One upside in using cryptocurrency means you don’t have to deal with banks. On the downside, it means you don’t have a bank to rescue you when you have trouble accessing your funds.
You are in total control, and with that comes great responsibility and a much greater need for security.
You will need to own your security and understand the risks involved and various security options you can utilise when dealing and holding cryptocurrency.
First things first, there are general security measures you should take when using the Internet and technology even if you aren’t using cryptocurrencies. You should adopt these in all your dealings on the internet as much as possible. At a minimum we recommend the following
Use a Password Manager
When dealing with websites that require passwords it’s best practise NOT to use the same password in multiple sites. Obviously this becomes pretty troublesome once you have accounts on lots of websites so the convenient solution is using a password manager.
The two best third party solutions we would recommend are 1Password and LastPass. They both operate similarly in that you add a browser extension (also works on your phone) that you use to generate a new password for every site you need to register on. You then only need to remember the ‘Master’ password to unlock access to the list of passwords the software manages for you. This way, you are able to use super effective passwords (20+ characters, multiple symbols and numbers) while having an easy to remember master password.
Also, don’t forget about Apple’s default password manager if you’re a Mac user - iCloud Keychain. It’s not as fully fledged as the two above but for getting started it’s definitely worth consideration.
Use 2-Factor Authentication
Most major sites now offer 2-factor authentication via your mobile phone. This ensures that if someone logs into your account, or changes it in anyway, you will receive notifications on your phone. You should already have this enabled on services such as Gmail, Facebook and Office 365. Make sure you use it on all Crypto exchanges.
Crypto coins are held in wallets. Wallets store your private keys which are used to access your bitcoin addresses and spend the funds associated with them. As such they need to be handled with care and a high level of security. As you no doubt want to pay INTO the wallet it is also of benefit if it is easily accessible by anyone on the internet.
So how can you do this while staying as safe as possible? Start with understanding the different types of wallets available and when you would use each type.
Transfering of coins is easy between the different types of wallets by sending from one wallet to the public address of the other wallet. Fees to apply for this so you don’t want to be transferring small amounts frequently.
We’ll categorise the different types of wallets into
- Online wallets - These are provided automatically to you when using online exchanges
- Software/Mobile wallets
- Hardware wallets
- Offline Cold Storage wallets - Such as Paper wallets
Online Wallets (Low Security - Maximum Convenience)
When registering an account on one of the many exchanges (GDAX/Coinbase/BTC markets) you will have access to an online wallet in order to buy/sell currencies. As a result your first purchases will end up in an online wallet. It is important to understand that the private keys for these wallets are totally controlled by the online exchange host and as such is more vulnerable to corruption or hacks. With the rising interest in cryptocurrencies, exchanges are an obvious target for such attacks and any coins held on the exchange wallets are vulnerable.
It is always advised to move your currency from an online wallet to one of the other forms of wallets when you are planning on holding the currency for a medium to long term.
Software/Mobile Wallets (Medium Security - Medium Convenience)
Software wallets are convenient applications you install either on your computer or your mobile phone. Mobile phone apps are useful if you plan on using crypto currencies day to day but in general (since it’s easier to lose your phone) we advise software wallets.
Software wallets can be more convenient than the hardware wallets below but since they are tied to your machine can leave you at a bind if you don’t have access to it. On shared computers you are also opening yourself up more to someone having access to your wallets without your consent. (2FA and Password Managers can prevent some of this)
Hardware Wallets (High Security - Medium Convenience)
Hardware wallets are a great high security option with many of the conveniences of software wallets in terms of depositing and withdrawing funds. They also generally use custom computer chips that can be infected by PC viruses and only work via PIN code)
Hardware wallets (and most software wallets) also use a deterministic method to generate the private keys. This means that you will be given a number of human readable words (12-24) that you need to KEEP SECRET. These words, put in the exact order again, will regenerate the exact same set of private keys. This means that if you need to reinstall the software wallet or replace (or duplicate) your hardware wallet, you can, and you don’t lose access to any of your coins.
We have an entire page on hardware wallets and a couple that we recommend (Ledger Nano S and Trezor).
Offline (paper) Wallets (Higher Security - Low Convenience)
We’re calling these paper wallets as generally that’s what they are. They are the most secure in that you can generate the entire wallet address disconnected from the internet. As long as you keep the paper safe (see fireproof document storage) then it’s a great option for long term storage. You can keep the public address handy on your computer in order to continue depositing to your address whilst keeping the private keys well away from prying eyes.
You can generate these offline paper wallets yourself on many websites, such as https://bitcoinpaperwallet.com/
There are also other hardware offline options available such as cryptosteel, which are worth considering for those prepared to pay the extra cost.
A downside to offline wallets is that you’ll tend to have separate ones for each currency which can make managing them quiet a pain. However, for long term cold storage they are generally the preferred option.
We hope this article gives you a good initial overview of how to store your coins securely and help you choose the right kind of wallet for the transactions you need to perform.