Many newcomers to cryptocurrency face one challenge: storing their digital assets. The industry is still underdeveloped, so it cannot be said that cryptocurrency services can compete with banks in terms of security and ease of use, writes RBC Crypto.
It is possible to lose cryptocurrency due to carelessness; there are also many scammers in the industry. Therefore, for a start, you should familiarize yourself with the main methods of storing cryptocurrency. This will allow you to better understand the topic and feel more confident.
The easiest and most understandable way to store cryptocurrency is to keep it on the exchange. When creating an account for each user, his own wallet appears. It supports all coins that are traded on the site, there is always quick access to them. You can sell or buy. Also one of the advantages of this option: the ability to easily restore access to your account.
In contrast, there is the main disadvantage – the security problems of exchanges. From this point of view, cryptocurrencies remain in the era of the Wild West, because not a single major trading platform has been left without the attention of hackers. Even the heads of large exchanges urge not to keep funds on them.
“Please do not store more cryptocurrency on exchanges than you need to trade. Use Ledger and Trezor (hardware wallets), DEX (decentralized exchanges) are not a panacea, look at The DAO. Open source only says that exploits will be detected earlier (probably by the bad guys), “Kraken CEO Jesse Powell wrote on Twitter.
In 2018, ICORating found that most exchanges (54%) have various security issues. The situation has improved over the past three years. Now it is difficult to imagine a site that does not offer to install two-factor authentication. But hackers are also improving their skills. Therefore, it is worth keeping on the exchange only the amount that is not scary to lose.
An illustrative case occurred with clients of the Canadian exchange Einstein. Last fall, she owed clients over $ 12 million, while she had only $ 45,000 in “hard assets.”
The choice of an exchange must be approached with extreme caution, because there is always a risk of being caught by scammers.
The safest way to store cryptocurrency is hardware wallets (devices that often look like a USB flash drive). But here, too, everything is not so simple and you need to be extremely careful. For example, in December 2019, experts of the Kraken exchange found out that the KeepKey wallet can be hacked in 15 minutes, and the attack will cost the attackers $ 75.
However, this method is still more reliable, since in order to hack the criminals need to get physical access to the wallet. If it is stored in a safe place, then the risk can be minimized.
Last year, a hack of Binance, the largest exchange by trading volume, doubled the sales of Ledger wallets. But they often find vulnerabilities or errors in work.
When choosing a hardware wallet as an option for storing your funds, you need to remember that the loss of a PIN code will lead to the loss of cryptocurrency. Also, a minus of hardware wallets is the ability to lose or spoil it physically. For example, children or a dog can break it at home.
This method has similarities to the storage option on an exchange. The cryptocurrency does not belong to you, and its fate depends entirely on the service on which it lies. An extremely convenient and unsafe way. Hackers have tons of options for stealing funds. For example, hacking a user account, the service itself, or creating a phishing page. You need to be extremely careful not to keep a large amount of funds in your online wallet.
Depending on the method of storing private keys, online wallets are divided into hybrid and traditional. Wallets of the first type use separate storage of keys using multisignature, the second – private keys are on the service, and only a backup copy is available to the user.
The main advantage of hybrid wallets is that the developers do not have full access to the user’s coins. Payments from such a service cannot be made without the joint participation of the client and the company. This increases the level of protection. On the other hand, the loss of the secret phrase will become fatal, in which case it will be possible to forget about the cryptocurrency.
One of the most famous online wallets is Blockchain.com. Another popular wallet is BitGo. It is considered secure as each transaction requires two signatures. The platform does not have full access to the user’s coins. You can also work with it only after connecting two-factor authentication.
A universal way to store funds is a local wallet. These are applications for PCs or mobile devices, browser extensions. Finding such a wallet is easy: just go to the official website of the project and download the appropriate version. But this method also has its own difficulties.
The mobile option is suitable for those who need constant access to their coins for transactions. But the cryptocurrency will not be stored on the smartphone, so it can only be accessed if the Internet is available. Even if the device is lost, digital money can be returned.
A local wallet on a PC makes sense only for coins that use Proof of Stake in their algorithm. Because to store cryptocurrency in this way, you need to completely download the blockchain of the selected asset. And it can weigh tens or hundreds of GB. In the case of PoS, as long as there is some amount of cryptocurrency in the wallet and the computer is turned on, the user is credited with a certain amount of digital money on the balance. This is exactly the feature that will appear in Ethereum 2.0. You can become a network validator by storing at least 32 ETH in your wallet.
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