Hey there crypto investors, new and expierenced!
Andy Howard here, and today we’re diving into a crucial topic for anyone venturing into the world of cryptocurrencies: wallet security.
Whether you’re a seasoned trader or just getting started, keeping your digital assets safe should be your top priority.
So, I’m going to share four simple yet effective tips that will help you secure your crypto wallet like a pro.
Understanding Crypto Wallets
First, let’s just clarify what a crypto wallet actually is.
Many newcomers mistakenly think of a crypto wallet as a digital version of a physical wallet that stores your money. In reality, it’s quite different.
A crypto wallet doesn’t actually store your cryptocurrency. Instead, it’s more like a keychain that holds the keys to access your crypto.
Your cryptocurrencies themselves are recorded on the blockchain, which is a public ledger. Your wallet simply provides the interface and the keys that allow you to view your balances and make transactions.
Think of it this way: if you had a physical wallet containing your car keys and house keys, anyone with that wallet wouldn’t actually have your car and house inside it.
But they would have the ability to access and control those assets.
That’s ☝ similar to how a crypto wallet works.
Now, let’s dive into those four essential tips for securing your crypto wallet.
Tip #1: Take Self-Custody with a Cold Wallet
The first and most crucial step in securing your crypto is to take self-custody of your assets. This means moving your crypto off exchanges and into a wallet that you control.
Many new investors start by buying crypto on exchanges like Coinbase or Kraken and leave their assets there.
While these are reputable platforms, it’s important to remember that they’re not banks. So, they’re not FDIC insured, and there have been a number of instances of exchanges being hacked or going bankrupt, leaving unfortunate crypto investors/traders unable to access their funds.
So, when choosing a wallet for self-custody, I strongly recommend opting for a hardware wallet (also known as a cold wallet) over a software wallet (or hot wallet).
Hardware wallets are physical devices that store your private keys offline, making them significantly more secure than software wallets, which are connected to the internet.
Some popular hardware wallet options include Ledger, Trezor, and Tangem.
For Bitcoin-only investors, the Coldcard models from CoinKite are also worth considering.
Tip #2: Secure Your PIN Codes and Passwords
When setting up your hardware wallet, you’ll typically need to create a PIN code or password for day-to-day access. It’s crucial to keep this secure, as it’s your first line of defense against unauthorized access to your wallet.
I recommend using a secure password manager like 1Password to store these PIN codes and passwords. This way, you don’t have to remember them yourself, but they’re still easily accessible when you need them.
Tip #3: Write Down Your Seed Phrase
Your seed phrase, also known as a recovery phrase or private key, is the most critical piece of information for your wallet’s security.
This is typically a series of 12 or 24 words that can be used to restore access to your crypto if your wallet is ever lost, stolen, or damaged.
It’s absolutely crucial that you write down your seed phrase on a physical piece of paper.
Never store it digitally on your computer, online, or in any “cloud” — no matter how “secure” and “hidden” you feel it might be, this makes it vulnerable to hacking.
Humans are smarter than you think – and AI bots are way smarter than you can probably imagine!
Tip #4: Store Your Seed Phrase in Multiple Secure Locations
Once you’ve written down your seed phrase, don’t just keep it in one place.
I recommend storing copies in at least two different secure locations. This could be a safe in your home, a safety deposit box at your bank, or with a trusted family member.
The reason for multiple copies is simple: if one location is compromised (for example, if your house burns down), you still have a backup.
Remember, if you lose your seed phrase, you lose access to your crypto permanently. There’s no “forgot password” option in the world of crypto!
Why These Steps Matter
Taking these precautions might seem like overkill, I get it.
But seriously, these four are the fundamental essentials that you really must understand and embrace at a starting point as you start actively engaging the crypto world.
Remember, unlike traditional banking, there’s no central authority to turn to if something goes wrong. You are your own bank, which means the responsibility for protecting your assets falls squarely on your shoulders.
Plus, these steps protect you not just from potential hacks or technical failures, but also from other risks.
For instance, if your crypto is on an exchange, it could potentially be seized by authorities under certain circumstances.
Seriously, we’ve seen cases where governments have ordered exchanges to freeze assets of specific individuals or groups. By taking self-custody of your crypto in a hardware wallet, you maintain full control over your assets.
Remember, in the world of crypto, security isn’t just important – it’s essential. By following these four simple tips, you’re taking significant steps towards protecting your digital assets.
Stay safe out there, and until next time, this is Andy Howard signing off!