Holding cryptocurrencies? Here is how to keep your investments secure

InvestmentHolding cryptocurrencies? Here is how to keep your investments secure

As a newbie who has made the first steps into the crypto world, one of the most important things to consider is how to purchase and store your cryptocurrencies safely.

Knowing how to buy Bitcoin and the best way to store your digital currencies before pressing the “buy” button is imperative so that your investment journey will not suffer losses from the early stages.

Cryptocurrencies like Bitcoin can’t be stored in regular bank accounts as you do with fiat money but in a crypto wallet. However, you need to choose a storage option that is accessible and secure, as any mistake can have significant consequences, and you can lose all your crypto stash.

For example, in 2021, a programmer, Stefan Thomas, lost 7,002 Bitcoins (BTC) because he couldn’t remember the wallet password. Now, that amount of crypto would have been worth about $203 million. This unfortunate event proves why it is so important to store cryptocurrencies safely.

Let’s learn more about why security is an imperative factor to keep in mind.

People who lost access to their crypto investments

James Howell lost his hard drive

In 2013, James Howell, an engineer, threw away his hard drive that contained the cryptographic key to his crypto wallet, while he was cleaning his house. Howell had two identical hard drives, and unfortunately, he threw out the wrong one.

His crypto wallet had 8,000 BTC holdings, which now could be worth a couple of million dollars. The hard drive that contained its Bitcoins ended up in a landfill in New Port, Wales.

Although James tried to get permission to excavate the landfill so that he could try to find the lost hard drive, his attempts have not been successful.

The local authorities of New Port think that digging up to find the hard drive would have adverse reactions on the environment, and because of this fact, they have declined his attempts.

However, James has tried to come up with another idea, so he thought about bringing up venture capitalists to search for the lost hard drive using robot dogs and a team of experts in landfill excavation and data extraction.

Stefan Thomas lost his password

The case of Stefan Thomas, a former chief technology officer at Ripple, has also made headlines all around the world. He forgot the password of its hard drive that would permit him to access it.

The hard drive is designed to be resistant to all attacks, and this is why it provides owners ten attempts before being permanently locked out of the drive. The wallet that Thomas can’t access contains 7,000 BTC, which could be worth over $200 million.

The only chance that Thomas would have to retrieve its password would be to break the drive apart by removing its chip. Then, the hard drive would be put under an electron microscope to read the flash memory.

Still, even if this process was done, the chances that Thomas would retrieve the information are small and would involve a lot of money and time.

Why does crypto need storage?

As you have seen from the cases above, it is imperative to opt for the right measure to keep your crypto investment safe, as well as take into account a few safety practices.

Cryptocurrencies are virtual tokens that can be exchanged through encrypted transactions thanks to a technology called a blockchain. Virtual coins exist on the blockchain, but the ones that offer access to cryptocurrencies are crypto wallets.

Transfers between the wallets and crypto exchanges are made with the help of a unique account number that is known as a wallet address or a public key.

Every crypto account has a private key, which must be kept secure. Otherwise, you could be in the same situation as the people presented above.

Safeguarding this information is one of the most crucial aspects of crypto storage. However, new investors usually don’t understand why this factor is so important.

Crypto thefts arise from bad actors getting access to private keys via hacks of wallets and exchanges or by scams that trick people into revealing essential information. Additionally, digital tokens can also be lost forever if the owner loses the seed phrase or private key of the wallet.

Blockchain transactions are irreversible and permanent, and this is why it is crucial to take effective security measures.

The unregulated and decentralized nature of blockchains means that no other institution will guarantee and protect your investment if something goes wrong. This is why you must be careful with your crypto investments.

Types of Crypto Storage

Crypto exchange

Keeping digital currencies on crypto exchanges is a convenient and user-friendly option. Your account on the exchange can be described as a wallet, but the exchange will retain control of the digital assets.

This is why this option is also known as a custodial wallet and even a hosted wallet. In this scenario, you must trust the company to take good care of your investments.

However, even if many exchanges are vigilant and ethical, it usually just takes one mistake to cause havoc.

Hot crypto wallets

Hot wallets are the ones that store your assets online and are known as software-based crypto wallets. These types of wallets are connected to the Internet, and although they have advantages, they also have drawbacks.

This option is a convenient one, but because it has access to the Internet, it becomes vulnerable to cyber threats, scams, hacks, and fraud.

Cold storage

Cold wallets are offline. They are usually physical devices, which can be either a USB drive or customized hardware with tailored accessibility and security features. Because they are not connected to the Internet, they are the safest option to store your crypto investments.

Concluding thoughts

Unfortunately, hackers will continue to try to steal crypto investments from people, so it is imperative to keep the digital coins as safe as possible. We hope this article offers you all the information you need to understand why you must keep your crypto secure.

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