How to Keep Your Cryptocurrency Safe

Safety is a critical aspect of cryptocurrency custody. Learn how to keep your crypto assets in your hands and away from hackers.

The cryptocurrency world can seem intimidating from the outside looking in. With headlines about exploits, exchanges going bankrupt while halting withdrawals, and hackers stealing crypto from users, it’s understandable to be hesitant about the space.

Those issues don’t even involve the volatile nature of the market itself. In a lot of ways, the crypto world is the wild west, and mistakes or misfortunes are often without remedy. However, there’s a few ways to keep your crypto as safe as possible.

Dollar Cost Averaging

This isn’t as much about “security” in the same way preventing a hack is “security,” but it’s important to address as a matter of crypto-financial security. Crypto is famous for being a volatile market, with violent, 10-30% swings on a week to week basis. This alone prevents many from putting their money into cryptocurrency, but, there IS a safe way to put money into the market. Dollar-Cost averaging is a common method of investing in any asset.

You choose an amount to invest and an investment schedule. You then set this schedule and forget about it. This is a very widely endorsed way to invest in cryptocurrency. Instead of buying a whole Bitcoin for $40,000, and watching it sink to $25,000, it’s safer to slice up that $40,000 over time.

Instead, you could invest $500 every Monday until you own your desired amount of bitcoin. By doing this, you become much less vulnerable to market volatility, with your weekly investments balancing out the ups-and-downs in the market.

While this isn’t going to be as profitable as being lucky and buying a whole bitcoin, and the price doubling the next month, it’s markedly safer. You ride the waves rather than jump into the ocean without a life vest. The best part is that you can go at your own pace. Whether you want to put in $1,000 a week or $5 a week, most exchanges offer a recurring investment schedule feature so you can enter the market at a pace you are comfortable with.

Asset Security

There is a saying in crypto: “not your keys, not your crypto” that you should take to heart. One of the major benefits of cryptocurrency is self-custody ownership of money. While in the US there is less concern of this, around the world oppressive banks and regimes can, and do, disallow citizens from accessing their rightly owned money.

Chinese banks have recently frozen withdrawals of some citizens, and an economic crash can see this happen anywhere. In 1929 this happened in the US with the market crash and subsequent bank run that followed.

Self-Custody wallets are the bread and butter of protecting your crypto. Presuming you have safely stored your private keys, and NEVER share them with anyone, it is immensely difficult for a hacker to steal funds from your crypto wallet.

Self-Custody wallets can be connected to the internet (hot wallets) or held offline (cold wallets). While there are pros and cons to each type, cold wallets are the clear answer in terms of maximizing security.

DeFi Precautions

DeFi is still new, and hackers frequently exploit DeFi protocols. If you want to use DeFi, make sure it’s a very small amount of your crypto to prevent large losses in unpredictable events. While DeFi is one of the fastest growing and lucrative sectors of crypto, its infancy is shown through security vulnerabilities across the ecosystem.

DeFi generally relies on smart contracts to operate. While smart contracts are built on blockchain networks, they themselves lack the airtight security of a blockchain network, and hackers have been able to find problems with the code that they can exploit.

When they exploit a DeFi protocol, they often steal millions of dollars. Law enforcement has gotten better at tracking these major hacks and sometimes funds are returned to users, but it’s far from a safety net to rely on law enforcement. Strong due diligence is necessary in this space.

The Golden Rule: Spread the Risk

In a similar way to Dollar-Cost Averaging, the absolute best and most important method of keeping your crypto safe is by spreading the risk. This means in terms of your portfolio, and in terms of general security. Having multiple wallets (both hot and cold), multiple exchange accounts, using multiple DeFi protocols instead of only one, and multiple layers of security protecting your private keys is the best way to remain safe in cryptocurrency.

A great example of hardcore crypto security is a family who got wildly rich on bitcoin. A dad sold all the family’s assets (including the house) for bitcoin in around 2015. In a true testament of love his wife stood by this decision, and now the family has likely over 100 million dollars owing to this risky gamble. If you had $100 million dollars in bitcoin, how would you protect it?

The family has hidden pieces of their private keys placed across multiple continents. So, if someone wants to steal the family wealth, they are quite literally going to have to embark on an Indiana Jones style journey.

Hopefully we all get to this level of wealth, but for now, this is just a fun anecdote to paint a picture of the depths people will go to protect their crypto. The moral of the story is: there’s no such thing as being too secure, spreading the risk can be as extreme as spreading it on different continents. For the more general crypto user, a healthy mix of centralized exchanges with small amounts on them, hot wallets, and cold wallets is the best practice with cryptocurrency.

You might be thinking “this seems pretty onerous”, but it’s also important to establish a timeline to accomplish this. No need to purchase a cold wallet, download three different hardware wallets, and sign up for five exchanges if you have less than $1,000 in cryptocurrency. As years go on, you might suddenly find your $1,000 to be worth $10,000. Or maybe you do even better, and your continued investments become $100,000 or more over a few years.

You’ll likely find yourself naturally spreading the risk because if you get to that point, it probably means you are already smart about security. The goal is to require some extra security steps to protect yourself, but as time goes on and your investment grows, this will naturally become a priority.

*A Common threshold is $1,000 is when a cold wallet becomes a smart purchase*

5 Tips How to Keep Your Cryptocurrency Safe

The cryptocurrency world offers exciting opportunities, but it also comes with unique security challenges. Since cryptocurrencies are decentralized, the responsibility of securing your digital assets falls entirely on you. Unlike traditional banks, there’s no central authority to recover lost or stolen funds. For this reason, it’s essential to understand how to keep your cryptocurrency safe. Below, we’ll explore key methods and best practices to help you secure your assets effectively.

1. Enable Two-Factor Authentication (2FA)

Two-Factor Authentication (2FA) adds an additional security layer to your cryptocurrency accounts and wallets. It requires you to provide two forms of identification before you can access your account, such as a password and a unique code generated by an app.

• Best Apps for 2FA: Google Authenticator and Authy are popular choices for generating time-based codes.
• Avoid SMS-based 2FA when possible, as it’s more vulnerable to SIM-swapping attacks where hackers take control of your phone number to bypass security.

Best Practice: Always enable 2FA on your exchanges, wallet apps, and any service where your cryptocurrency is stored. This makes it significantly harder for unauthorized users to access your accounts.

2. Secure Your Private Keys

Your private keys are the backbone of your cryptocurrency security. Think of them as the passwords that unlock access to your funds. If anyone gains access to your private keys, they gain control of your cryptocurrency.

• Do Not Share Your Private Keys: Sharing your private keys is equivalent to giving someone direct access to your funds. Only you should have this information.
• Use Hardware Wallets for Secure Storage: Hardware wallets keep your private keys offline, reducing the risk of them being hacked.

Best Practice: Store your private keys in a secure, offline location. Avoid taking digital photos of your private keys or saving them on cloud storage, as these methods can be hacked.

3. Regularly Update Your Software

Outdated software can expose vulnerabilities that hackers may exploit. Whether it’s your mobile wallet, desktop wallet, or a hardware wallet, regular updates ensure you’re protected with the latest security enhancements.

• Automatic Updates: Some apps offer automatic updates to keep your software current without manual checks.
• Check for Firmware Updates on Hardware Wallets: Hardware wallet providers like Ledger and Trezor occasionally release firmware updates to patch security issues and improve functionality.

Best Practice: Enable automatic updates when possible, and regularly check for firmware updates on hardware wallets to ensure your devices have the latest security features.

4. Monitor Your Accounts Regularly

Keeping a close eye on your accounts can help you detect unusual activity early. Regular monitoring is especially important if you’re using hot wallets or exchanges that are connected to the internet.

• Set Up Alerts: Many exchanges offer email or SMS notifications for account activity. Set up these alerts to stay informed about transactions or logins.
• Review Transaction History: Periodically review your transaction history to ensure there are no unauthorized transactions.

Best Practice: Regularly monitor all accounts where you store cryptocurrency. Set up notifications to get real-time alerts on account activity, and promptly report any suspicious behavior.

5. Diversify Storage Locations

Keeping all your cryptocurrency in a single location increases the risk of losing everything if that location is compromised. By diversifying where you store your assets, you create multiple layers of security.

• Use Multiple Wallets: Consider using different types of wallets (e.g., hot wallets, hardware wallets) and spreading your assets across them.
• Consider Cold Storage for Larger Amounts: If you hold a substantial amount of cryptocurrency, it’s wise to store the majority in a cold wallet for added protection.

Best Practice: Diversify your storage options, and avoid keeping all your assets in one place. By using multiple wallets and storage methods, you can minimize your risk.

Final Thoughts on Keeping Your Cryptocurrency Safe

Protecting your cryptocurrency requires vigilance, secure practices, and the right tools. By using secure wallets, enabling two-factor authentication, safeguarding private keys, and staying aware of potential security threats, you can significantly reduce the risk of theft or loss. 

As the cryptocurrency landscape evolves, staying informed and proactive about security best practices is essential.

Key Takeaways

• Security in Crypto means multiple things from smart investing to smart security practices
• The more money you have in crypto, the greater the need to prioritize security
• Spreading the risk is one of the best ways to protect yourself. If something goes wrong, you only lose a small part of what you own
• If they are not your keys, it is not your crypto!

Related articles

History of Cryptocurrency
What is a Crypto Wallet?
What is a DAO?

Author:
Ken Melendez
✍️ Head of Content @ Cindicator
📊 Certified Bitcoin Professional
🔐 Blockchain Chamber - Chapter President

Who is Cindicator?

Cindicator is a world-wide team of individuals with expertise in math, data science, quant trading, and finances, working together with one collective mind. Founded in 2015, Cindicator builds predictive analytics by merging collective intelligence and machine learning models. Stoic AI is the company’s flagship product that offers automated trading strategies for cryptocurrency investors. Join us on Telegram or Twitter to stay in touch.

Disclaimer

Information in the article does not, nor does it purport to, constitute any form of professional investment advice, recommendation, or independent analysis.