Cryptocurrency promises financial independence, but with that freedom comes responsibility. When there is fraud or system problems with traditional banks, funds can likely be recovered. However, crypto is largely irreversible. If you lose your private keys or fall victim to a scam, your coins may be gone forever.
With billions of dollars in cryptocurrency lost to theft, scams, and user error each year, it has never been more important to ensure that your holdings are safely stored.
Fortunately, there are 10 proven security practices that will reduce your risk of losing your funds.
1. Verify Your Wallet Type
Your first step in protecting your crypto is to know which type of wallet you're using. There are two main types:
- Hot wallets: These are connected to the internet. Examples include mobile apps, web wallets, and desktop wallets. They're convenient for frequent transactions but are more vulnerable to hacks and cyberattacks.
- Cold wallets: They're offline storage options like hardware wallets, paper wallets, and air-gapped computers. Since they're not connected to the internet, they offer greater protection from cybercriminals. They're ideal for long-term holders who aren't trading often.
You should verify whether your funds are stored in a hot or cold wallet, and which option is best for your investment strategy.
2. Only Use Reputable Wallets and Exchanges
Not all wallets and exchanges offer the same level of security. Using a poorly secured platform or one with malicious intent can lead to immediate loss of your funds. Before you trust a provider, research their reputation, security measures, reviews, and history.
Check whether exchanges have a clean record regarding hacks and whether they have insurance for user funds. If you prefer decentralization, consider researching the best decentralized crypto exchange options, which will reduce reliance on centralised intermediaries, while still requiring strict self-custody.
Sticking to a trusted service provider will reduce unnecessary exposure to risks.
3. Enable Multi-Factor Authentication (MFA)
Multi-factor authentication, sometimes called two-factor authentication (2FA), adds an important layer of protection and should be enabled for your crypto wallets. Even if someone manages to steal your passwords, they can't log in without the second verification step.
You can use authenticator apps like Google Authenticator to generate time-sensitive codes each time you log in. Or you can use hardware security keys that can't be duplicated digitally. At the very least, set up SMS codes. They're better than nothing, but can be susceptible to SIM-swapping attacks.
Check that MFA is turned on for your wallets, exchanges, and email accounts linked to your crypto holdings.
4. Check Backup for Your Private Keys
Private keys or seed phrases are vital. Without them, you can't recover your funds. Too many people have lost their crypto simply because they didn't back up their keys or seed phrases securely.
Here are basic safe backup practices:
- Write your seed phrase on paper and store it in a safe.
- Keep multiple copies of your keys in different secure locations, like a safety deposit box and a locked safe at home.
- Don't store keys digitally as text on your phone, computer, or cloud accounts, as these can be hacked.
You should also regularly check that your backups are still intact and legible. Damaged paper or misplaced devices will render your backup useless.
5. Test Wallet Recovery
Having a backup is only useful if it works. People often believe their funds are safe, only to discover that their recovery phrase was incomplete, corrupted, or written down incorrectly.
You should test your recovery process with a small amount of cryptocurrency in your wallet. Restore your wallet on a secondary device to test and confirm that your seed phrase works as it should.
This step can save you from a devastating loss later. It will help you know for certain that you can still access your funds even if your wallet is compromised or lost.
6. Keep Software and Firmware Updated
Hackers are able to exploit outdated software and gain access to private systems. Wallet apps, exchanges, and hardware wallets regularly release updates to fix bugs and vulnerabilities.
You should check that your mobile and desktop wallet is updated to the latest version. You should also update the firmware of hardware wallets when updates are released. Additionally, keep your computer and smartphone operating systems up to date to protect against malware.
You can set a reminder to regularly check for updates or set it so your software updates automatically.
7. Use Strong Passwords
Your password is the first barrier between hackers and your funds, so it is time to review it and ensure it's strong. Weak or overused passwords lead to compromises.
To improve password security, you must:
- Use upper- and lowercase letters, numbers, and symbols.
- Create a password between 12 to 16 characters long.
- Avoid common words or phrases or terms linked to your life (like a pet name or birthday).
- Never reuse passwords across multiple accounts.
- Use a password manager to create and store passwords.
Reviewing your passwords from time to time and updating them when necessary is always a good idea.
8. Double-Check Transaction Addresses
Crypto transactions are irreversible, and the responsibility lies with you to make sure you're sending funds to the right address. Some malware replaces copied wallet addresses with a hacker's address, meaning your funds will go to an attacker without you noticing.
Always double-check the first and last few characters of a wallet address before performing a transaction. If you need to transfer large amounts, first send a small test transaction to test that you have the correct address. When possible, use QR codes since they reduce the risk of copy-paste errors.
It only takes a few seconds to do your due diligence and can save you thousands of dollars.
9. Look for Phishing Scams
Phishing is one of the most common crypto scams. Scammers create fake websites or emails that look legitimate, tricking users into entering their credentials.
Knowing how to spot and avoid phishing is important to protect your funds:
- Verify the website URL before logging in.
- Bookmark official pages.
- Never share your private keys or seed phrases online.
- Be wary of urgent or threatening emails claiming you must act immediately.
- Double-check email sender addresses. Scammers often use slight misspellings to mimic trusted services.
10. Regularly Review Logs and Holdings
Security doesn't end once your funds are safely stored in a wallet. You need to regularly monitor your transaction logs and check your holdings to help you catch any suspicious activity early on.
Set up a routine where you check your wallet balances each week to check that everything is as it should be. You should also review your exchange withdrawal history for unauthorised transactions. Some wallets and exchanges provide login logs that you can examine for unusual activity, like logins from unknown locations or devices.
Setting up alerts for withdrawals or account changes can help you respond quickly if anything seems off.
Wrapping Up
Making sure your crypto is stored safely requires personal responsibility and technology. There's no foolproof method, but the practices above will reduce the risks of hacks or accidental loss. Serious and casual investors should take time to verify their setups to make sure there are no vulnerabilities.
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