There is a history of cryptocurrency being lost or stolen.
Unfortunately, in the cryptocurrency industry, there is a history of coins being lost or stolen. One of the most notable occurred with the Mt. Gox exchange in 2014. Approximately 850,000 Bitcoins belonging to customers and the company were missing and likely stolen, which amounted to more than USD 450 million at the time.
Figure 1: The Binance hack caused the price of the cryptocurrency to slip drastically.
More recently, in 2018, Tokyo-based cryptocurrency exchange Coincheck lost approximately USD 533 million worth in cryptocurrency. Online digital wallets lost an estimated 500 million NEM tokens. Just last May 2019, hackers withdrew 7,000 Bitcoin worth about USD 40 Million at the time from Binance via a single transaction in a “larger-scale security breach.”
Use common sense and apply necessary security principles to protect your cryptocurrency
Figure 2: Two-factor authentication is a good security measure.
As Eric Larcheveque mentions, many exchanges due to the rapid increase of investors, attracted by the hype, did not have the time or resources to build resilient security solutions. Crypto exchanges are prone to hacks because they centralize the risk and must keep part of their private keys online to allow for real-time withdrawals. Larcheveque, recommends to use common sense and apply necessary security principles as follows:
- Don’t use a cryptocurrency exchange for long-term storage.
- If you do, use two-factor authentication, preferably one that is not limited to devices connected to the internet.
- For your hardware wallet, choose a PIN code that you can remember, but is secure and not easy to guess.
- Keep your 24-word recovery sheet well secured and never enter it on any device that is connected to the internet.
- Only trust what you can see on your hardware wallet screen. Verify your reception address and payment information on the device.
- Always treat with caution information shown on your computer or smartphone screen. Assume software can get compromised anytime.
Personally, from time to time, I move cryptocurrency from exchanges that I use for trading to my desktop wallet, mobile wallet, or a hardware wallet for long-term storage. I also diversify risk by using more than one exchange.
There are many different types of cryptocurrency wallets.
According to Simona Vaitkune (2017), there are five types of cryptocurrency wallets that you can use:
Figure 3: MyEtherWallet allows you to send ether and compatible ERC-20 tokens.
1) Online Wallets (also known as “hot wallets”): Online wallets run on the cloud so they can be accessible from multiple devices with an internet connection. They are practical and convenient to use. However, they are also more susceptible to theft, as is evident by many past hacks of online wallets used by cryptocurrency exchanges exemplifies. Besides utilizing online wallets provided by exchanges, you can use your own such as MyEtherWallet or Metamask.
Figure 4: The Jaxx multi-cryptocurrency wallet has a responsive design.
2) Mobile Wallet (also known as “warm wallets”): Mobile wallets are applications that run on your smartphone device. They are very convenient because they are a means of payment. Overall, mobile wallets are considered to be safer than cloud-based, online wallets. Of course, there are still risks associated with mobile wallets such as losing your crypto assets in case your phone breaks down, gets stolen, or becomes hacked. Examples of good mobile wallets are Blockchain, Trust, Jaxx, and Mycelium.
Figure 5: The Robinhood wallet allows you to invest in a variety of assets—all commission free!
The Robinhood mobile wallet allows you to invest Commission-Free! Invest in stocks, ETFs, options, and cryptocurrencies, all commission-free, right from your phone or desktop.
Figure 6: The Celsius wallet allows high annual interest payments on stored cryptocurrency.
The Celsius mobile wallet allows you to get 10% annual interest or more on stable coins such as TrueUSD (TUSD), Gemini Dollar (GUSD), Paxos (PAX), USD Coin (USDC), MakerDAO (DAI), and Tether (USDT). Plus, you can also get an annual interest on other popular cryptocurrencies.
Figure 7: The Exodus multi-cryptocurrency desktop wallet has an intuitive interface.
3) Desktop Wallet (also known as “warm wallets”): Desktop wallets can be downloaded and installed on your desktop or laptop device. These desktop wallets are considered safer than online wallets or mobile wallets. However, you can still lose your crypto if your computer is infected with a virus, gets hacked, or becomes damaged in some way. Examples of good desktop wallets are Exodus, Atomic Wallet, Bitcoin Core, and Jaxx.
Figure 8: The Ledger Nano cryptocurrency cold storage wallet.
Figure 9: The Trezor cryptocurrency cold storage wallet.
4) Hardware Wallet (also known as “cold wallets” or “cold storage”): Hardware wallets store users’ private keys typically on a USB drive. Some even can make online transactions. However, most of the time, they are kept offline to be secure. Examples of good hardware wallets are the Ledger Nano, the Trezor, or the ColdLar Pro.
Figure 10: An example of a cryptocurrency paper wallet.
5) Paper Wallet: Paper wallets are the safest option to store your digital assets but not necessarily the most convenient or practical to use. Basically, a paper wallet is a physical copy of your generated public and private keys and can even refer to a printed sheet of paper. You can send funds by transferring the cryptocurrency to the wallet’s public address, and you can withdraw or send your coins by entering your private keys or by scanning the QR code on the paper wallet.
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