What about the security of cryptocurrencies? This is one of the first questions that people tend to ask about cryptocurrency.
The truth is that cryptocurrency itself is secure, but lots of precautions are needed when it comes to keeping your cryptocurrency safe.
In this article, we break down the common ways cryptocurrency gets lost or stolen so that you can take the necessary precautions to protect yourself and your crypto.
One common way that people lose their cryptocurrency is by transferring their cryptocurrency to the wrong wallet address.
Every crypto wallet comes with a wallet address is a unique string of numbers and letters, and its concept is similar to a bank account number. To send cryptocurrency to a wallet, you will need to input the wallet address.
Unfortunately, when you send cryptocurrency to the wrong address it gets lost forever. This is because crypto transactions are irreversible by design.
What is phishing?
Phishing is a way hackers use to steal usernames and passwords, and also credit card details. They do this by impersonating a reputable company and getting you to hand over sensitive information.
This is a common scenario: Hackers impersonate your bank and send you an email or message asking you to click on a link. Usually, this brings you to a fake website. When you input your real banking username and password, the hackers now have your credentials and can access your account.
Phishing is a cybercrime that happens not just in the crypto world, but also everywhere else. Hackers are known to target banking and e-wallet accounts because there is money to be stolen. However, social media accounts such as Instagram and Facebook are also targeted.
It is especially dangerous if you use the one same username and password for all your accounts. It means that if the hacker is able to successfully phish for your login credentials on one website, they now have access to all your accounts across different platforms and banks.
In crypto, phishing is often used to obtain your crypto wallet account login so that a hacker can steal your cryptocurrency by transferring all of it to their own wallet.
What is an exchange?
An exchange is a platform where you can buy and sell cryptocurrencies.
Exchanges are where the biggest trades of cryptocurrency happens, and are particularly attractive to hackers because of the volume of cryptocurrency that people place in exchanges.
According to Cointelegraph, $292,665,886 worth of cryptocurrencies were stolen from exchange hacks in 2019 alone.
While there is no way that you and I can prevent exchange hacks from happening, we can make sure to protect ourselves as much as possible in the event of an exchange hack:
Think about crypto wallets on exchanges like actual, real-life wallets that you can hold in your hand—much like the one that you have in your pocket.
If you are on the way to pay $2,000 for a big purchase, you might have that amount of cash in your wallet for that day only.
Otherwise, you will most likely put a smaller amount of cash in this physical wallet, enough to support your daily spending for a week. This is the amount of money that you are willing to lose if you lost your wallet.
Most of your cryptocurrency holdings should be stored in a cold wallet, which acts like a safe that is not accessible to anyone else but you. The majority of your cryptocurrency should not be in a wallet that could be snatched from you on the street.
A cold wallet is the most secure and protected way to store your cryptocurrency, however it means that you are your own bank and you will need to safekeep it yourself. Read more about it in the next section.
Even though the cryptocurrency in a cold wallet is safe, it can also be inaccessible if you lose your private key.
What is a private key?
A private key is a unique string of letters and numbers that only you have access to, its concept is similar to a password to a bank account.
Because you are the only person in the whole wide world who has access to the private key, your cryptocurrency will be safe but not accessible if you lose your private key.
It would be like a treasure chest sitting right in your living room, that cannot ever be opened because you do not have the key.
Learn more about public keys, private keys, and crypto wallets in this ultimate beginner’s guide for storing your cryptocurrencies!