The introduction of cryptocurrency is hailed as one of the most revolutionizing moves for the financial sector. It removes the need for third-party intermediaries such as banks to hold your money. But with this freedom comes the responsibility to keep your assets safe by yourself, as one wrong move on your part can lead to a total loss of all your cryptocurrency without a trace. Crypto signals might help mitigate the risks but when you enter a market as volatile as crypto, risks will always be there.
This article will talk about a few best practices that every crypto trading beginner should keep in mind while beginning their journey.
- Keeping your private key safe: Private key is a secret key that only the owner of the cryptocurrency knows, as it gives people the authority to spend the cryptocurrency. On its own, it is a very safe number and no hacker is going to crack it with the current level of technology that humans have. It is a 256-bit number with 2^256 possible combinations that will take millions of years for a hacker to guess. However, if the owner himself forgets it or stores it somewhere where someone else can have a peek, then the money is as good as gone.
- Having multiple private keys: As the stakes rise high, crypto wallets are secured rarely with just one private key. They are hierarchical deterministic and hold numerous keys. It happens with the help of a seed phrase, using which multiple keys are generated. It is similar to the process of creating a public through hashing. It acts as a further layer of protection for your money.
- Digital Signatures: Anyone dealing in cryptocurrencies should always use digital signatures to prove the authenticity of a message and a transaction. The private key is combined with a message to create a digital signature. Anyone can compare these digital signatures with a public key to check the authenticity of the transaction.
- Hot Wallets v/s Cold Wallets: Dealing in cryptocurrency involves choosing between a hot and a cold wallet. Hot wallets connect to the internet, while cold wallets do not. While Hot wallets are great on the user convenience front, they are more vulnerable than cold wallets. Cold wallets are offline all the time and thus less convenient to use. But they are far more secure as they do not connect to the network. For holding large amounts of currency, cold wallets are a preferred choice over hot ones. For smaller transactions, hot wallets are a preferred choice.
- Custodial v/s non-custodial wallets: The non-custodial wallets give you complete ownership of the coins. However, online crypto exchanges offer what they call custodial wallets. It means that the exchange holds and manages the funds on your behalf and keeps your funds safe. But it does not absolve you of the responsibility of keeping your credentials such as private keys and passwords safe with you.
Cryptocurrencies work on Blockchain technology, which not only keeps the transactions reliable but the money anonymous as well. That is why it becomes quintessential to keep the security pepped up from your side of the equation. Because without an intermediary, there is no one to be held responsible and the money is hardly traceable. Having multiple private keys, keep them safe, utilizing digital signatures, using a combination of hot and cold crypto wallets, and understanding the terms and conditions of a custodial wallet are a few of the long list of suggested ways to keep your money safe within a crypto wallet.