With the growing popularity of cryptocurrency, the risk of losing it has also increased. Security becomes a critical issue for both new and experienced users. In this article, SanioTrade experts explain how to safely store cryptocurrency, which wallets and services to use, how to identify scams, and how to avoid the main risks when buying and exchanging crypto assets.
The Importance of Security in Cryptocurrency Storage
When it comes to cryptocurrency storage, security is one of the most important aspects directly affecting the safety of your funds. Unlike traditional fiat currencies, cryptocurrencies lack central oversight, making users fully responsible for protecting their assets. Thus, choosing a secure wallet to store your cryptocurrency is essential.
There are several types of wallets for storing cryptocurrency, differing in security level, convenience, and functionality. You can select one that suits your needs and aligns with the level of risk you are willing to accept.
Depending on whether a wallet is connected to the internet or not, they are categorized into “hot wallets” and “cold wallets.”
Hot Wallets
Hot wallets are connected to the internet, enabling quick and convenient transactions. However, this connectivity reduces their security, as these wallets can be targeted by hackers. Examples of hot wallets include Exodus, MetaMask, and Electrum.
Hot wallets are suitable for daily transactions as they provide fast access to funds over the internet. Users can easily open a wallet app on their device to manage assets.
Vulnerable to hacking, viruses, and phishing schemes.
High risk of losing funds if the computer or mobile device is compromised.
Cold Wallets
Cold wallets are devices not connected to the internet, storing cryptocurrency keys offline. This is the safest method for storing cryptocurrency, as cold wallets are shielded from most online threats. Examples include Ledger Nano S/X and Trezor.
Cold wallets are ideal for storing large amounts of cryptocurrency and for long-term investments. Their offline status significantly reduces the risk of theft from cyber threats such as hacking or phishing.
Less convenient for daily operations, as users need to connect the device to a computer to access funds.
Devices are relatively expensive.
Additionally, wallets can be classified based on who holds the access keys.
- Custodial wallets: Managed by a third-party service or exchange, where the keys are held by the custodian. This means if the service limits access to funds, users cannot withdraw cryptocurrency without its approval.
- Non-custodial wallets: Keys are held only by the user, allowing direct control over funds without intermediaries.
Wallets are also available in various formats:
- Hardware wallets: Dedicated devices for storing cryptocurrency keys.
- Software wallets: Apps or programs installed on computers or mobile devices.
- Paper wallets: Keys written on paper, making them highly secure from online threats.
Basic Security Principles for Using Wallets
- Use two-factor authentication (2FA).
- Create a recovery phrase (seed phrase) to regain access in case of device loss or software damage.
- Store backup copies securely, such as in safes, and avoid keeping them digitally (e.g., on a computer or in the cloud).
- Use strong passwords.
- Dedicate a separate device (laptop or desktop) exclusively for accessing wallets.
- Regularly update wallet software.
- Avoid using public Wi-Fi networks.
- Protect devices with passwords and biometric authentication.
- Refrain from discussing your cryptocurrency holdings publicly or on social media to avoid becoming a target.
How to Identify Suspicious Services
With the increasing popularity of cryptocurrencies, fraudulent services are also on the rise. Many scams appear legitimate and offer attractive deals. It’s crucial to identify red flags to avoid losing funds.
Warning Signs of Suspicious Services
- Lack of Licensing and Regulation
Legitimate exchanges and services typically operate under regulatory licenses and comply with local laws. For instance, platforms in regulated countries like the UK, the U.S., and Japan require authorization to provide services.
- Promises of Quick Profits
Platforms guaranteeing profits with minimal risk are almost always scams. The volatility of cryptocurrency markets makes guaranteed profits unrealistic. Scammers often use exaggerated promises or fear of missed opportunities to lure users.
- Lack of Transparency
Trustworthy companies disclose details about their creators, their experience in the industry, and provide access to legal information and contracts.
- Poor Customer Support
Fraudulent services often ignore users or provide unhelpful responses. If you experience issues with registration, funding, or withdrawals and the support team is unresponsive, it’s a clear warning sign.
- Hidden Fees and Unclear Terms
Scammers often hide fees, leading to unexpected losses for users. Examples include withdrawal fees, hidden conversion charges, or surprise penalties.
- Few or Negative Reviews
A lack of user feedback or predominantly negative reviews are significant red flags. A platform’s reputation is a vital indicator of reliability.
- Withdrawal Issues
Fraudulent platforms may block or delay withdrawals using various excuses, such as verification problems, technical errors, or additional checks.
To verify an exchange or service, conduct thorough research or consult specialists.
Mitigating Risks in Cryptocurrency Purchases via Cash or P2P
For In-Person Transactions:
- Meet in secure public places with surveillance cameras (e.g., cafes or stores). Bring a companion for support or as a witness.
- Confirm multiple network confirmations of the cryptocurrency transaction before handing over cash.
- Verify all cash in the presence of both parties before completing the deal.
- Choose reputable platforms and follow their rules to resolve disputes effectively.
- Verify the reputation of trading partners by reviewing transaction history and feedback.
- Keep records of all transactions and communications for potential disputes.
- Avoid communicating outside the platform to prevent falling victim to scams.
For Online Exchanges:
- Check the exchange’s reliability rating on marketplace platforms, including reviews and statistics.
- Verify the exchange’s website to ensure it isn’t fake or phishing.
- Ensure the platform screens cryptocurrency for legitimacy, especially when converting to fiat.
- Split large sums into smaller transactions to minimize potential losses.
Can Lost Cryptocurrency Be Recovered?
Cryptocurrency fraud is a growing issue, but recent advancements in investigations offer some hope for recovering stolen funds.
Blockchain’s transparency makes it possible to trace transactions, even if they are used in fraudulent schemes. However, recovery isn’t always guaranteed. Stolen assets can be quickly moved across wallets, and owners may hide behind anonymous addresses.
Factors Affecting Recovery:
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Centralized Platforms
If stolen funds are stored on centralized exchanges, there’s a chance law enforcement can freeze and return them.
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P2P and Decentralized Platforms
Recovering funds is significantly harder without a centralized authority.
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Blockchain Analysis
Advanced tools and collaboration with law enforcement may improve the chances of tracing and recovering funds.
Despite these efforts, user vigilance remains crucial for avoiding fraud. Always follow security best practices to protect your assets.
