Protect Your Cryptocurrency From Theft and Hacking

Despite the fact that the cryptocurrency sector has just recently entered the mainstream, it has already developed a narrative that has become virtually cliche. An individual, or perhaps even a digital currency exchange, is subjected to a malicious hack.

As a result, a significant amount of digital currency is lost. The hackers appear to evaporate into the emptiness of online anonymity, leaving behind digital assets that are impossible to track down or retrieve.

Cold Wallets Are Essential

Many investors would purchase a popular digital currency, such as Bitcoin or Ether, via an exchange merely to retain the currency on that platform. Although digital exchanges take efforts to minimize theft, they are not exempt to hacks.

Keeping a wallet secure is one of the strongest strategies to protect your investment. There are two kinds of cryptocurrency wallets. The safer choice is “cold storage” or “cold wallet” hardware devices.

These wallets resemble USB devices and serve as physical storage for tokens or money. Cold wallets cannot be hacked online since they are not connected to the internet. Each hardware wallet has a private key, which is a password-like piece of code that decrypts the wallet and grants access to the coins or tokens it keeps. While physical wallets are extremely successful against digital criminals, they come with a new risk: If you lose your password key, you will never be able to restore the contents of your wallet.

Other Types of Wallets

Those who are concerned about storing digital currency on a device that can be stolen or misplaced can use secure online wallets instead.

Online wallets, like cold wallets, feature private keys that are unrecoverable if lost, thus it’s critical that you keep your private key in a secure spot that you’ll remember. Individuals have gone to great lengths to protect their keys, such as storing them in safe deposit boxes or encrypting them in graphic files. Some users have gotten crucial information tattooed on their bodies.

Paper wallets are a subset of internet wallets. Web platforms such as BitAddress or WalletGenerator generate them. These programs generate Bitcoin addresses and private keys, which can subsequently be printed.

When the key for the paper wallet is printed, it is deleted from the online wallet and network. The CryptoHex wallet goes a step further by imprinting the key information on a metal strip.

Desktop wallets are an additional alternative. They do not have a direct connection to the internet. However, because there are viruses designed to obtain information for these wallets from a desktop computer, such wallets may not be as secure as the solutions discussed above.

Digital Currency Exchanges

The majority of cryptocurrency transactions take place through a digital currency exchange. These platforms, which are often accessible via a web browser or a mobile application, allow users to purchase tokens and digital coins with either fiat currency or another cryptocurrency.

For two main reasons, cryptocurrency security experts advise against keeping any digital currency assets on an exchange. For starters, if the exchange is hacked, you may lose your investments. Second, if the exchange fails for whatever reason, you may not be able to recover your assets.

There is no cryptocurrency counterpart to the Securities Investor Protection Corporation (SIPC), which covers clients of insolvent brokerages from losses of up to $500,000 per account, including $250,000 for cash assets.

Furthermore, no cryptocurrency wallet is directly protected by the Federal Deposit Insurance Corp (FDIC), which provides up to $250,000 in deposit insurance for qualifying banks and credit unions.

Instead, several cryptocurrency exchanges allow users to keep their US dollar holdings in linked accounts at FDIC-insured partner banks. However, this protection does not apply to client crypto holdings.

Exchanges use a combination of security safeguards and insurance coverage to protect their customers’ bitcoin assets. FTX US, for example, claims to retain the majority of its customers’ digital assets in cold storage at BitGo Trust, an institutional digital custody provider that guarantees up to $250 million in insurance coverage against the theft or loss of private keys it possesses.

The exchange’s $7.5 million “primary crime insurance policy” from AON Plc (AON), the London-based insurance broker and risk specialist, covers FTX US client crypto assets housed in “warm” or “hot” digital wallets accessible online.

Although experienced cryptocurrency investors often take their assets off the exchange platform once a transaction is done, investing on a digital currency exchange still involves custody risk. This emphasizes the need of properly selecting one’s exchange.

Popular digital currencies such as Bitcoin, Ether, Cardano, and Ripple can be purchased on a variety of cryptocurrency exchanges. These providers are not all the same in terms of safety and security; the investor must conduct some due diligence to ensure that they are not taking excessive risks in the transaction process by operating on an unsafe exchange.

Other digital currencies, particularly ones that are less popular or newer to the market, may have fewer exchange alternatives. However, it is advised to avoid an exchange if it appears to lack security or cannot persuasively explain how it preserves customer assets.

DISCLAIMER: The Information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.

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Patrick

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