What’s All the Fuss About Keeping Your Cryptocurrency Keys off Exchanges?
The Proof of Key movement is gradually gaining momentum in its quest to encourage cryptocurrency enthusiasts to keep their coins off exchanges. If you are actively trading or investing in cryptocurrencies, you’ll most likely have heard the rallying cry “if you don’t hold your private keys, you don’t own your crypto”. A private key is simply a complex form of cryptography that allows users to access their cryptocurrency.
If you leave your cryptocurrency on an exchange, the private keys to your coins are with the exchange and your coins could be stolen in a hack. The recent Cryptopia Exchange Hack in which between $3 million and $13 million worth of cryptocurrencies were stolen has furthermore revealed the inherent danger of leaving your cryptocurrency on an exchange. Of course, actively traded crypto will need to be kept on an exchange; however, any crypto holding that you don’t plan to trade shouldn’t be on an exchange.
Image Source: Investinblockchain
If you keep your private keys, your coins can’t be stolen when an exchange is compromised. However, with great power comes great responsibility; if you take your private keys off an exchange, you’ll be responsible for keeping your coins secure. Below are three simple tips on keeping your cryptocurrency of exchanges and ensure its security.
1. Use a hardware wallet
A hardware wallet is one of the least stressful and provably secure ways of storing cryptocurrencies. Hardware wallets are storage devices like flash drives; however, they are specifically designed and encrypted for the storage of cryptocurrencies. Hardware wallets are designed to generate private and public keys through seed words when they are initialized.
Different companies are engaged in the business of making wallets and as such, wallets are priced differently. ChainBits has a list of recommended crypto wallets that can get you started in the right direction. If you store your crypto on a hardware wallet, your crypto is safe from hacking attempts but you’ll still need to keep the wallet itself secure so that it doesn’t fall into the wrong hands.
2. A paper wallet is cheaper
The price of hardware wallet starts around $30 and it can go all the way to $150 for some top shelf wallets. If you’d rather not spend money on a hardware wallet, a paper wallet is another effective solution for storing your private keys. A paper wallet as the name implies is simply a piece of paper on which the pair of your public and private keys have been printed. To transfer the coins, you’ll need to manually enter the keys or scan them into a digital medium.
However, while a paper wallet is a cheap means of storing your coins; you’ll need to keep the paper itself safe from degradation, damage, loss, and theft. You may want to laminate the paper wallet to secure it from the elements. You may also want to copy the Winklevoss twins who cut up their paper wallet into pieces and then stored the different pieces in bank vaults all over the world.
3. Never store your private keys on your computer or on the cloud
The most important protective measure for securing your cryptocurrency is to never store your cryptocurrency on an online medium. An online medium refers to anything that can be accessed via the internet – this includes your computer, smartphone, email, and cloud storage accounts such as Google Drive and DropBox. The internet is a massive network of computers; determined hackers will eventually find a way to bypass your security measures to steal your cryptocurrencies.
If you’ve succeeded in storing your private keys in a paper or hardware wallet; you might want to resist the temptation of bragging about how much cryptocurrencies you own. The 2017 crypto bull run turned made many people rich overnight. Many of those who made money couldn’t resist the urge to brag to family and friends about their investment acumen and how they knew that crypto was the next big thing. The problem however is that bragging about how much money you’ve made from crypto could make a you a potential target for robbery, ransomware, or kidnapping.
Finally, if you are investing in or trading cryptocurrencies, you should create a plan for transferring your cryptocurrency wealth to your loved ones after your demise. If someone passes away without making plans for their cryptocurrency to be inherited; such coins could be lost forever because it is practically impossible to access cryptocurrency without public and private keys. Hence, you should make sure to include the information about your private keys into your will.