Many products and services have been introduced to make it more convenient for those who use or are new to crypto. The increased rate of adoption and use has resulted in an increase in hacks and thefts.
In its annual analysis of cryptocurrency theft, blockchain analysts at Chainalysis . Discovered that 2022 was the worst year yet in terms of the total value of crypto stolen—$3.8 billion.
No storage method is completely secure. Here are some measures you can take to improve your bitcoin and cryptocurrency security
- BITCOIN AND OTHER CRYPTOCURRENCY TOKENS CAN BE LOST DUE TO THEFT. COMPUTER FAILURE, LOSS OF ACCESS KEYS, AND OTHER CAUSES.
- COLD STORAGE (OR OFFLINE WALLETS) IS ONE OF THE SAFEST WAYS TO HOLD BITCOIN. THESE WALLETS ARE NOT ACCESSIBLE VIA THE INTERNET. HOT WALLETS CAN STILL BE USEFUL FOR SOME USERS.
- THOSE LOOKING FOR THE SAFEST BITCOIN AND CRYPTOCURRENCY STORAGE. SHOULD CONSIDER USING A NON-CUSTODIAL COLD HARDWARE WALLET FOR ALL LONG-TERM.
- ONLY KEEP WHAT YOU INTEND TO USE IN YOUR HOT WALLET. WHEN YOU’RE DONE. MOVE YOUR CRYPTO BACK TO COLD STORAGE.
TYPES OF STORAGE
Storage is classified into two types: custodial and non-custodial. For each type, there are hot and cold wallets.
Custodial Account Wallet
A third party, such as an exchange like Coinbase, manages a custodial wallet. The custodian stores your private keys for you in this arrangement. Ensuring their safety and sometimes providing insurance on holdings up to a certain amount.
Since users began using custodial wallets, they have been the target of numerous attacks. Exchanges have taken steps to harden their services. Keys into enterprise-level cold storage, where they cannot be accessed.
Custodial wallets can either be hot or cold
Non-Custodial Accounts Wallets
Those in which you store your keys without the involvement of anyone else. Non-custodial wallets can be both hot and cold.
When you buy Bitcoin, you gain ownership of the amount you paid. You are given two keys, one public and the other private. The public key is used to encrypt data and generate your wallet address. While the private key allows you to decrypt data and access your Bitcoin. This is the key you’re keeping and protecting.
Your bitcoin ownership is securely recorded, stored, validated, and encrypted on the blockchain. Because of the encryption methods used, no cryptocurrency has been stolen to date by altering the information on a blockchain.
With current technology, brute force hacking a blockchain would take centuries, if not millennia.
However, the wallet you use stores your private key. Wallets are generally software on a hardware device that is hackable. Thus, the weak link lies between the blockchain and the user.
The Hot Wallet
Hot wallets are pieces of software that store your keys and connect to the internet. These wallets introduce risk. They generate the private and public keys required to access cryptocurrency. While most users access and make Bitcoin transactions through a hot wallet, they are vulnerable and can be hacked.
It is estimated that approximately 17% of all bitcoin will ever be in circulation has been lost.
The Cold Wallet
A cold wallet (also known as cold storage) is a wallet that is not connected to the internet. Thus poses far less risk of compromise. These wallets are also known as hardware wallets or offline wallets
Precautions for Security
Back up your entire Bitcoin wallet frequently. In the event of a computer failure. History of regular backups is the only way to recover the currency stored in the digital wallet. Include all wallet files, and then store the backup in multiple secure locations (such as a USB, CD, or other removable device). Furthermore, use a strong password and encrypt the backup.
Updates to software
Maintain software updates. A wallet that is running outdated Bitcoin software is a prime target for hackers. The most recent version of wallet software will include updated definitions and fixes, increasing the security of your bitcoins. To keep your bitcoins safe, keep your mobile device’s or computer’s operating systems and software up to date.
The concept of a multi-signature (multi-sig) transaction has gained some traction; it requires transaction approval from several people (typically three to five) before it can take place. This reduces the risk of theft because transactions (such as sending bitcoins to an address or withdrawing bitcoins) cannot be performed by a single controller or server. The people who can transact are determined at the outset; when one of them wants to spend or send bitcoins, others in the group must approve the transaction. This is also known as a shared wallet and should be used with extreme caution.
If you have the option of using multi-sig, make sure you know and trust the other people before joining the wallet.
Series of randomly generated words that function as a master password for your wallet. They are also known as a recovery phrase, mnemonic phrase, or mnemonic seed phrase. These phrases allow you to recover your keys if you ever lose your storage devices or access. Your keys are encrypted, and the encryption generates a series of words that allow you to access your wallet.
A seed phrase could be something like this:
rather than window lab bless night west industry trap jacket absurd detect inspire need robot lift elevator able volcano one memory link goat
The Bottom Line
Cryptocurrency is not losing popularity among users or thieves. Because some people would rather steal from others than work, it is critical to keep your bitcoin keys as secure as possible. Cold storage methods are the safest way to store your keys, but you will need to connect your storage device or enter your keys at some point to use your bitcoin. Using an offline device only when you need to access and use your keys, then storing the device in a secure location, are the best ways to prevent hackers from stealing your crypto.