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Crypto assets have grown in popularity and are now widely used as a form of virtual money. The market has grown at an exponential rate since the first-ever digital currency, Bitcoin, was introduced in 2009. Cryptocurrencies are based on blockchain technology which makes them decentralized. This makes it hard for a central authority to issue rules or regulations that will apply to everyone equally or to track ownership of any specific user or account.
Crypto assets can be stored in digital wallets where they can be safely kept and accessed from anywhere with internet access. These digital wallets come with their unique cryptographic keys which offer additional layers of security against unauthorized access and hacking attempts. The best practices for safeguarding crypto assets include the following:
Always backup your wallet
There are multiple reasons why you should always backup your wallet. First, you should backup your wallet whenever you transfer crypto-assets from one wallet to another. In this way, you will have a written record of your assets in case you lose your wallet or it gets hacked. You could get someone else to back up their copy and then you can compare the backups to make sure there is no unauthorized activity.
Another reason you should always backup your wallet is if you are planning on selling your assets. Before you sell your assets on an exchange like Bitcoin Bank you should transfer them to a new wallet. You are essentially backing up your wallet and creating a backup copy in case your wallet gets hacked and your assets get stolen.
The next step in safeguarding your crypto assets is protecting them from theft. This includes keeping your wallet on a secure device, such as a hard drive that is stored in a secure place. Other devices that store your funds could include a password-protected USB drive or a password-protected cloud storage device.
You should also keep your wallet on a single device and avoid keeping it on a computer that is connected to the internet. The fewer devices that have access to your wallet, the better. The easiest way to do this is to use a hardware wallet that is used with a code or a PIN to access your funds. Hardware wallets are considered to be the safest way to store funds. However, you should also note that they are the most expensive way to store cryptocurrency.
Use a hardware wallet
A hardware wallet is a device that securely stores your private keys and acts as a single access point for your funds. These wallets are considered to be the safest way to store funds as hackers are not able to access them remotely. There are several types of hardware wallets. Some of the most popular types include the following:
- Cold wallet – This is a computer or a smartphone that is not connected to the internet. It is connected to a hardware wallet.
- Hot wallet – This is a computer or a smartphone that connects to the internet and is used to access the wallet via a user-created wallet address.
- Hybrid wallet – This is a wallet that combines some of the features of both hot and cold wallets. It connects to the internet but also has some of its funds stored on a hardware wallet.
Always use cold storage for larger holdings
Cold storage refers to the act of holding crypto assets in either a cold wallet or an offline wallet. For larger holdings, it is advisable to use a cold wallet. This is because using a hot wallet brings additional security risks. However, using a cold wallet does require a higher level of investment as compared to an online wallet.
The highest level of asset security comes from using a cold wallet for all of your crypto assets. Using an online wallet for large amounts of funds also comes with additional security risks, such as having your computer infected with malware. When choosing a cold wallet, make sure you choose one that is not connected to any internet networks.
Cryptocurrency is a highly speculative investment that can generate significant returns. However, you should also note that it can also result in significant losses. Therefore, you must take every possible precaution to minimize the risk of losing your funds. This includes keeping your holdings to a minimum, keeping your funds stored safely, and only trading with money that you can afford to lose.