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The decentralized cryptocurrency model largely transfers autonomy and power to users, which is why many users are drawn to it. However, with that power comes the responsibility of maintaining the privacy of your security keys. Effectively, by having complete ownership of your funds, you become solely responsible for their security.
As more crypto hacks happen periodically, it's common for traders and investors alike to ask how to keep crypto safe. This article will explore various best practices for practical user security.
Key Takeaways:
Different crypto wallets serve different purposes — from hardware wallets for long-term crypto storage to hot wallets and exchange wallets for daily transactions, and web3 wallets for decentralized app interoperability.
Always stay informed about the latest scams and anti-phishing practices, and practice consistent, uncomplicated security habits to secure your wallets.
Blockchain is the underlying technology that keeps crypto secure, due to its decentralized and cryptographic nature. Since decentralization means there isn’t a single point of failure or control, it’s unlikely that hackers can compromise a blockchain network without exhausting their resources. In addition, all cryptocurrency transactions are recorded in blocks and “chained together” in a publicly recorded ledger, so it’s relatively challenging for malicious actors to attempt to alter past transactions without altering any subsequent blocks.
In addition, public key cryptography adds another layer of security, ensuring only a rightful owner with the private key can access or authorize a transaction, and pseudonymous crypto transactions help preserve anonymity.
Still, cryptocurrency has intrinsic value and can be stolen and diverted to new owners instantly and irrevocably, creating a considerable incentive for hackers to target users who don’t take their security seriously. In fact, data reveals crypto investors lost nearly $4 billion to crypto hackers and scammers in 2022. Like any investment or financial asset, cryptocurrency comes with its own set of risks and considerations.
While cryptocurrencies have gained in both popularity and adoption in recent years, it's essential to be aware of the potential risks before investing, and to consider if they’re suitable for your specific circumstances.
All financial assets are susceptible to market volatility, due to their inherently speculative nature, in addition to regulatory oversight and changing political landscapes. The security of crypto may also appear as a double-edged sword for traders due to its irreversible nature. Let's say you send crypto funds to the wrong address, or fall victim to a scam. It may be challenging (if not impossible) to recover your lost funds. In addition, the technical complexity may be challenging for those unfamiliar with blockchain technology and digital assets.
A cryptocurrency wallet allows users to store, send and receive digital assets, such as Bitcoin, Ethereum or other cryptocurrencies (known as altcoins). These wallets are secured by private keys, so that only the wallet owner can access, control and manage the assets in the wallet by authorizing transactions.
There are plenty of crypto wallets available to suit different purposes. A cold (offline) wallet isn’t connected to the internet, and is typically in the form of a hardware wallet or paper wallet. These types of wallets are the most secure option for storing cryptocurrencies, as the private keys aren’t exposed to potential online threats and unauthorized access. The trade-off to using an offline wallet is that it requires careful handling to avoid permanent damages, such as accidentally throwing out the offline wallet or misplaced private keys.
On the other hand, a hot (online) wallet is connected to the internet and takes different forms, such as a web-based, desktop or mobile wallet. Compared to an offline wallet, hot wallets are more accessible but at the expense of heightened security infiltration.
An exchange wallet is typically a custodial wallet provided by a crypto exchange to users whenever they create an account on the platform. These custodial wallets are assigned with a unique wallet address to a user, so that they may deposit and withdraw funds. In other words, users entrust their funds to be saved in these wallets, and the providers hold and manage the private keys on behalf of the users.
A web3 (or decentralized) wallet is one of the latest additions to the crypto space, designed specifically for users to interact with decentralized applications (DApps) on the Ethereum blockchain and other web3-compatible blockchains. These wallets are usually integrated directly into a web browser, allowing seamless interaction with blockchain-based DApps without using external plug-ins.
Sign up for Bybit Web3 Wallet here
Ultimately, choosing a crypto wallet depends upon your specific needs and preferences.
For long-term storage and high-security requirements, a cold wallet, like a hardware wallet or paper wallet, is recommended.
For convenience and regular transactions, a hot wallet, such as a desktop or mobile wallet, can be a suitable choice.
Avoid keeping large amounts of cryptocurrencies in exchange wallets, as they’re more susceptible to hacking and other security risks.
Regardless of the type of wallet you choose, remember to practice proper security measures, such as enabling two-factor authentication (2FA), using strong passwords and keeping backup copies of your wallet's private keys or seed phrases.
As much as we want to keep our wallets safe from prying eyes, accidents are inevitable, regardless of how careful we are. And losing access to your wallet's private keys can have serious consequences, such as permanent loss of funds and access to your account. For example, losing your private keys without a backup means you’ll no longer be able to access the wallet that stores your crypto. These funds may be stuck on an exchange or in a wallet, depending upon the type of wallet you use.
The first thing we’re likely to do when we lose access to our private keys is to look for a backup. However, cryptocurrencies operate on decentralized networks, so there’s no central authority that can help you recover your lost private keys or reset passwords for you. Hence, it’s always advisable to keep a record of your private keys or seed phrases as a backup.
In rare cases, there are specialized companies that can help you retrieve lost private keys when there’s sufficient information and verification to recover them.
Remember that in the world of cryptocurrency, you alone are responsible for safeguarding your private keys. Being proactive in protecting and securely managing your keys can prevent the distressing experience of losing access to your valuable digital assets.
One steady truth throughout the ages is that we pay fees for the security of the funds in our bank accounts (though “security fees” will never appear on bank statements). Unlike traditional centralized banking financial institutions, decentralized systems such as cryptocurrencies transfer the control and responsibility of security to individual users.
With cryptocurrency, even when we might be excited to complete our first cryptocurrency transaction, we shouldn’t forget there are no longer any security service providers like the ones banks have, and there may not even be regulations in place to provide any protection (depending upon the national or regional regulations in the holder’s location). Therefore, it’s crucial that cryptocurrency users have rigorous security practices in place, such as buying simple and easy-to-use hardware security devices, mastering security protocols and implementing best security best practices, such as those recommended in this article.
The most apparent risk faced by cryptocurrency holders is the theft of coins. Assuming most individual users hold coins on cryptocurrency trading platforms, choosing a trusted platform is of the utmost importance.
There is no benchmark for international security standards or third-party agency ratings for trading platforms in the cryptocurrency industry. Therefore, it’s necessary to properly understand a platform’s security mechanisms before you register, such as the company’s current security investment. Also, it’s important to check if the platform offers any user account security insurance or guaranteed compensation for security breaches.
Phishing is the most common scam. To avoid being viewed as a “fish” in the eyes of perpetrators, make sure that you’re equipped with knowledge about common “bait-the-hook” techniques.
One example of a phishing email is when a URL that invites you to click on a link is a fake domain name that’s similar to a trusted one — e.g. www.goog1e.com (note that it’s not actually www.google.com). It could even be a clone website of a commonly used trading platform, such as a phony MetaMask wallet website that “looks real” and tricks you into entering your seed phrase so scammers can instantaneously pick your digital pocket, draining your funds.
According to data, around 65% of organizations worldwide experienced some kind of phishing attack in 2022. If your email has been compromised or if you previously had a compromised account, then phishing emails will be carefully designed to target you. According to statistics, around 96% of phishing attacks come from email.
So, how do you prevent this?
A reliable method for crypto holders is to complete an anti-phishing security test. The Google online test is a good benchmark (you can take the test here). It comprises a total of eight questions and requires just 10 minutes of your time. If your score falls short, that means you need to increase your security awareness and try again.
Other common phishing methods include sending gifts or bonuses through fake official social media and community channels, posing as customer support personnel or cloning trading platform CEOs' social accounts.
The good news is that most cryptocurrency trading platforms, including Bybit or other wallet service providers, require you to use two-factor authentication, such as Google Authenticator or Authy. The trade-off is the hassle of using these tools.
2FA is an additional layer of security used to ensure that only legitimate owners can access their accounts. This “extra” layer means that, in addition to standard passwords and PINs, a platform’s security will also verify a second layer (hence, two-factor). This second factor can be something you own, such as the Google Authenticator app installed on a mobile phone that you carry, or a one-time password sent to your mobile phone via SMS or hardware tokens. These features are used on top of your existing mobile security features (such as fingerprints, iris and/or facial scanners, etc.).
When you install Google Authenticator directly on your computer, you give up an extra layer of protection every time you copy the verification code instead of using a smartphone app. It’s very likely that once a hacker (remote) or a person who has physical access to your computer gains access, your existing layers of protection will be penetrated.
At Bybit, users can bind their accounts with Google Authenticator. The best time to bind your Google Authenticator is immediately after your first login to your Bybit account.
Read here to learn how to bind your Bybit account to Google Authenticator.
It’s always the most economical choice for a hacker to try to target a cryptocurrency account with a user’s compromised account and password. Knowing this, a savvy cryptocurrency holder will take the following preventive measures.
First, register a new email account for the cryptocurrency platform to circumvent any previous digital footprint that would allow anyone to hack or clone your account successfully. Secondly, don’t use weak or common passwords.
According to a report from CipherTrace, a blockchain certificate company, 65% of the Know Your Client (KYC) verification processes in the world’s top 120 cryptocurrency trading platforms are weak. This means that once your crypto account password has been cracked, a hacker can easily obtain your crypto assets on a trading platform and transfer them to their wallet address, thus leaving little to no chance of retrieving your assets.
In addition to trading on platforms using your accounts and cryptocurrencies, it’s common for traders to store crypto assets offline, as one would with cash in a safe. Personal crypto assets — whether in hard wallets, physical storage, desktop wallets or mobile APP wallets — are best allocated to cold, warm and hot wallets in the ratios of 70%, 20% and 10%, respectively, depending upon your individual needs and preferences.
Would you carry your entire net worth around in your wallet?
Most people would consider that reckless — and yet, cryptocurrency users often keep all their crypto in a single wallet. Instead, users should spread the risk among multiple and diverse cryptocurrency storage wallets. Prudent users will keep only a small fraction, perhaps less than 5%, of their cryptocurrency in an online or mobile wallet as “pocket change.” The rest should be split between a few different storage mechanisms, such as a desktop wallet and offline (cold storage).
Because most users are far more comfortable with physical security than with digital security, a highly effective method for protecting your cryptocurrency is to store it in a physical form. Cryptocurrency keys are nothing more than long numbers, which means they can be stored physically, printed on paper or etched on a metal coin.
Securing one’s keys becomes as simple as physically securing a printed copy of them. A set of cryptocurrency keys printed on paper is called a “paper wallet,” and many free tools can be used to create them. For example, I would keep most of my cryptocurrency (99% or more) stored in paper wallets, encrypted with BIP-38, with multiple copies locked in safes. Keeping cryptocurrency offline (cold storage) is one of the most effective security techniques.
A cold storage system is one where the keys are generated on an offline system (one never connected to the internet) and stored offline on paper or on a physical device, such as a USB memory stick.
In the long term, cryptocurrency security will increasingly take the form of hardware-tamperproof wallets. Unlike a smartphone or desktop computer, a cryptocurrency hardware wallet has one purpose: to securely hold cryptocurrency. Without general-purpose software to compromise, and with a limited interface, hardware wallets can deliver an almost foolproof level of security to non-expert users.
The main risk addressed in the many security measures mentioned above is that of stolen crypto assets, whether pilfered on a trading platform or physically stolen. However, overly complicated security measures can actually pose a greater risk.
Data files get lost all the time, and if they’re compromised, the losses are more substantial. For example, in July 2011, a well-known cryptocurrency awareness and education project lost almost 7,000 cryptocurrencies. In their efforts to prevent theft, the owners had implemented a complex series of encrypted backups. In the end, they accidentally lost the encryption keys, making the backups worthless — and losing a fortune as a result.
One important crypto security consideration that’s often overlooked is mortality, especially in the context of incapacity or death of the key holder. Cryptocurrency users are told to use complex passwords, and to keep their keys secure and private, not sharing them with anyone. Unfortunately, that practice makes it almost impossible for a user’s family to recover any funds if that user is no longer available to unlock their assets.
If you have a lot of cryptocurrencies, consider sharing access details with a trusted relative or lawyer. A more complex survival scheme can be set up with multi-signature access and estate planning through a lawyer specializing in “digital asset execution.”
Personal data protection is a sensitive subject. In the encrypted world, a single trace can identify and associate your personal information (PI) with your cryptocurrencies. Examples include your usernames/IDs on crypto community forums, IP address, smartphone device information, personal info trading platforms, or even inadvertently mentioning on social media the type and quantities of crypto that you own.
Information about a particular wallet address, the crypto service provider (trading platform or wallet) you use or your attendance at a private cryptocurrency conference are all examples of personal data that can potentially be obtained by unscrupulous individuals looking for easy targets.
Guarding your privacy is a logical part of protecting the security of your cryptocurrency assets, but it’s also the only way you can avoid conflict between the encrypted virtual world and the real world.
“My deposit went to someone else’s address.”
“The trading platform’s customer support said that I was caught in a clipboard hijacking malware, and I’ll need to use anti-virus software and check the browser plug-in immediately.”
“What exactly is a clipboard hijacking malware, and what should I do?”
Users in the digital world face problems similar to those in the real world, especially security issues. They have so many questions, with no answers and nobody to turn to. Perhaps having a security expert friend in your daily life would make things much less complex.
Bybit has never been hacked, offers unparalleled security and is among the most reliable crypto exchanges. The platform strongly encourages its users to secure their assets using Google 2FA and setting up anti-phishing code built into the platform. This helps to notify users if there’s suspicious activity — for example, non-matching codes.
Bybit also deploys the New Address Withdrawal Lock feature to restrict any newly added withdrawal address from being used for a 24-hour period. This helps to prevent any unauthorized withdrawals, should your account be compromised.
The internet is filled with prying eyes, and there will inevitably be websites that attempt to impersonate Bybit. We recommend you use the Bybit Authenticity Check feature to ensure the legitimacy of any Bybit-related domains or sources of information (such as emails, phone numbers, URLs or social media accounts).
Cryptocurrency is a completely new, unprecedented and complex technology. Over time, we’ll develop better security tools and practices that are increasingly easy for non-experts to use. For now, cryptocurrency users can take advantage of the many tips, such as those listed in the article above, to enjoy a secure and trouble-free cryptocurrency experience.
#Bybit #TheCryptoArk
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