3 Best Practices for Crypto Security

The idea of ​​bitcoin BTC self-storage has become extremely popular due to an overall decline in trust around crypto exchanges. With self-custody, individuals retain total control over the private keys used to access their crypto, rather than allowing a custodian third party (eg exchange platforms or online digital wallet services). With $3.8 billion lost to crypto hacks in 2022, users want to feel more secure than ever.

However, moving cryptocurrency off trading platforms and out of connected wallets does not automatically mean that your assets are safe and secure. Bitcoin storage is more complicated than the seemingly binary “online or offline” storage.

“Cryptosecurity is a three-step dance,” Aly Madhavji of Blockchain Founders Fund told me. “First, educate yourself about digital assets and blockchain. Second, encrypt; treat your recovery keys like a secret treasure, tracked offline and stored securely. Carefully evaluate wallet providers, considering their track record, user feedback, transparency, and security protocols. Use cold wallets for bulk storage, hot wallets for everyday transactions. Finally, use multi-factor authentication. Your assets are only as strong as your weakest protection.”

Before you commit to either option, here are three tips that can help you make the safest choices for your cryptocurrency holdings.

Choose the right wallet for your level of expertise

In general, you can choose custodial or non-custody wallets for your bitcoin or other digital assets and cryptocurrencies. Custody means your wallet management is in the hands of a trusted third party; non-custody means that you are solely responsible for your wallet’s security. Both have pros and cons, but it’s crucial to be honest with yourself when deciding how to handle your crypto.

If you are new to crypto, you want to seek help from a verified company or a simpler, hands-on way to manage your digital currency. Your money is not necessarily inherently less secure this way, despite the lower levels of trust in third parties.

Cyber ​​attacks frequently target custodian companies, but it’s worth noting that these companies have beefed up their security and often provide users with insurance up to a certain amount, similar to fiat banks. They also remove the burden of responsibility that comes with managing your assets. Think of it like keeping your cash in a safe at home rather than having a bank account.

On the other hand, non-custody or self-custody wallets put all the control (and responsibility) in your hands. This can improve asset security, but also leaves you vulnerable to losing your currency due to phishing, hacking or physical damage. Forgetfulness is also a real threat. At least 20% of all available bitcoin is lost in forgotten wallets.

Takeaway: Carefully weigh the pros and cons of self-storage versus third-party storage, and be realistic about how much responsibility you want to take for crypto protection.

Never keep all your assets in a hot wallet

Digital wallets can be hot or cold, and it’s wise to have both. The good news is that self-monitoring and storage wallets have hot and cold options, and many users mix and match according to their needs.

A hot wallet is connected to the internet and generates the necessary keys to access funds. This makes it immediately susceptible to hacking, phishing or theft. However, hot wallets are also the easiest way to complete crypto transactions, so it makes sense for most users to have one.

In contrast, a cold wallet, or “cold storage,” is not connected to the Internet for added security, similar to an air-gapped computer. Cold wallets such as the Ledger Nano X or Trezor devices can be purchased commercially. They usually have software that allows you to access your crypto without using your private keys and provide a great alternative to storing your keys on the same device as your wallet. While you can also use options like an encrypted, regular USB drive or even paper copies of your keys, these can be a bit more difficult to maintain secure in the long run.

Regardless of which type of cold storage you choose, make sure you never put more bitcoin than you need right away in a hot wallet. Keeping more than that in a connected wallet opens you up to easy theft.

Takeaway: Keep hot and cold wallets, but only use hot wallets when you’re ready to complete a transaction.

Be strict about safety precautions

Despite the endless horror stories of people losing crypto, unrecoverable data or months of work, people are still terrible at backing up our devices. It cannot be stressed enough how critical it is to secure your wallet by keeping a careful backup schedule.

Maintaining up-to-date backups is often the only way to recover your funds should something ever happen to your digital wallets. Not only should you have a primary backup, but there should be multiple copies, preferably across different encrypted locations, such as USB drives, CDs, or external hard drives. Yes, it is a bit tedious, but it is much better than losing all your assets due to a single computer error or mistake.

Additionally, it’s best to subscribe to every security feature you possibly can. This can include using a seed or recovery phrase (like a master password for your wallet) and scheduling regular software updates for your bitcoin apps as well as any device used to access crypto.

Takeaway: Never skip a chance to back up your bitcoin, and use every extra layer of security you can.