The biggest risks for losing your cryptocurrencyPosted on: May 20, 2018, by : Dan Muresan
Cryptocurrencies are something fascinating that most new users fall for, for many reasons:
- It’s cool
- They represent a great technology
- Represent decentralization
- They can make you rich really fast (or that is the dream)
All of these are somehow obvious things to new joiners into crypto space. We are all early adopters and you should know that in the crypto space everything can change from one day to another. Cryptocurrencies, compared to the way we use traditional money (also called fiat), have many differences and it is essential to know them.
First thing you should know when you make crypto transactions, is that you’re basically the owner of the coins – just like a bank. You have total control, but at the same time you are the only one responsible for the safety of your crypto assets.
I will tell you below what are the biggest risks that you could expose to, risks that would make you lose your cryptocurrency. I will explain what could you do in order to stay safe and not lose your money.
So, what options do you have to protect yourself from these threats? I won’t be going into many details, as this is not my purpose to explain the technicalities of how the blockchain works. You can find lots of articles and tutorials on the web if you are interested in that. I fill focus instead on tips to stay safe and make sure you won’t risk losing your crypto assets.
What is an actually KEY
The private key is a file in which a long string of characters is written.
Private Key Example:
The private key is used to send a coin to another address/ wallet, in conjunction with your public key, which is a similar string of characters.
What is a transaction
The transaction is a data structure that contains the following information: the digital signature of the person who sent the bitcoin (it is built using the private key and is valid only if the private key was used), the public key of the person receiving the bitcoin, the amount of bitcoin sent.
All of these transactions are recorded in blocks that are added by the miners in the blockchain.
A wallet is a kind of a special program that knows how to create a private key, it knows how to read and interpret blockchain data, knows how to send cryptocurrencies (that means to create transactions). If you have the private key, you can change the wallet at any time, because there are several types.
Here’s what’s important to know.
- In order to trade bitcoin and other coins, you need a wallet.
- This wallet will have a private key (a file containing a string of numbers and letters). The key will be used by the wallet without you having to do anything. You will never have to write it somewhere when you receive or send bitcoins, but you have to be aware that the file (key) exists and if a hacker steals it you will be losing your bitcoin (or the coin you are using).
- The Wallet also creates a string of 12/24 words called seed, which you can write on a paper and recreate the private key (by reinstalling the wallet on another device, mobile or laptop).
- In order not to lose you crypto coins, you have to make sure that someone does not steal your private key and you do not lose the seed.
If you are interested about the stuff I talked above, you can search the web to find more about transactions, keys, wallets and seeds, and what role each of them has.
What are the biggest risks for losing your cryptocurrency
The biggest danger is that a hacker will steal the file containing the private key from your device.
I do not know how this is happening, but it does, and in fact, really often. Usually, they get into your computer some malicious programs that read the file and send it to another IP address. Fortunately there is a solution that protects you 100% from this scenario.
Use a wallet hardware. It’s a device dedicated to the safe storage of cryptocurrency, like a USB stick. Its cost is not very high and it keeps you safe on the long term.
With this kind of device, you can connect to any computer (even if it’s full of viruses) and send the crypto quietly. Nobody can steal your key. I bought it and immediately sent all the coins in it because I do not want to have the stress that someone can steal my coins. I am talking about Ledger Nano S, which you can buy directly from the producer through this link.
Another safe way, but harder to put into practice, is to use a paper wallet. You will need to print a wallet containing the private key in hexadecimal format and keep it safe. When you want to spend your coins you will need to write the key manually.
You can use these methods if you are interested into long term investing. If you want to day trade, more like buy low sell high on a daily basis, then you won’t be needing this, as your coins will be stored on an exchange.
Another risk is for someone to steal your seed
It is essential to write down your 24-word phrase for the situation where your wallet is lost or destroyed, which can happen even with a wallet hardware. If you do not have it, your cryptocurrency is lost.
If someone steals your seed, it can also steal your private key by installing a wallet. So, keep the seed somewhere safe, where it can not be stolen.
Send cryptocurrency to the wrong addresses
There are programs that can get you into your computer can leave you without coins, even if it does not touch your key.
These programs attacks in a different way. When you want to make a transaction and send coins to a specific address, this program changes your address to something different than yours, and if you are not careful, the coins will be sent to a different address.
When doing transactions, do not write the addresses manually, use copy / paste, but before you initiate and confirm the transaction, check the destination address carefully. If you write it manually and you make a mistake, even one character, your coins will reach to another person at random, or they do not get to anyone, but they are lost forever.
So make sure you stay safe, it’s nice to have all the control of our crypto assets, but it’s also a lot of responsibility. And the number of people who complain about losing keys or seeds is growing.