Ipsos conducted a survey into the Dutch crypto market in 2021. This yielded some interesting results. It appears that our country currently has approximately 1.18 million crypto owners. Maybe you belong to this group too. Anyone who is active in the crypto and/or stock market has to take many things into account, including the safety aspect. It is very important to keep your crypto coins in a safe way. But how exactly do you do that and which security methods are effective? In this article you will find some useful tips that prevent cyber criminals from running away with your digital money.
Why do you need to keep your cryptocurrencies safe?
In recent years, the value of several cryptocurrencies has skyrocketed. Did you know that the value of Bitcoin on November 6, 2010 was only 0.50 cents? In less than ten years it managed to surpass the $15,000 mark. And a few years later, it even reached a value of $67,700. No one knows what the future holds for crypto. The fact is that more and more people are interested in it. Both small investors and large companies are discovering the benefits of blockchain and crypto and trading with a crypto bot . However, the appreciations and increasing attention make cryptocurrencies an attractive target for cyber criminals. This makes it all the more important to keep cryptocurrencies safe. Therefore, this article covers the following topics:
- Everything you need to know about the phenomenon of crypto
- What is encryption?
- What is a digital wallet
- What is a blockchain?
- Using wallets to keep your cryptocurrencies safe
- More tips to keep your cryptocurrencies safe
Everything you need to know about the phenomenon of crypto
Before we delve into security methods, let’s take a look at the phenomenon of ‘cryptocurrencies’. It is important to understand how these digital currencies work before setting up a security method. In short, a cryptocurrency is a digital currency that uses cryptography for security and privacy. Cryptography is a very important term that you cannot ignore. This means that messages are encrypted in such a way that only authorized parties can read them. In the context of cryptocurrencies, there is a key pair that consists of a private key and a public key. The former key is used to encrypt data, while the latter is required to decrypt the data.
What is encryption?
Encryption is a complex process that makes crypto transactions very secure. It converts the original message into a form that is unreadable to anyone who does not have the correct key. In order to send and receive the digital currency, a user must use a wallet that stores the user’s private key.
What is a digital wallet?
Maybe you are one of the 1.18 million Dutch people who have invested in crypto in recent years. Chances are that you have an account with a Dutch exchange or broker. Well-known names in this field include Bitvavo, Bitcoin Meester, Coinbase and Binance. The wide range has now also been supplemented with the cryptocurrency app Blox. If you create an account with one of these providers, you should receive a free digital wallet. Crypto investors also call this a ‘wallet’. It is advanced software that processes cryptocurrency transactions through the use of cryptography and the so-called blockchain.
What is a blockchain?
Cryptocurrency wallets make it possible to trade digital assets in a secure manner. The blockchain already mentioned plays an essential role in this. This is a database that consists of a chain of blocks, which in turn contain crypto transactions. The transactions are tracked and controlled by computers connected via the internet.
Another name for the blockchain is “public ledger” because it is accessible to everyone. All transactions are recorded chronologically, with each block being a snapshot of the entire database. This means that everyone can see the entire history of the transaction. In addition, transactions are recorded in chronological order in a way that no person can change.
Nodes and peers
The transactions in the blockchain are verified by computers and stored in a block. Another name for this network of computers is ‘nodes’. Together they form nodes that are connected to each other via a network of ‘peers’. Each node contains a copy of the database, but they can all communicate with each other over the network. This allows the network to exchange information between all nodes.
Copy of the database
When a transaction takes place, it is sent across the network from one peer to another. Each node in the network keeps a copy of the database. The transaction is then written into the database and a new block is created. The block is then added to the chain.
How does a blockchain prevent manipulation by other parties?
Each time a block is added to the chain, it becomes more difficult to modify it. The system is designed in such a way that it becomes almost impossible for anyone to change the data. This technology prevents interference and/or manipulation by third parties.
Which industries and companies use blockchain?
Blockchain was created to make financial transactions more secure. In addition, a payment can be recorded in a verifiable way, which is revolutionary. Blockchain technology is now being used in various industries, including healthcare, e-commerce and real estate. The fact that more and more industries and companies are interested in blockchain is apparent from this list of well-known companies that are now using the technology:
- Goldman Sachs
What makes blockchain different from a traditional database?
The blockchain is basically a ledger of transactions. It is also a database that is shared across the entire network. Because it is shared, it provides a transparent record of the entire history of the transaction. This report cannot be tampered with. There is an essential difference between a blockchain and a traditional database. A traditional database is stored on a single server. It is quite easy to keep track of changes in a traditional database because the data is all stored on one server. However, this poses a problem. In the event of a hack or technical failure, the data from the database will be endangered. For example, they can be stolen or disappear. With a blockchain, this is virtually impossible thanks to the use of nodes.
How can you keep your cryptocurrencies safe?
By now you know exactly how cryptography and blockchain work. This brings us back to the wallets in which you can store your crypto coins. These digital wallets are generally very secure thanks to blockchain and cryptography. How secure exactly depends on the type of wallet you use. There are several ways in which you can store your digital coins, for example in this type of wallet:
- Exchange wallet
- Non-custodial wallet
- Multi-signature wallet
- Desktop wallet
- Mobile wallet
- Hardware wallet
Using an exchange wallet: safe or not?
Many crypto investors use an exchange wallet. You can think of it as a repository connected to the world wide web. It can be accessed from almost any browser and that is certainly one of its great advantages. In addition, this type of wallet does not need to be installed. The moment you create an account with a broker or exchange, you will receive a free wallet to store your crypto coins. A disadvantage of the internet is that hackers are unfortunately always lurking. One of the most famous crypto hacks in history took place in 2014. Back then, hackers managed to steal a whopping $480 million from this exchange. This is converted to no less than 455 million euros.
Exchanges/brokers and cold storage
Don’t be discouraged by the numbers above. Many crypto exchanges nowadays (partly) use cold storage. This means that some of the users’ funds are stored outside the exchange. Bitvavo, for example, works this way. The moment a hack or technical malfunction occurs, you do not have to worry about your money. In addition, Bitvavo works together with two reputable custody parties that are insured up to 255 million euros.
Why some investors choose a non-custodial wallet
Some of the crypto investors prefer not to store their crypto coins on an exchange. This has everything to do with the fact that an exchange has your private key. A well-known saying is: ‘not your keys, not your coins’. One solution is the use of a so-called ‘non-custodial wallet’. This is a software application that stores your private keys. The keys are used to sign transactions and allow the transfer of money from your account. This means you have full control over your money and can move it however you want. There is no need to give your private keys to a third party such as an exchange. You have full control over your money and can move it whenever you want.
What are the benefits of multi-signature wallets?
Most crypto exchanges today use so-called ‘multisignature wallets’. This is a digital wallet that requires multiple signatures
to access the money on it. In addition, the money is divided between different accounts. Several people have to sign before a transaction can be made. Multi signature wallets are used by exchanges as well as banks, financial institutions, and other large companies. It provides a higher level of security, which is great when you have invested a large amount.
Who use multi-signature wallets?
It is no surprise that multisignature wallets are often used for business transactions. After all, by using multiple signatures, they reduce the risk of fraud. Protection against theft, embezzlement or other criminal activities is also increasing. The reason for this is that in most cases, the person who has the private key of a multisignature wallet is the owner of the business and not the person who deposits money into the account. This makes it very difficult for anyone else to take the money from the business and run off with the money. A nice thought!
What are the pros and cons of desktop wallets?
Exchange wallets and multi signature wallets are not the only options for keeping your cryptocurrencies safe. For example, many crypto enthusiasts like to use a desktop wallet. You can download this digital wallet and install it on your computer. It comes with a big advantage, which is that you can store more than one currency on it. In addition, you can use desktop wallets on multiple devices. After all, you only have to install the desktop wallets. This also immediately entails a disadvantage. A computer that contains malware can get you in a lot of trouble. Sometimes hackers manage to gain access to desktop wallets, with all the problems that entails.
Mobile wallets: anytime, anywhere crypto trading
The smartphone has become an integral part of our lives. It is therefore no surprise that there are also so-called ‘mobile wallets’ for cryptocurrencies. You can best compare this type of digital wallet with a bank. Most banks have an app that allows you to make deposits and transfers with just the touch of a button. The idea behind a mobile wallet is exactly the same. The only difference is that instead of using your bank’s app, you use the app of this type of crypto wallet.
What are the reasons for using mobile wallets?
There are several reasons why people like to use a mobile wallet. One reason is to keep track of their finances. In the app you can see exactly how much crypto you own and which transactions have been carried out. This of course keeps things nicely organized. Moreover, the app can be used anytime and anywhere. Whether you travel by public transport or are at home: a transaction with a digital currency is done within seconds. But also in this case: be careful. A mobile wallet also has a connection to the internet. We do not recommend using this wallet when there is an unsecured WiFi connection.
Why it is wise to use a hardware wallet
Do you find the use of an exchange wallet, a desktop wallet or a mobile wallet too unsafe? Then it is a better idea to use a so-called ‘hardware wallet’. These are physical devices that you can take anywhere because of their small size. They are very secure because the data is stored encrypted on the device itself. A big advantage of these devices is that they do not need to be installed and that they are very convenient to use.
Which hardware wallets have a good reputation?
A hardware wallet not connected to the internet. Cyber criminals cannot break into a hardware wallet. This device can be used as a USB stick. Of course you have to enter a password when logging in. Keep this password in a safe place so that malicious parties cannot steal it. And it goes without saying, but we’ll say it anyway: never share your password with others! Fortunately, finding a suitable hardware wallet is not very difficult. You are always in the right place with these well-known names:
- Ledger Nano S
- Ledger Nano X
- CoolWallet Pro
- Safe Model T
- Steel Bitcoin Wallet
Private key and recovery phrase
Everyone who owns a hardware wallet has their own private key. Unfortunately, it is not always possible to prevent you from losing your password. Fortunately, there is a solution in the form of a ‘recovery seed’. This is a recovery phrase that you should fill in if you have any problems. It is, as it were, the key to your cryptocurrencies. Never keep this important sentence online, but somewhere safe.
What are the costs of a hardware wallet?
Another name for the use of hardware wallets is ‘cold storage’. This means that cryptocurrencies are stored outside the world wide web. This significantly reduces the risk of malware and hacking attempts. However, a hard wallet is not free. For example, you pay about 150 euros for a Nano Ledger X. On the other hand, cold storage is the ultimate security for your crypto coins and that is worth something.
How do you keep your hardware wallet safe?
A hardware wallet mainly brings advantages. However, they are not fire or water resistant. Have you invested a lot of money in crypto? Then we definitely recommend the use of a fireproof safe. You can also keep the note with the ‘recovery seed’ there.
More tips to keep your cryptocurrencies safe
Every day, cyber criminals try to gain access to your valuable crypto coins through phishing attacks and/or scams. Both individual users and exchanges and/or brokers are being attacked. The goal is to break into crypto wallets and get as much money as possible. This makes it all the more important that you keep your cryptocurrencies safe. We previously wrote about using certain wallets to store your digital coins. But there are more ways to ensure that your cryptocurrencies are safe. Here are some tips
Tip 1: Use good exchanges
Today there are dozens of exchanges where you can trade cryptocurrencies. Not every provider is equally safe or reliable. However, it is very important that you choose an exchange with a good reputation. After all, you rely on their security to keep your crypto coins safe. Therefore, choose an exchange that has been active for several years. A large amount of customers is also a good sign. As far as reputation and (daily) volume are concerned, these global exchanges are the right place for you:
- Coinbase: Coinbase is one of the largest cryptocurrencies in the world. You can buy various cryptocurrencies, including Bitcoin, Ethereum, Litcoin and Bitcoin Cash.
- Kraken: Kraken is a reputable exchange where you can also go for lesser-known cryptocurrencies.
- Binance: The largest cryptocurrency exchange in the world that operates all over the world. It has a good track record, despite having been hacked in the past. For example, cyber criminals managed to loot no less than 40 million dollars during a hack in 2019. Binance has since tightened its security measures.
These crypto exchanges are also known for their user-friendliness and security:
- Huobi Global
Tip 2: Enable two-factor authentication
The security of crypto coins is not only the responsibility of the exchange and/or broker. You can also take a number of measures yourself to protect your digital money. We recommend using two-factor authentication (2FA). This means that you have to go through several steps when logging in to gain access to your account.
Multiple ways to verify your identity
Two-factor authentication means that in addition to a username and password, you have to provide another means of proof to prove that it is really you who is logging in. This prevents anyone from knowing or guessing your password and logging in to steal your digital money. With 2FA, a criminal has to steal not only your password, but also your phone. Fortunately, that chance is quite small.
Code via Google Authenticator
You often have to enter a code in addition to entering your username and password. This can be found in the Google Authenticator app that you can easily download from the Google Play Store on your smartphone. You may also have to enter a code that will be sent to your smartphone. This method adds an extra layer of security, as it were, making your account extra safe.
Finally: safe and confident active on the crypto market
Thanks to this article, you now know better how to protect your crypto coins. From choosing a good cryptocurrency exchange to the best possible wallet and using 2FA: you now know exactly how to keep your digital money out of the hands of cyber criminals. Hopefully this gives you more peace of mind. As a result, you can operate in the dynamic cryptocurrency market with confidence and pleasure. We wish you every success!