Published by Leonardo Calcagno
Crypto is impressive and continuously growing, as are its security risks. Being an active trader and analyst, I understand the limitless potential and, concurrently, the dangers of this industry for investors. However, when comparing it to traditional finance, we have to realize that crypto is an entirely different field in terms of terms, opportunities, and, of course, risks. Well, how do we survive in this land and remain safe? Okay, let’s get into the essential facts about security for everyone who invests in crypto.
Why Security Matters in Crypto Investments
The crypto market is considered to be in the crosshairs of hackers. A recent report by Chainalysis reveals that the world’s cryptocurrency exchanges lost more than $3.2 billion to hackers in 2022 alone. Numbers like these prove that investors must be more careful with the security of their funds. Hacks, scams, and phishing are the common threats one is likely to fall for in the internet world. As I said, if not well managed, your investments will dissipate as fast as the wind.
But why are these breaches so frequent? This is sharply different from the traditional financial systems where the cryptocurrencies are based on decentralized groups/networks and where these are easily prone to hacks/ attacks if the required security norms are not implemented. This means that while your assets are scattered around different places on the network, it can be rather difficult to get them back. Hence, acquiring adequate knowledge and educational know-how of security concerns becomes a necessary understanding.
Decentralized Exchanges (DEXs): Enhancing Security for Investors
The best method of securing your cryptocurrencies is through decentralized exchanges, commonly referred to as DEXs. While centralized exchanges allow users to swap assets, providing their funds’ custody simultaneously, DEXs do the opposite. This dramatically minimizes exchange-related hacks as you are not conversant with third parties who hold your valuable assets.
- Critical Benefits of DEXs:
- Enhanced Privacy: DEXs do not request personal details, thus protecting your identity.
- Reduced Hacking Risks: This is not the case with DEXs, because it is less prone to large-scale attacks since the investor controls the funds.
- Transparency and Control: The public can observe the trading transactions while using DEXs, and the whole process is transparent.
Serious investors can minimize hacking risks by using decentralized exchanges, which are generally safer than centralized ones. Although they may not be as friendly to use, some of the added security is for the better.
Best Practices for Secure Crypto Investing
Multi-Layered Security
Security can’t be guaranteed as a single measure, especially given the fact that the cryptosphere is entirely malicious. An essential security element is setting two-factor authentication for all your accounts so they request confirmation from another device. Do not use, for example, SMS-based 2FA since such an approach can remain quite susceptible to security threats like SIM-swapping attacks. This should be accomplished instead of using identification applications such as Google Authenticator.
Use Hardware Wallets:
While there is a software wallet, hardware wallets are preferable because they are more secure. It backs up your private keys offline, so attempting to hack your account is nearly as good as an impossibility.
Keep Your Private Keys Private
As stated before, private keys are everything in the crypto domain. I suppose they are how you get access to your money. If someone gets the keys, that person has control over your assets. Do not upload private keys through the internet; instead, jot them down and keep them aside physically.
Use Cold Storage
Those with large positions in cryptocurrencies recommend cold storage (offline storage to safeguard the assets). Cold storage devices, commonly referred to as hardware wallets, are not connected to the internet and, therefore, cannot be manipulated by hackers. Two of the most reliable ones are Ledger and Trezor.
Be Wary of Phishing Scams
It is expected that you will become a victim of phishing scams, in which the attacker tries to get you to share some important details. Never trust URLs, particularly if they are in the message. Do not click links in messages, and never release your private keys or password over the phone or email, regardless of how official the pitch appears.
Create Strong Passwords
Passwords for your accounts should be unique and complex. Password managers can even generate and keep such information secure for you.
Secure Your Internet Connection
It is recommended that you stop using public Wi-Fi when handling crypto accounts. An additional protection measure is to use a Virtual Private Network, or VPN, for short.
Regulatory and Insurance Measures: Building Trust in the Crypto Space
Crypto generally does not have a set of legal guidelines, which can make it a magnet for potential threats. However, there is an increasing trend across some jurisdictions to enact legal requirements designed to provide regulatory measures to protect investors. For instance, MiCA (Markets in Crypto-Assets Regulation) has been recently introduced in the EU to give guidelines regarding almost all areas, from ICOs to stablecoins, that help to create a safe atmosphere for European investors.
Also note that insurance-backed platforms are still in their infancy stage of evolution. Today, many Insurance companies like Coincover provide insurance for digital wallets in case the user gets hacked or suffers any sort of cyber attack. As I mentioned before, these measures do not entirely reduce the risk level but give a safety margin that can make investors feel safer.
Developing a Security Mindset
Therefore, the best way to protect investments is to become more security-minded. This means not only knowing security risks within an organization but also updating oneself on new trends and approaches commonly used. Read trustworthy media outlets and communities dedicated to the security of cryptocurrencies.
It is also recommended to communicate with other traders and exchange stories. Sometimes, one learns most when observing other people’s misfortunes or challenges.
Conclusion and Key Takeaways
The crypto market is arguably one of the highest risk and rewards markets. Security in this space is not just an individual responsibility; it is the foundation for future success. To recap:
- The decentralized exchange DEXs give an additional layer of security since the funds are at their discretion.
- The latest security measures, which include 2FA, private keys, and storage, should be applied.
- Specific regulatory and insurance-backed platforms may also be a good thing to have.
Crypto can and should be an exciting and safe investment, provided individuals follow proper security measures. These tips will help you create a diversified and protected Bitcoin and altcoin portfolio.
It’s important to emphasize that security is not a ‘get a list of checks and fix them’ kind of thing but an attitude. To recap, active investors can follow the best practices listed below, while people who are unsure whether to invest or which cryptocurrency to pick must remember these tips.
Faqs
1. What are the safest practices for beginners entering crypto investments?
Beginners should start with small investments while learning how to secure their funds. Begin by using reputable, user-friendly platforms with strong security features, implement multi-factor authentication, avoid public Wi-Fi, and invest in a hardware wallet for storage.
2. How can I tell if a crypto platform is trustworthy?
Check if the platform is regulated by known financial authorities, has a transparent team and roadmap, and employs robust security measures like encryption and cold storage. Look for user reviews and see if they offer insurance or partnerships with known security firms.
3. Are there specific wallets recommended for different types of crypto investors?
Yes, hardware wallets like Ledger and Trezor are often recommended for long-term investors, while mobile or desktop wallets like Exodus or Trust Wallet are popular for frequent traders. Choose a wallet that suits your trading frequency, security needs, and technical familiarity.
4. Can I recover my crypto if I lose my private keys or if my account gets hacked?
In most cases, lost private keys mean lost access to funds, as crypto operates without a central authority for recovery. However, some wallets offer backup options or multi-signature features. It’s essential to securely store private keys offline and avoid sharing them.
Photo by Adalat Naghiyev x Pexel