Security has been a key point of discussion regarding cryptocurrency since it first launched in 2008. For many people, one of the main factors that keeps them from investing in cryptocurrency is a concern that their assets might not be truly safe. The common logic is that a digital currency system with no physical counterpart is especially vulnerable in the event of online security breaches. In addition, because cryptocurrency is decentralized, and is thus not directly governed by any single legislative body or state, crypto assets don't have many of the built-in protections that assets stored in banks do. As a result, some investors fear that it’s too dangerous to place significant funding in a decentralized system.
In particular, recent news of a large security breach at the cryptocurrency exchange Bitmart, which resulted in almost $200 million in assets being stolen, has many people feeling concerned about cryptocurrency’s security. In a move that should assuage some fears about security issues, Bitmart has stated that investors will be reimbursed for the funds that were stolen.
Thankfully, there are many ways for users to protect their crypto investments, which range from basic password safety steps to choosing safe platforms, and even getting outside help from companies that specialize in online security.
Interestingly, though, it was discovered that the breach began because an unauthorized person was able to gain access using private keys that hadn’t been properly secured. In other words, the way thieves were able to get into the exchange to take so much of people’s assets wasn’t by using complex techniques to hack into the system, but by using other investor’s passcodes. So, while online security will always need to evolve at the company level in order for exchanges and platforms to maintain relative safety, it appears that keeping your cryptocurrency secure depends heavily on users staying safe themselves.
Thankfully, there are many ways for users to protect their crypto investments, which range from basic password safety steps to choosing safe platforms, and even getting outside help from companies that specialize in online security. Most large crypto exchanges enhance and maintain security protocols diligently as a matter of course, and there are even options for investors to insure their assets to protect against losses due to theft and data breaches. Let’s take a look at some of the ways you can keep your assets safer.
Safeguard your password
A lot of the conventional wisdom about online safety is especially relevant when protecting your crypto assets. First and foremost, make sure your password is secret, difficult to guess, and not recycled from other accounts. Remember, Bitmart’s security issues were caused by unsecured passwords, so making sure your individual logins are locked down is the first step towards keeping your accounts secure. Using password vaults like 1Password, which create and store randomized passwords for you, can be really helpful, because they make your passwords almost impossible to guess.
Use two-factor authentication
Two-factor authentication is when an application requires the user to access a different device or account to verify a login attempt. Typically this is seen when a user tries to log in to an account on a computer, but first has to enter a code texted to the user’s phone, or when a user is logging in via a smartphone and has to verify a code sent to their email address.
By using two-factor authentication, investors can make sure that if something happens to a device or app they use for logging into their accounts, there’s an automatic blocker in place.
By using two-factor authentication, investors can make sure that if something happens to a device or app they use for logging into their accounts, there’s an automatic blocker in place. If your cell phone is stolen, thieves might be thwarted by lacking access to your email. If your email is compromised, they won’t have your cell phone to enter the login code from your text messages. It’s an extra step of protection that’s highly recommended, as it’s far less likely that thieves and scammers will have access to multiple devices and accounts.
Use cold storage
Cold storage is when digital keys are held on an offline platform rather than in an account connected to the internet. This technique was developed as a safeguard against a potential issue with cryptocurrency: since cryptocurrency is decentralized, and thus not federally backed, unless funds are privately insured, they’re lost if they get stolen. Cold storage allows crypto exchanges to hold records without these digital wallets being available online, so that unauthorized users can’t potentially track down the digital signatures used to verify transactions.
A basic form of cold storage is plain old paper. Access codes are kept as written records only in this method. However, some more sophisticated ways to use cold storage are by storing keys on hardware that isn’t connected to the internet, or by using offline wallet apps.
One of the best things you can do to make sure your crypto assets are secure is do your homework. Due diligence is a good idea for any financial decision, but with crypto it’s vital.
Diversify your wallets
Most financial experts will agree that good portfolio management starts with diversification. This also applies to securing your crypto accounts. Using multiple digital wallets for your crypto assets is kind of like keeping some cash in your pocket, but keeping little stashes in your shoe and under your bed as well. If a wallet gets compromised, it’s far less risky to the investor if that wallet didn’t contain all of the assets of that type.
Vet your exchanges
One of the best things you can do to make sure your crypto assets are secure is do your homework. Due diligence is a good idea for any financial decision, but with crypto it’s vital. Aim for platforms and exchanges with a solid reputation, a comprehensive and up-to-date set of security features, and an action plan to mitigate against breaches. Most of all, aim for institutions and exchanges where you can find the information you need to assess their security protocols.
Remember, while a lot of the responsibility for securing your crypto assets is up to you, it’s important to start with an exchange you can trust, and to build that trust on a solid foundation of knowledge.