It’s safe to say that security and money are two things that need to go together. Online banking apps now use multi-factor authentication and, when it comes to buying things online, most people aren’t too keen on buying from a site that is flagged by a search engine as unsafe.
So, when it comes to buying and trading with digital currency, or cryptocurrency, investors need to be sure that they’re not taking unnecessary risks. Luckily, the world of trading in cryptocurrency has become more secure but, for safety and sanity, it’s always wise to be at least two steps ahead of any potential hackers or other security issues.
With that in mind, what do new investors need to know about the security around cryptocurrency?
Understanding Ownership in Crypto
Starting at the beginning, cryptocurrency ownership is defined by the control of private keys, which are usually kept in a digital wallet. The wallet isn’t linked to a name or account number, as it would be in banking. This means that as the owner of the keys, in essence, you’re the bank and, if the keys are lost or stolen, you can’t recover the associated funds. This could be a reason to look into dual investment on crypto, rather than solely investing in one type of cryptocurrency, but you need to make sure that even small investments are protected.
Choosing Secure Wallets
Going back to digital wallets, they fall into two categories. The first is a hot wallet, which is connected to the internet and the second is a cold wallet, which offers offline storage. If you want to trade, you’ll likely want the former, but you need to ensure that it’s kept safe via firewalls and other protections, as they’re often a target for hacking, malware and phishing attacks.
Exchange Safety and Counterparty Risk
Most cryptocurrency exchanges will allow their users to buy, sell and store digital assets. However, by using an exchange, you’re introducing counterparty risk. This means that if the exchange you’re using is hacked, becomes insolvent or freezes withdrawals, you’ll instantly lose access to your funds. The best practice for investors is to use reputable exchanges that enable security features, such as withdrawal whitelists. It might also be worth avoiding long-term storage of crypto on exchanges where possible and transferring to a cold wallet if you’re not using the assets to trade.
Using Strong Security Practices
You need to ensure that you’re using strong security practices, which will rely on layered protection to hide your cryptocurrency. For many investors, this involves using strong, unique passwords and enabling two-factor authentication. You should also make sure that the software on the device, computer or smartphone that you use to trade and buy on is up to date. Much like other forms of online purchases, you shouldn’t use public Wi-Fi or shared devices, especially when you’re accessing your digital wallets. By adopting these habits early in your investing journey, you can build resilience against technical issues and human error.