So, you’ve decided to take a leap of faith and start trading in cryptocurrency. But, do you know how to do it safely?
Cryptocurrency has risen in popularity as of late- especially since its market reached half a trillion dollars in 2017! This is good news to you if you ever wanted to trade in a system that veers away from tradition or if you simply distrust the traditional market with all their brokers and bankers.
Cryptocurrency trading is, however, not without risks. Hackers work hard every day to steal and scam you out of your hard-earned crypto cash by stealing or coaxing your private keys directly from you.
The problem is there’s nowhere to run in case you lose your money since cryptocurrency is largely unregulated.
So, should you steer clear of cryptocurrency after all?
Read this guide and you’ll be a few steps closer to safe cryptocurrency trading in no time.
Know the basics
As with any endeavor that involves money, you should at least learn the basic ins and outs of cryptocurrency trading. Remember to always exercise prudence when dealing in cryptocurrency.
Also, look for books or reliable sites to guide you through the various risks you might face in cryptocurrency trading.
Finally, keep up to date with the latest news and trends involving cryptocurrency-related cybersecurity threats.
Use a VPN
Most people believe that cryptocurrencies are great for privacy because they don’t need any personal information to buy or sell. In short, they’re anonymous. But, this couldn’t be further from the truth.
Cryptocurrencies are pseudonymous- not anonymous. Each coin acts as your pseudonym which means that if your transactions are ever linked to your identity (via your IP address stored in the blockchain), you’ll suddenly find yourself out in the open.
A VPN hides this trail by hiding your IP address and encrypting your personal data (like your location and ISP).
To ensure that your sensitive transactions (especially those made over public Wi-Fi), use only the best VPN you can afford. The keyword here is “afford”.
Never use free VPNs while trading cryptocurrency because free VPNs have been known to share/sell your personal information to their partners or third parties. Worse still, these free VPNs aren’t exactly the most secure.
This was the case of popular crypto service MyEtherWallet, which suffered a serious security issue after popular free VPN Hola was compromised for 5 hours. This doesn’t really come as a surprise since Hola was never a secure VPN, to begin with. Check out this Hola VPN review to see for yourself.
Install an antivirus program
You can add another layer of safety by installing a high-quality antivirus program. These programs protect you from malware that could take over your computer or device.
An antivirus program also protects you from ransomware which hackers use to wrest control over your computer or device by encrypting some or all of your data contained therein and keeping it in stasis until you pay the ransom- which costs $133,000 on average.
Now, unlike VPNs, you can get quality protection from free antivirus programs. The best ones, so far, are Avast Free Antivirus and Bitdefender Antivirus.
Keep your private key to yourself
Your private key is basically the password you use to access your cryptocurrency and it’s the only thing a hacker needs to access to your cryptocurrency. Never share your private key with anyone. Don’t even show a QR code containing your private key.
With that said:
It’s important to note that your private key is usually stored in your cryptocurrency wallet– which is either “hot” or “cold”. A “hot” wallet is one that is always online and is always ready to use while a “cold” wallet is usually offline and only goes online when you need to use it.
Hot wallets are provided by cryptocurrency exchanges when you register an account. They are easy to use and make your cryptocurrency more accessible. However, being provided by an exchange means that you might lose all the funds in that wallet if that exchange ever gets hacked- which usually results in that company shutting down (like Bitfinex, Mt. Gox, and Youbit).
How do you avoid this?
Easy. Just keep the exact amount you need to spend in your hot wallet and keep the rest in your cold wallet a.k.a cold storage– which, as I’ve already mentioned, is entirely offline. This way, if your hot wallet provider ever gets hacked and goes out of business, you would have only experienced a relatively lesser loss.
Now, there are three types of cold wallets to choose from. When choosing which one to use, it’s always important to keep in mind your purpose and the amount of cryptocurrency you plan to keep in that wallet. That said, the three types are:
- Hardware wallet: By far the most popular type, this wallet takes the form of a device that you plug into your computer’s USB drive. To date, there has yet been any record of cryptocurrency being stolen from a hardware wallet- which makes it useful for when you plan to acquire large amounts of cryptocurrency. This form of cold wallet is also convenient as you don’t need to type in your details each time you buy or sell cryptocurrency. Check out this list for the best cryptocurrency hardware wallets.
- Paper wallet: This simply involves you printing out your public and private keys on a piece of paper, thus, preventing hackers from accessing them. However, this does make it a bit tedious to type in your keys every time you need to use them online. You also run the risk of losing all your funds if it somehow winds up in someone else’s hands. So, remember to keep your paper wallet safe and secure.
- Brainwallet: This type of wallet involves you keeping your keys in your brain! This is usually done by memorizing a seed phrase. This means that, as long as you don’t record your seed phrase anywhere else, you are the only one who’ll ever know your keys, thus, making this the most secure wallet of all. However, If the owner of the seed phrase ever forgets it (or worse, dies), the cryptocurrency connected to that seed phrase is lost forever.
Beware of phishing
Phishing attacks are usually experienced through deceptive emails and websites. This is where a hacker employs fraudulent (usually psychological) tactics to get you to divulge private details.
This type of cyber attack is responsible for over $115 million in stolen Etherium just last year. Now, you might be thinking “Why don’t they just avoid suspicious emails or messages?”, right? The thing is, they’re hard to resist.
If you want to avoid falling for phishing attempts, check out this post for how to tell if someone is phishing for your cryptocurrency.
Trade in secure exchanges
Cryptocurrencies are usually bought and sold in a cryptocurrency exchange. However, not all exchanges can be trusted as some have already been proven fake.
The problem here is that there’s no inherent protection and nowhere to run to for help if you lose your money. This is because cryptocurrency is, for the most part, unregulated- although the world is starting to catch up.
That said, make sure to do your research before investing your money in any cryptocurrency exchange. You can also check out these 20 security tips for a more detailed list of safe trading practices.
Cryptocurrency trading can be hard, confusing, and downright risky. But, if you follow this guide, you’re at least a few steps closer to safe cryptocurrency trading. Arm yourself with at least the basic knowledge of how cryptocurrency trading works.
Don’t fall for the illusion of anonymity that has fooled others and get yourself the best VPN you can afford and remember to install a reliable antivirus program to avoid malware or ransomware.
Never reveal your private key. Hot wallets are fine if they only contain the exact amount you want to spend but it’s better to keep all your keys safe in a cold wallet that fits your purpose.
Be wary of suspicious sites, emails, or messages that could turn out to be phishing scams and only trade in secure cryptocurrency exchanges.
Dana Jackson, an U.S. expat living in Germany and the founder of PrivacyHub. She loves all things related to security and privacy. She holds a degree in Political Science, and loves to call herself a scientist. Dana also loves morning coffee and her dog Paw.