutability of processed transactions.
Banks, regarded as trusted entities, have total custodial control of your money. Banks are regulated, and they communicate with each other which makes it easier to prevent and fight against fraud. If you get victimized or make an honest mistake while transferring money from your bank account, you can usually ask for a chargeback. In cryptocurrencies, once the transactions are propagated to the network and confirmed, they are irreversible.
Be vigilant. Learn about common phishing tactics, find out what keyloggers are, and get to know common threats described. Getting familiar with these dangers will help you keep your coins secure.
Using strong and unique passwords and enabling the 2FA protection for your online accounts should be the first step towards improving your general security. You should not forget about protecting yourself against yourself too because you are (probably) a human and people make errors. Making a typo while creating your backups, sending your tokens to a wrong address or simply making a wrong decision may compromise your security and cause a lot of inconveniences.
‘Measure twice, cut once’ says the proverb many of us heard from our parents. When it comes to using and protecting cryptocurrencies, it becomes increasingly relevant.
Be your own bank
To ensure the availability of your coins and maximize your security, it is recommended to hold your private keys offline. Although exchanges are generally much safer than ever before, it is still recommended to keep substantial amounts on the exchange accounts only if you are an active trader. Furthermore, similar to money in a bank account, unless you own and have exclusive access to your private keys, you cannot claim ownership of your coins, and you are left with a promise.
For the first time in history, you have a chance to own a digital asset in the same way you own physical cash or a chunk of precious metal. Unlike these other forms of assets, you can back up your cryptocurrencies on a piece of paper and gain access to your possessions safely anywhere in the world.
Of course, holding and protecting these keys to your cryptocurrencies bring many perils, as indicated in the previous section. Luckily, there are tools ready to help you keep up with these challenges and allow you to reap the full benefits of these new technologies.
The types of cryptocurrency wallets designed to hold your private keys vary in their security, ease of use, number of use cases, and even availability. Consider your options and choose a type that fits your needs.
Software and mobile phone wallets offer a wide variety of features and are usually very easy to use. The big disadvantage from the security perspective is that they are connected to very complex and often online environments such as your mobile phone or a computer. These factors open many opportunities for viruses and hackers to access your coins; therefore, inexperienced users should only use these for smaller amounts of cryptocurrencies.
Paper wallets, which hold your private keys written on a piece of paper (or engraved to a plate of metal) are often regarded as one of the safest ways to store private keys. They are, however, quite difficult to manage and usually only viable for one-time use. Hardware wallets are typically the best at balancing the ease of use and high level of security. These pocket-sized devices protect the private keys against malware and hackers by keeping them offline but will cost you between $70 to $200, and they require physical confirmation for most actions.
Remember, security is never absolute and finished. Take your time to update your knowledge base from time to time and check your potentially weak points on a regular basis.
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