While the argument can be made that cryptocurrencies are one of the safest instruments to transfer value between anonymous parties, storing and trading these digital tokens is an entirely different security matter.
Sure, cryptocurrencies don’t have the same problems as paper money, but they do have a unique set of challenges that all crypto traders must face.
Here’s everything you need to know about how to safely and securely store and trade crypto tokens across exchanges.
The most popular method for storing crypto coins is using a software wallet. Online wallets are simple to use and extremely practical, but are your coins really as secure as they could be? The cold hard truth about this method of storage is that your crypto tokens are only as safe as the asset you store it on, in this case a PC.
Protecting a software wallet is really no different than safeguarding any other type of sensitive data on your PC. For this reason, if and when you store your cryptocurrencies on a website or online software, be extra paranoid. Additionally, passwords should never be stored in unencrypted files that are on the same machine as your wallet.
Online Wallets and Exchange Website Accounts Can Get Hacked Easily!
Because online wallets can be hacked just like with crypto exchanges, it’s ideal to only store passwords offline, and wallets should be on devices that you do not use browsing the web. All-in-all, it’s poor practice to store all your altcoins onto a single software wallet or online exchange. The absolute safest method for storing Bitcoins and other tokens is through a cold storage device. Cold storage benefits from extra layers of security, and it basically means storing your altcoins in an offline hardware-based wallet, which prevents hackers and thieves from trying to digitally gain access to your money.
Cold storage wallets are created on devices that are never connected to the internet, such as a USB flash drive or old laptop that has never connected to the internet. Contrary to popular belief by newbies, a crypto wallet does not need to be connected to the internet to be installed or created, to generate keys, or to send coins to other wallets.
Hardware wallets are arguably the most secure and convenient method for storing altcoins. Hardware wallets are basically USB drives that contain protective software and multiple layers of cryptographic protection. Cold storage can even include paper wallets or physical Bitcoin. Sure, cold storage is the best way to maintain the bulk of your altcoins, but sooner or later you’ll need to move coins online, and this is when you face an entirely different set of security issues.
The Dangers of Exchanges
We outlined the importance of properly storing your altcoins in a hardware wallet due to the inherent risks associated with storing your information in crypto exchanges. Whether you’re a frequent day trader or use crypto exchanges to store some of your assets to dilute your risk, it is vital to choose an exchange that is convenient, reliable, and highly secure. But, the fact of the matter is cryptocurrency exchanges are largely centralized systems that can be (and are) easily hacked. In fact, altcoin exchange hacks are more common than you might initially think. Furthermore, hacks have even led to the downfall of many exchanges, causing them to crumble within a few days.
William Atwood & The Hong Kong-based MyCoin Collapse Example
A few recent well-known examples include the likes of William Atwood, the sole director of the Hong Kong-based MyCoin exchange, who suddenly resigned a month before the platform collapsed, leaving behind thousands of unhappy users with missing coins.
The Cryptsy Example
Another example is that of Cryptsy, an exchange that for years had experienced numerous technical glitches. At the beginning of 2016 after introducing ethically questionable administration policies, Cryptsy was forced to claim bankruptcy after a group of hackers infiltrated the exchange and ran away with $7.5 million in company and client funds. After the ensuing court case, it was suspected that the owner of the exchange may have funneled the exchange’s funds into his own private accounts, leading to further speculation that the hack was an inside job. With all this said, you just can’t trust an exchange’s security protocols and the people who run the exchange. The first way to protect yourself is to choose an exchange with a positive reputation. If an exchange meets any of the following criteria, it might be a good idea to find an alternative platform to buy and sell altcoins.
When to Stay Away From an Exchange:
- If big names or organizations with a healthy reputation within the crypto world disengage themselves from a specific exchange or venture
- Is frequently dealing with technical issues and glitches
- Has fishy administrative or user policies
- Suddenly crashes during huge price fluctuations, after which the clients’ orders are filled in at less-than-optimal price points
- Has frequent withdrawal issues due to faulty nodes
- Is frequently slow to respond to customer service tickets
- Offers a large number of unverified altcoins on their platform. Some of these exchanges will even get involved with ICO’s, wherein the exchange creates pump-and-dump cycles that rip off the outside traders
Tips for Using Exchanges Safely
- Due to the fact your crypto funds are at the mercy of the company behind the platform, there are several safety measures you should take into account before depositing funds into a cryptocurrency exchange.
- Do not leave funds in an exchange wallet for more than 24 hours – a lot can happen in a single day.
- Always remember to move your altcoins back into your cold wallet.
- If you’re sending funds from your cold wallet to an exchange to trade, only send the exact amount you plan to trade with, not more.
- Never advertise the amount of profit you make, the exchange you use, or the number of cryptocurrencies you’re involved with – specifically within social media groups, where it’s much easier for hackers to collect your personal information.
Day Trading VS HODLing
Remember that if you really believe in a coin or token you can always just HODL on a secure offline wallet instead of risking your valuable coins with an online exchange or wallet. Many of the tokens that are currently in circulation (or in ICO such as the Cloud Token) might one day be worth a fortune, why play around with trading them online for small profits? Many in the community believe that holding on to your coins for long term investment is both safer and a wiser investment. If you are a trader, then remember to never put more than your daily trading coins in your trading account. When finished trading move them to a safer place for keeping.