A guide to securing your cryptocurrencies in 2021 and important measures to adopt for safely storing your digital assets.
Cryptocurrencies are growing in popularity. Digital assets are drawing attention from institutional investors, rising in popularity as investment vehicles, and moving towards mainstream adoption. However, at the same time, they are also drawing attention from attackers. In this article, we seek to understand how to secure your cryptocurrencies and what are the important guidelines or measures to follow.
How to Secure Your Cryptocurrencies in 2021
If you protect your cryptocurrency funds well, it will be more challenging to access than even the best-protected safe deposits. Failure to do so, and you risk some anonymous hacker stealing your digital assets.
Learning proper ways of securing your cryptocurrencies in 2021 is an essential lesson as you navigate through the crypto sphere. In this guideline, we will look at various methods for doing this:
A private key is a cryptographic variable used together with an algorithm to encrypt and decrypt a code. Just like normal keys, a private key unlocks your crypto assets to spend. As the name suggests, private keys should be kept private. A private key consists of a long number encoded in hexadecimal for a more compact figure.
A public key is a cryptographic code used to facilitate transactions between parties, allowing users to receive cryptocurrencies in their accounts. Unlike private keys, public keys can be shared. There is a cryptographic link between a public key and a private key. It is possible to recover a public key if you have the private key, but it is entirely impossible to get the private key using only the public key. That's the reason why it's totally safe to share your public address in public forums and online without risking your crypto assets to online predators. Nobody can access the funds without its relatable private key.
Losing your private key means that you have lost control over your wallet and funds. If your private key falls into the wrong hands, your cryptocurrencies can end up stolen, and they cannot be recovered.
Otherwise known as a mnemonic phrase, seed phrases refer to many random words between 12-24 that grant access to a cryptocurrency wallet. Some wallets may label it as a backup phrase or even a recovery phrase. Through a seed phrase, you will be able to access your private keys if you lose access to your wallet.
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Very few wallets today hold just a single private key. A wallet can support several cryptocurrencies, meaning they can have more than one private key. To access all of these private keys, all you need is the mnemonic phrase of the wallet.
A digital signature utilizes advanced algorithms to verify the genuineness and trustworthiness of digital documents and messages. It ensures that the subject matter is not changed to protect us from impostors and meddle in digital communications.
In cryptocurrencies, when making a transaction, you accompany your private key with a message to generate a digital signature. Again, the private key cannot be identified by looking at the digital signature, meaning it is safe to share in public forums.
Securing Your Cryptocurrencies in Wallets
There are two classifications of digital wallets: Hot wallets and cold wallets.
A hot wallet refers to any crypto wallet that utilizes an internet connection. Usually, they are more convenient to install, open and tey support several cryptocurrencies. However, hot wallets are more vulnerable to hacking attempts, regulatory policies, and even technical failures.
Hot wallets are less secure in comparison to cold wallet. Hot wallets are easy to use due to their simplicity and user interface; hence they are the best option for holding small amounts in crypto.
Cryptocurrencies are easy to access
Prone to malicious actors
Cold wallets are not bound up to the internet like hot wallets. Typically, cold wallets are safer in contrast to their hot counterparts. Cold storages store the owners' private keys offline, protecting them from malicious cyber attackers. However, cold wallets do not support a variety of cryptocurrencies. They are more expensive in comparison to hot wallets.
Private keys are stored offline
They are expensive to purchase
They are not convenient for fast, consistent transactions.
Custodial v/s Non-custodial Wallet
A custodial wallet is a decentralized digital wallet in which the user has control over private keys. Owning the private keys means you have total control over your funds. Custodial wallets hold your private keys and thereby control your cryptocurrency funds.
On the other hand, a non-custodial wallet is a crypto wallet that keeps the account holder's private keys and provides security for your digital assets in turn. For example, wallets offered by cryptocurrency exchanges are non-custodial. Most of the exchanges integrate both hot and cold storage to keep your crypto assets secure.
To know more about how to avoid cryptocurrency scams, check this blog from XanPool.
Blockchain technology has provided us with multiple options when it comes to storing our crypto assets securely. Every choice has its fair share of merits and demerits, so it is essential to do proper research first. Having enough knowledge about these storage methods makes you more relaxed when navigating between both hot and cold storage, as per your convenience.