The Ultimate Guide to Keeping Your Crypto Safe in 2021

Cryptocurrency is a relatively new asset class and unfortunately every year millions in bitcoin and other digital assets are lost or stolen. The tragedy is that a lot of these losses are avoidable. But alas, you can learn from the mistakes of others and take effective steps to keep your cryptocurrency safe.

You are the custodian of your cryptocurrency, so think like a private bank or vault and implement risk mitigation strategies and security protocols. In this article, we’re going to run through some of these and highlight immediate steps you can take to protect your cryptocurrency.

Put Most of your Crypto on a Hardware Wallet

If you’re serious about protecting your wealth, the safest way to store your cryptocurrency is on a hardware wallet (or what’s often referred to as a “cold” wallet). Cold storage is the best method to keep your cryptocurrency safe and secure, because it keeps your private keys on a device that isn’t connected to the internet. This makes it more difficult for hackers to steal your crypto.

How do hardware wallets work? How do they keep crypto safe?

Hardware wallets do not store the crypto itself; instead, your private keys are stored locally on the device, usually protected by PINs or passwords, and cannot be extracted without physical access to it.

The cryptocurrency you own actually lives on the blockchain. Your keys, which are stored in your wallet, give you access to transact with those coins.

When you hold crypto, you own both public and private keys. A public key is sometimes compared to an email address. You would give this address to somebody if they wanted to send you some crypto. Your private key is like your password. Only you should have access to this.

So, in summary, you own the keys to your cryptocurrency. For this reason, it’s vital that you keep your private keys safe and ensure that no one else has access to them.

What if you lose your hardware wallet or it breaks? Can you access your cryptocurrency?

When you’re setting up your hardware wallet for the first time, you’ll be provided with what’s called a recovery or “seed” phrase. This typically consists of a string of 12 or 24 words.

Your recovery phrase is the only backup you have if your hardware wallet is lost, broken or stolen. It’s vital that you write it down and keep it in a safe place. Never store your recovery phrase on your phone or computer and never keep it in the same place as your hardware wallet!

It’s reassuring to note that if the hardware wallet you choose ceases to exist, you can still recover your cryptocurrencies on any other compatible wallet with your recovery phrase. This is because recovery phrases are part of a standard known as BIP-32.

How to protect your seed phrase?

Some people are not comfortable with keeping their seed phrase written on paper (and understandably so!). Paper isn’t the most durable of materials and there is a risk that it could be destroyed, in a fire or flood for example.

One way to counter this risk is to use a product like the Cryptosteel or Billfodl. These allow users to recreate and store their seed phrases in a steel wallet (like in the pictures below). There’s no need for stamping or engraving – engraved letter-blocks are provided, which users can place inside the steel wallet.

These devices are fireproof, corrosion-resistant, acid-resistant and practically indestructible.

And in the event of some cataclysm, like an EMP…?

In the event of something like an EMP (Electromagnetic Pulse), there are ways to protect your hardware wallet. EMPs are short bursts of electromagnetic radiation, either from a natural source like the sun, or something man-made, such as a nuclear detonation. They are not very common, but they are possible. The bad news is that if there was an EMP, it would cause a lot of damage to our electronic devices. The good news is that there are ways you can protect your hardware wallet from being impacted by an EMP.

Faraday bags are a small and portable way to protect your hardware wallet, which help shield against electromagnetic fields. When you put your cold storage device into the Faraday bag, it’s surrounded by a layer of conducting materials. The outer layer distributes the electrostatic charge around the exterior of the bag – protecting the contents of the bag.

A faraday bag also protects your cryptocurrency cold storage from nefarious practices, such as Bluetooth and NFC skimming, and other frequencies such as WiFi, RFID and Infrared.

Here’s an example of a faraday bag by Privacy Pros specifically designed with cryptocurrency cold storage in mind.

What are some of the best hardware wallets to keep your crypto safe?

There are a growing variety of hardware wallets on the market that help to keep your crypto safe. Below are some of the most widely used cold storage wallets:

• Ledger Nano X
• Trezor Model T
• Keep Key
• BitBox02

It’s incredibly important that you buy a new hardware wallet directly from the manufacturer. Never, ever buy from a third-party seller!

Phishing Attacks

Once you have your hardware wallet set up, you should be particularly vigilant of phishing attacks. These are where nefarious actors contact you to try and extract important and confidential information.

Hardware wallet providers will never ask you for your seed phrase. Sometimes hackers try to impersonate companies like Ledger or Satoshi Labs (Trezor). You may receive an email or message on social media, for example, stating that you need to download new software for your hardware wallet. These type of scams usually redirect the user to a fake website or app, which then asks them to input their seed phrase.

Remember – the only place you’ll ever have to enter your seed phrase is on the hardware wallet device itself. You should NEVER enter it on apps, websites etc. – even apps that appear to be associated with the wallet.

Spread your risk

In the event that something does go terribly wrong, it’s prudent to keep your crypto in more than one wallet. You should particularly consider this if you’re holding a substantial amount of crypto. Most hardware wallet providers offer a discount if you purchase more than one of their devices.

Why you shouldn’t keep all your cryptocurrency on an exchange

We don’t recommend storing all your crypto on an exchange – only keep the amount of cryptocurrency you intend to trade. While exchanges are probably the easiest and fastest way to buy and sell crypto, they’re susceptible to being hacked. There have been a few high-profile incidents over the years – from the infamous Mt. Gox to more recent hacks like Liquid Global. This is something that’s not going to change anytime soon. According to Russian cybersecurity specialists Group-IB:

Cryptocurrency exchanges will be a new target for the most aggressive hacker groups usually attacking banks. The number of targeted attacks on crypto exchanges will rise.

As well as this, you don’t really hold the crypto in the true sense of the word – because it’s the exchange who holds the keys, not you.

What if you decide to keep some crypto on an exchange? How do you keep crypto safe on an exchange?

If you do insist on keeping some crypto on an exchange, there are a number of steps you can take to keep your cryptocurrency safe.

Set up 2FA, such as Google Authenticator or Authy, to access your device

SMS or email verification is not enough to keep your account safe. For example, there have been horror stories about “SIM swapping”, where fraudsters duplicate a phone’s SIM card and gain access to their accounts.

The best way to reduce the risk of becoming prey to a SIM swapping is to set up two factor authentication that is not linked to your phone. We would recommend Authy or Google Authenticator for this. Third party authenticator devices generate a unique code every few minutes, which you use to access your account.

Create a strong password

This should go without saying, but let’s remind you again. CREATE A STRONG PASSWORD! A long string of random letters (upper and lower case), numbers and symbols is the way to go with this one.

Try to use well established, top tier exchanges

While all exchanges can be victims to hackers, try to use reputable and well-known exchanges. Look specifically for exchanges that use cold storage for customer funds. Also, only use exchanges with an up to date and valid HTTPS certificate. Look for the exchange’s HTTPS certificate near the top left of your screen. You should see a locked padlock symbol just before the site’s URL.

This protects you against bad actors may try to capture the data you’re sending to the web server.

If you want to take a detailed look at just how secure each crypto exchange is, read this Exchange Security Report by ICO Rating.