Safety is a top priority when it comes to owning and trading cryptocurrencies and assets. However, it can be difficult to keep up with best practices, especially if you’re new to crypto investing. One small mistake, like misplacing a password or sending a transaction to the wrong address, could result in you losing your funds for good.
On top of the challenges of safely owning and transferring crypto, there are also many scams and tricks in the community. You’ll want to beware of what you’re up against as a crypto owner. Essentially, if it sounds too good to be true, it probably is. Always exercise caution and restraint when pursuing new opportunities in the space, and do lots of research.
In this article, we’ll take a look at the best practices for securing your digital assets. We’ll also take a look at some of the common scams and frauds in the cryptocurrency world.
- 1. Don’t Use Exchange Wallets
- 2. Create a Private Wallet
- 3. Ethereum Paper Wallet
- 4. Check Website URLs
- 5. Twitter Scams
- 6. Conclusion
Don’t Use Exchange Wallets
This is the most fundamental piece of safety advice for anyone new to cryptocurrency. You’ll likely be purchasing your first cryptocurrencies with fiat currency (euros, dollars, etc) via an exchange. Once you purchase the currency, it will show up in your exchange account.
Many first-time crypto users make the mistake of believing the exchange is like a bank. However, an exchange wallet isn’t fully yours like a bank account is. The exchange owns the public and private keys for the wallet, making it difficult or impossible for you to claim new token types, like airdrops or hard forks of an existing token.
Many exchanges have seen cyber attacks in the past, and those users who left all their tokens in exchange wallets lost a lot of money. Of course, you’ll need a balance in your exchange wallet in order to make trades and use the exchange, and many exchanges offer insurance and other forms of account protection. Still, the best policy is to move any currency you’re not planning on using off the exchange as soon as you buy it. You’ll want to create a private wallet where you fully control your funds.
Create a Private Wallet
Each cryptocurrency has its own requirements for creating a private wallet, but in practice, most end up working the same. Since most new tokens are Ethereum ICOs, I’ll use Ethereum (and ERC-20 compatible tokens) for this example. However, the same steps apply for almost any cryptocurrency.
You don’t need any skills or technical expertise to set up a private wallet. In fact, in this example, we’ll be creating a paper wallet, so the final result won’t be digital at all. Paper wallets are physical pieces of paper with your public-private key pair. They also usually include a QR code so you don’t have to worry about mistyping your keys. Because they’re printed on paper, they’re not connected to the internet, and it’s impossible for a hacker to steal the keys digitally (as long as you don’t have the pdf still saved on your computer somewhere).
Ethereum Paper Wallet
Skalex has developed a publicly available paper wallet generator for Ethereum. It’s fairly straightforward. Just choose a password to be associated with your wallet, and make sure this is a password you don’t use elsewhere online.
Next, follow the prompts to print your paper wallet or copy your private key by hand. Do not lose that piece of paper. Without your private key, you won’t be able to access your funds.
Congratulations, that’s it! You’ve created a private paper wallet. Now you can authorize a transfer from the exchange into your private wallet. If you bought something other than Ethereum or an ERC-20 token, you’ll need to look into how to create a private wallet for that coin.
Check Website URLs
Be careful, because there are fake websites that look identical to the real exchanges, wallet generators, and cryptocurrency sites. Always triple check the URL and SSL certificate for the site you’re using to make sure it’s the legitimate site. A good practice is to type the URLs in yourself, rather than clicking links you find on other websites.
If you submit your personal information on a fake website, scammers will use that information to access and empty your wallet.
Right now, the biggest scam in cryptocurrency is on Twitter and other social media platforms. Attackers will create new Twitter handles with names very similar to the names of famous people in tech and cryptocurrency. For instance, @elonmusk has a scam account named after him @elonmmusk.
These scammers pose as the famous person and say they’re doing a giveaway. If you send them .5 ETH, they’ll send you 5 ETH. It seems like an easy way to make a lot of money for free, but of course, after you send the funds the return payment never comes.
A good blanket rule: if something is free or too good to be true, you’re probably getting scammed.
These are the most important ways to protect your cryptocurrency. However, there will always be new scams that arise in the future. As such, you should always be sceptical of transactions, websites, and promoters in the cryptocurrency arena. Keep your private keys safe, do your research, and only buy currencies that have a good reputation.