(Image source: Ledger)
Bitcoin has officially reached a new all time high, so we expect there’s quite a few new faces to the cryptocurrency community. If you are just getting started, there’s certainly a lot to learn!
Bitcoin and other cryptocurrencies are hosted on many computers by many different parties, and each transaction is controlled by algorithms. Therefore there isn’t a need for a centralised middleman such as a bank or government. Instead, you are in full control of your own assets. This comes with a lot of responsibility, and there are some safety measures you need to take to ensure you are securing your coins.
Here’s 3 things you should know.
WHAT ARE YOUR KEYS?
There are two types of ‘keys’.
The first is your public key. Similar to a bank account number, your public key is the address at which you receive cryptocurrency. It’s a ‘public’ key meaning you can share it with anyone without compromising your coins.
The second is your private key, which is the 24-word recovery phrase linked to your public key. It’s named ‘private’ because, you guessed it, it needs to stay private! Think of it as the password to your coins; if someone has access to it they have the ability to access your cryptocurrency. To ensure you are keeping your private key safe, you should avoid putting it online (in an email, on your phone or computer, on a website etc) and instead store it on a physical recovery phrase storage device that only you have access to, like the Billfodl.
NOT YOUR KEYS, NOT YOUR COINS
One of the most fundamental rules of cryptocurrency is the expression “not your keys, not your coins”, which refers to the need to own the private keys associated with your funds.
Storing your coins on a third party service such as an exchange is essentially handing the reins over to them. Whilst it may seem as though you solely own the coins listed on your exchange account, you don’t own the private key, meaning you don’t have sole custody of the assets. You run the risk of the exchange being hacked or exit scamming (running away with your funds and shutting down the website). In 2019 alone, there was over $4 billion worth of cryptocurrency stolen from exchanges!
HOT WALLET VS COLD WALLET
Cryptocurrency wallets, in general, function similarly to a physical wallet that holds cash. A hot wallet is a digital cryptocurrency wallet that is connected to the internet. Whilst it may be free, easier to access, and accepting of more cryptocurrencies, it is also much more susceptible to hacks. Digital wallets can store your security keys and codes in their online servers, making it extremely vulnerable to hacker attacks and scamming.
A cold storage wallet is a physical cryptocurrency wallet that is not connected to the internet. It is more secure as there is no need to worry about a hacker gaining access to the wallet remotely, given that it is offline. Devices are usually small and compact, which allows for both comfort and discreteness when transferring or carrying them around.
The most popular cold storage devices are the Trezor, Ledger Nano S, and KeepKey.
TAKEAWAYS
- Your private key should be safely secured on a physical recovery phrase storage device that only you have access to, like the Billfodl.
- “Not your keys, not your coins” - you should secure your cryptocurrency away from third party services like exchanges.
- A cold storage hardware wallet is the most secure way to store your assets.