Since the inception of Bitcoin in 2009 and its subsequent increase in value, cryptocurrency has secured a major position as one of the trending topics in the blockchain industry— and by extension, the field of technology.
Although, the blockchain technology upon which cryptocurrencies are developed, is designed to be a highly encrypted decentralized structure with immutable records which are often immune to cyber attacks; the advancement in technology has largely threatened this seemingly unhackable structure. Hence, the protection of your cryptocurrency should be amongst your top priorities.
However, before analysing the best security practices to ensure that your cryptocurrencies are well protected from malicious attackers, it is pertinent to highlight the interrelationship between cryptocurrency and security.
Blockchain, Cryptocurrencies And Security
While the cryptocurrency space is growing at a commendable rate, the core elements needed for its success are the protection and storage of digital coins. The blockchain network provides the needed protection for users; whilst wallets and digital exchange platforms, offer storage services and facilitate transactions.
Blockchain technology makes extensive use of the public key cryptography in order to provide a transparent and publicly accessible ledger that allows users to securely transfer the ownership of units of value, with proof of work methods. To achieve this, it uses a decentralized consensus to maintain the network, thereby, sealing its security, as the proliferation of the network would make it more decentralized and less prone to hacks.
Security Practices To Prevent Hackers
Cryptocurrency security should start with basic cybersecurity. With cryptocurrency worth over $4billion having been stolen in previous years, having the knowledge to safeguard your currency from attackers, is particularly germane.
Some of the best security practices to employ in order to safeguard your wallet from hackers are:
1. Make Regular Backups of your wallet
In every aspect of this technology era, the importance of backups cannot be overemphasized. The same applies to cryptocurrency wallets. A backup of your wallet can protect you against computer failures and many human mistakes. It could also afford you the opportunity of easily recovering your wallet in circumstances where your phone or computer is stolen.
Some wallets use many hidden private keys. If you only have a backup of the private keys for your visible Bitcoin addresses, you might not be able to recover a great part of your funds with your backup. Therefore, it is recommended that you undertake a full backup of your wallet.
Regular backups are essential to protect against computer failure, theft and human errors. For most use-cases, the 3-2-1 rule for backups should be followed; three copies, two different media items and one off-site. That could mean keeping your private keys on:
- Hardware wallet.
- CD or flash drive.
- Paper wallet.
This connotes three versions stored on at least two different devices or media.
Next, you should keep one off-site backup in a remote location or a bank deposit box at a trusted bank.
Remember that you should always encrypt your backups. If you back up a wallet file and a malicious attacker gets a hold of it, your currency would immediately become theirs to steal.
2. Enable Multi-Factor Authentication
Multi-factor authentication (MFA) is an additional security layer for your wallets. It helps to address the vulnerabilities of a standard password-only approach. It prohibits access to services until a user successfully presents two or more pieces of evidence (or factors) to an authentication mechanism. They usually comprise: knowledge (something the user and only the user knows), possession (something the user and only the user has), and inherence (something the user and only the user is).
Two-factor authentication (2FA) is the most used MFA. It requires only two factors to authenticate users. If enabled on your crypto wallets, you would need another factor such as a PIN or One Time Password (OTP) in order to log in with your username and password. The authenticator is usually on a secondary device like a mobile phone or a USB key. This makes it virtually impossible for an attacker to siphon your wallet tokens even after breaking the first security layer without the authenticator.
3. Use multiple wallets
Your wallets save your keys, which is the access way to your cryptocurrency. Should a breach occur, having a single wallet would be quite disastrous. You have to treat your wallet the same way you would treat a real leather wallet.
Therefore, it is recommended that you use at least two wallets— a hardware wallet for storing your coins and a hot wallet for storing a small amount of coins on a computer or mobile phone for everyday transactions.
Hardware wallets are the best balance between very high security and ease of use. These are little devices that are designed are like an external hard-drive designed specifically to store cryptocurrency. They do not allow software installation, thereby, making them very secure against computer vulnerabilities and online thieves. Because they can allow backup, you can recover your funds if you lose the device. Some of these are even designed to facilitate transactions without the keys leaving the hardware.
A hot wallet (one connected to the internet) is great for day-to-day transactions, but they are easier to steal from. However, keeping all your currencies in a hot wallet, is essentially asking for trouble. As such, opting for a hardware wallet as the major storage method, is a better and safer practice.
4. Encrypt Your Data Always
If you are creating a backup of your crypto wallet, you have to encrypt it. In fact, should you be storing sensitive data, you would be better off encrypting it.
Any backup that is stored online is highly vulnerable to theft. Even a computer that is connected to the internet, is vulnerable to attacks by malicious softwares. As such, encrypting any backup that is exposed to the network is a good security practice.
Encrypting your wallet or your smartphone, helps protect your currencies against thieves by allowing you to set a password for anyone trying to withdraw any funds.
However, whilst setting up encryption, always remember to use strong and complex passphrases that you can easily remember, as forgotten passphrases may result in the total loss of your coins.
5. Stay Private
Cryptocurrency is often perceived as an anonymous payment network; but in reality, it is probably the most transparent payment network in the world. Some tips to consider to ensure your privacy whilst using cryptocurrency are:
- Stop making mention of your cryptocurrencies trade exchange on social media networks. It makes a you a potential target for hackers.
- Use only private or secured networks to conduct your transactions.
- Whilst checking or moving crypto around, make sure your devices are secured with updated anti-virus softwares, in order to hinder people from tapping into your data and reading the keys you type.
Securing your cryptocurrency is a complex and time-consuming process, but it is worth the trouble— especially for anyone with a reasonable amount of cryptocurrencies. Always remember that it is your responsibility to adopt good practices in order to protect your privacy because you are practically your own bank; and protecting your money comes with great responsibility.