In the emerging world of cryptocurrencies and blockchain technology, security concerns are often at the forefront. While the benefits of these revolutionary technologies are undeniable, it is important to take security challenges seriously.
The basics of blockchain security
Blockchain, the foundation for most cryptocurrencies, is known for its decentralised nature and its ability to validate transactions in a secure manner (more on Blockchain). This is done through consensus mechanisms such as Proof-of-Work (PoW) or Proof-of-Stake (PoS), which ensure an immutable history of transactions. If you want to learn more about this consensus mechanism, read our related post.
Valid signature is generated through private keys
On the blockchain, the individual blocks are identified with a public key. In a way, the public key is what the IBAN is for a bank account. In other words, if you know the public key, you can send digital assets to it - but not from it. This requires the second key, the private key.
A private key is an integral part of Bitcoin and Altcoins, or all types of cryptocurrencies invented after Bitcoins (e.g. Etherum). Its security structure helps an owner protect himself from theft and unauthorised access. By linking the private key to the public key on the blockchain, an assignable, disposable digital asset is created. Thanks to the encryption of the private key, it is impossible to reverse this process. Meaning there is no way to reproduce the private key and access the public address and information on the blockchain.
Anonymity in the field of cryptocurrency is one of the fundamental aspects and clear advantages, compared to classic fiat money. In order to carry out a transaction, the validity of the signature is checked via the consensus mechanism, or the affiliation of a public key on the blockchain to the private key of an owner.
The Significance of Wallets
Private keys must be stored securely, as crypto assets can only be accessed via them. Wallets are a crucial interface for the security of cryptocurrencies. These digital repositories for crypto assets come in various forms, from hardware wallets (cold wallets) that are offline to software wallets (hot wallets) held at crypto platforms and are accessible via the internet.
A well-protected wallet is essential to prevent unauthorised access to your cryptocurrencies.
Look for a provider where the following criteria is met:
You have access to your private keys
The provider is from a country that has good crypto regulations.
The provider itself is regulated
You can contact someone personally
Key management: The key to security
A key concept in the cryptocurrency world is literally key management. It refers to the secure handling of private keys that allow direct access to your crypto assets on the blockchain. Responsible handling of these keys is essential to prevent unauthorised transactions.
Here are some best practices:
1. Use a Cold Wallet
Most trading wallets on exchanges and crypto platforms are hot wallets. This allows you to trade within seconds. In order to be able to execute transactions so quickly, the providers need direct access to your coins and correspondingly your keys.
However, if you do not want to trade at the moment and prefer to keep your coins safe, then always transfer them to a cold wallet to which you also have the private keys. This is the only way to guarantee that no one else can access your coins.
Cointract offers a combination of trading and cold wallet, in which you can quickly switch back and forth between high risk and low risk.
2. Make backups
Backups of your private keys are essential. Make sure you keep at least one encrypted backup in a secure location. Ideally, backups should be kept in multiple physical locations to protect against natural disasters or loss.
3. Avoid centralised storage
It's advisable not to leave your crypto assets with exchange or online wallets if you don't want to trade them, as these carry a higher risk of hacks and failures. Instead, transfer your assets to a secure cold wallet.
4. Be careful when sharing
Never share your private key with others, even trusted people. Private keys are for your own use only and should always be kept secret.
Protection against phishing and malware
As with any digital asset, cryptocurrencies are vulnerable to phishing attacks and malware. It's important to make sure you only use legitimate websites and services and always have up-to-date anti-malware software installed on your devices.
Phishing and malware aim to steal your private keys or sensitive information. Here are some steps to protect yourself:
1. Verify website URLs
Be extremely careful with links in emails or on websites. Always check the URL to make sure you are on the official website. Fraudsters can create fake websites that look deceptively similar to the originals.
2. Use two factor authentication (2FA)
2FA is an extra layer of security that prevents unauthorised people from accessing your accounts. By combining a password with a unique code sent to your mobile device, security is greatly enhanced.
3. Update your software regularly
Keep your wallet and software updated to take advantage of the latest security updates. These updates often include patches for critical security vulnerabilities.
4. Install reliable anti-malware software
Trusted anti-malware software can protect you from malicious software that aims to steal your private data.
The future of security in crypto
The development of security solutions in the crypto world is progressing at a tremendous pace. Multi-layered security protocols, smart contracts and improved wallet technologies are just a few examples of how the industry is working to further strengthen security.
In principle, the same principle applies to the crypto world as to the classic banking world: keep your eyes open and check the email, the offer, the website or the telephone contact. With common sense and a little mindfulness, you'll go a long way in terms of security.
This article is for informational / promotional purposes.