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7 Ways to Protect Your Crypto Wallet

Ready to venture into trading bitcoin as an investment? First, you’ll need to protect your assets with a secure and reliable crypto wallet.

For savvy investors ready to ride the highs and lows of cryptocurrency trading, Bitcoin remains the best asset class to put money in. The power of Bitcoin rests in its ability to act as a hedge against inflation—that’s why you will hear financial analysts rallying people to allocate even just a small percentage of their portfolio to the digital currency.

“Because there’s a fixed number of Bitcoins, it’s inflation-proof, and it’s virtually instantaneous,” shares Ric Edelman, founder of Edelman Financial Engines. While there are certainly risks to investing in any asset, the rewards of betting on Bitcoin can also be exponential. “

From what was once thought of as a subculture, cryptocurrency has become mainstream, with big names on Wall Street joining the trade.

Trust and Transparency

Bitcoin enables peer-to-peer transactions to occur securely without being regulated by a central authority, such as banks. It relies on trust and transparency. For the digital currency to operate, it should follow a set of rules called the Bitcoin protocol, which directs how data about transactions should flow between the network of nodes (miners) and the client software.

But the nascent technology that supports Bitcoin and all other digital currencies has also opened up a world of possibilities that extend beyond finance. Just think of the wide range of industries set to be disrupted by blockchain.

The public ledger on which transactions are recorded offers a step towards greater transparency no matter what industry you’re in. With that same level of transparency applied in financial transactions, Bitcoin has proven time and again that it’s an asset class worth investing in as it revolutionizes finance.

Now that you’re ready to venture into trading Bitcoin as an investment, one question remains: how do you make sure your crypto assets remain secure?

Scams and Other Security Threats

Bitcoin relies on cryptography to reduce the risk of identity theft, fraud, and double-spending. Cryptography serves multiple functions: securing transactions on the network, controlling the mining of new coins, and authenticating digital transfers and tokens.

However, it also helps investors know how to manage their assets properly using a crypto wallet, keeping their private keys secure, and warding off cybercriminals lurking in the dark.

As with everything digital these days, how secure your crypto wallet is will depend on how well you manage that wallet. There is still the possibility of owners losing their private keys or having them stolen.

A crypto wallet uses private keys to keep the assets secure. Without additional security measures, such as the use of a virtual private network when accessing your coins, your private keys would essentially be the only barrier keeping thieves away from dipping their hands into your investments.

There are also other security risks to holding digital coins, such as failure to back up cryptocurrency data in case of a breach or software glitch and the physical breakdown of a storage device where the assets are kept. Therefore, managing crypto assets is a matter of knowing cybersecurity best practices and choosing the best crypto wallet for you.

How a Crypto Wallet Works

To access your digital currencies, you’ll need to set up a personal crypto wallet. The coins aren’t exactly stored in the wallet itself, only the private key (security code) used to unlock access.

The private key works much like the code you enter whenever you use your debit or credit card during a purchase. The code proves you own the funds. When you’re buying or selling digital coins, the private key is your personal access point for adding or documenting transactions on the blockchain ledger.

Bitcoin exchanges often provide users with a wallet for an additional fee. But most exchange wallets only serve as a repository of assets that are set to be traded immediately, not as a safe, long-term storage. The danger of keeping 100% of your coins in an online platform is that it exposes assets to a host of threats. So, it’s best to transfer your crypto assets from an exchange to your personal wallet.

How to Keep Your Crypto Wallets Secure

Use secure internet networks

When accessing and trading your digital assets, always opt for a secure internet connection through a virtual private network (VPN). This routes your traffic to a different server to protect your IP address and location from cybercriminals and interlopers who spy on your activity in an attempt to steal data.

Even if you’re trading from home, using a VPN gives you additional security since it lets you remain anonymous as you make your transactions online. The private network serves as a “tunnel” through which all your connections to the internet are encrypted.

On that note, NEVER use public Wi-Fi networks—they are a hotbed of security threats. Some data thieves would go so far as to mock up free Wi-Fi services in public spaces just to lure people into using their connection and logging in their credentials.

Update your software

A good defense against Bitcoin thieves goes back to cybersecurity basics: regularly updating your computer or mobile software and installing a trusted antimalware solution. Opening your wallet on a computer or smartphone that lacks any safeguard against vulnerabilities exposes your assets to threats.

Update your passwords regularly

Go for a strong, unique passphrase and create a mnemonic out of it. It should be a phrase that you can easily recall but would be difficult to crack for an outsider. Never recycle that same password across different online accounts such as your email or social media profiles. Remember to create individual passwords for each wallet and change them regularly.

If there are too many codes to remember for your private keys, use a trusted password manager but don’t leave clues about which wallet they are associated with. Storing all of your credentials in the same place increases your risk of theft.

Use 2FA or MFA for logging in

Put two-factor authentication (2FA) or multifactor authentication (MFA) in place when accessing your wallet. This can be an extra one-time passcode sent to your phone or a biometric scan on hardware crypto wallets that require your fingerprint or iris scan to gain access.

Use multiple wallets

Don’t put your faith in one wallet. Instead, diversify and create wallets, each with a different purpose. Maintain one or two wallets with smaller funds for regular trading and everyday transactions, but secure most of your assets in a separate wallet for when you want to “hold” onto your currencies. After all, there is no cap on the number of wallets you can create.

Aside from your everyday wallets, you should also get a core wallet for your long-term hold. Core wallets reflect the entire blockchain, not just a fragment, and offer additional security features.

Make a backup of your wallet frequently

In the event of a device malfunction or software glitch, having a backup of your crypto wallet will prove to be a lifesaver. However, this strategy only pays off if you make a backup of your ‘wallet.dat’ files immediately and if you do so regularly and frequently.

A wallet.dat file would typically contain data, such as your wallet information, password, and private key. However, as an extra precaution, avoid keeping all info in a single location to lessen the risk of an attacker stealing both your wallet and private key. Segregate and store them in a secure device such as a password-protected external hard drive or USB stick.

If you are hacked, make sure to move your wallet data and assets to a new wallet, make new backup copies, and proceed with destroying old ones.

Use cold and hardware wallets

Crypto wallets accessible only by connecting to the internet are called “hot wallets.” Because hot wallets remain online, they are also more prone to hacking. It’s best to avoid storing private keys for large sums on a digital wallet or smartphone app. Cloud wallets also come with their own risks.

A good practice is to keep your private keys encrypted in “cold” or hardware wallets that don’t always require internet access to manage coins. This method of cold storage on a local device relies on hardware such as physical electronic wallets and external storage devices like USB sticks.

The most important aspect of investing in cryptocurrencies is the transparency of every transaction. But investors who aren’t cautious about keeping their assets secure can easily fall prey to criminals who want to exploit loopholes. Being a savvy crypto investor requires not only financial acumen but also an eye for cybersecurity. •

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