Crypto market

How NOT to lose your money in the $700bn crypto market

You and you alone are responsible for your cryptocurrencies.

Their security is only your concern

Traditional currencies like USD and EUR can be stored in banks or wallets. But with cryptocurrencies, it might get little complicated, there are no centuries-old institutions you can rely on to keep them safe for you. And no recourse if you lose them. That’s why it’s important to get your head around the different ways you can store them and decide which one is right for you.

The list below are the different types of wallets from least secure to most secure, and show you the advantages of each. Then we have a special feature from one of the Crypto expert in the space, Sam Volkering, on how to avoid getting scammed.

By the time you finish reading this you should have a good idea of which wallet is right for you, and how you can avoid losing all your cryptos to scammers. Hopefully today’s piece will save you a lot of heartache and lost money in the future.

The six types of wallet – in order of security

1.  Exchanges

A wallet on an exchange, such as Bittrex, Binance, or Coinbase provides you with the lowest level of security. But you will need to have your cryptos on here at some point because this is where you buy and trade them.

Advantages:

• Ease of use – setting up your account 0n an exchange is usually as simple as setting up an email address.
• Access from anywhere – just like an email account, you can access it anywhere with internet access.
• Instant trading – when you need to move fast, your cryptos are already on the exchange ready to trade.
• Some recourse if things go wrong, sometimes – but usually not.

Disadvantages:

• Can and do get hacked, regularly – just like any other online account, they are liable to be hacked. But when exchanges get hacked, they can take all your cryptos down with them.
• They hold your private keys – ultimately they have control over your cryptos, not you.
• No “dividends” – many cryptos, like Neo, Ark and Nem reward you in some way for holding them. But you only get these rewards if you hold them in your own wallet.
• Phishing scams – exchanges are constantly targeted by phishing scams. It’s not just stupid people who fall for these scams. Many experienced users get caught out too. Sam will tell you how to avoid these a bit later on  in this article.

Should you use one?

Well, you kind of have to. You have to transfer your cryptos to an exchange to trade them or buy them online. The best practice is to only keep the cryptos you’re actively trading on your exchange wallet and keep the rest in a safer wallet, which you have control over.

2. Web wallets

A web wallet is hosted online, and again is created just like an email address.

Advantages:

• Ease of use – again, setting up your web wallet is usually as simple as setting up an email address.
• Access from anywhere with internet connection.
• More control than an exchange – you can usually download your private keys and store them yourself for additional security.
• Usually free.

Disadvantages:

• Can and do get hacked.
• If the service goes down and you haven’t downloaded your private keys, your cryptos are gone.
• Some web wallets don’t give you access to your private keys – so they are no safer than an exchange and you ultimately have no control over your cryptos.

Should you use one?

If you don’t have much money in cryptos, and want easy access, a web wallet can be a good option. But make sure they give you access to your private keys and download your keys or write them down on paper. Then if something goes wrong you can usually recover your cryptos.

3. Desktop or mobile wallet

This is a program or app that runs on your computer or mobile phone.

Advantages:

• More control than a web wallet – you have your own copy of the wallet stored on your own computer or phone.
• Still relatively accessible.
• Usually free.

Disadvantages:

• Can and do get hacked by malicious software on your computer or phone.
• You need your computer or phone on you to access it.
• If you lose/break your computer/phone you lose all your cryptos along with it.

Should you use one?

The main thing to watch out for with these wallets is malicious software. Many people end up losing their cryptos to hackers in this way. These programs are usually hidden in software you might download to trade automatically for you known as trading bots.

Still these wallets are safer than a web wallet because you’re not relying on a third party to secure your cryptos. Again, though, you should write down your private keys when using these wallets. That way if your computer or phone breaks or gets stolen you can restore your wallet.

4. Cold wallet

People talk about “cold” and “hot” wallets. Hot wallets are connected to the internet and cold wallets are not. All of the above are hot wallets. A cold wallet is stored on a device that isn’t connected to the internet.

So for instance, if you download your wallet file from myetherwallet.com and store it on a USB stick, this would then be a cold wallet. The USB stick isn’t an internet enabled device.

It doesn’t have to necessarily be stored on a USB stick. You could put the wallet file on a memory card or an “air gapped” computer (a computer that has never and will never be connected to the internet).

Advantages:

• Very secure – it can only be hacked if someone gains access to the physical device.
• Easy to hide and safely store – you can store them in a safe, just like money or gold.
• Can hide it in plain sight – it looks just like any other USB stick. Or if you want to be extra sneaky you could even use a memory card and keep the memory card in a camera – so long as you don’t format it by mistake.
• Easy to copy – just copy the wallet file onto another USB and store it at another location. But don’t make too many copies and lose track.
• Easy to encrypt – you can encrypt the USB stick with VeraCrypt or similar for an extra layer of protection.
• Cheap – you can get a good quality USB stick for less than £10.
• You have complete control – only you have access to your private keys.

Disadvantages:

• Easy to lose – this can be overcome with multiple copies, but then you need to keep tabs on them all.
• Slower to use than a hot wallet – you need to plug in your USB and load your wallet every time you use it.
• Still susceptible to hacking – you still need to plug your USB into a computer to use the wallet. If that computer has malicious software it can then steal the contents of your wallet.
• You need it on you to access it – if you need to move your cryptos in a hurry and don’t have your USB on you, you’re in trouble.
• Quite complicated to set up and use.

Should you use one?

If you don’t trade too much, this is a good, secure option. It has much less chance of being hacked than any of the above wallets.

It is still hackable though. But because you’re only connecting it to your computer to trade, there’s less chance it will get hacked. You can also virus scan your computer before you connect your wallet to make doubly sure.

If you want to go to extra trouble, you can also make a cold wallet almost un-hackable by creating it offline and only using offline transactions. But this is time-consuming and tedious to do.

5. Paper wallet

This is just the private key of your wallet either written down or printed out on paper. Most cryptos have paper wallet generators you can use to make these wallets. You can find these on the crypto’s official website.

Advantages:

• Very secure – unless someone gets access to the piece of paper these wallets can’t be hacked.
• Easy to hide and safely store – you can store them in a safe, just like money or gold.
• You have complete control – only you have access to your private keys.

Disadvantages:

• Not encrypted – if someone finds your paper wallet they don’t need a password or anything to take everything in it.
• Slow to use – if you want to move your cryptos you need to type the whole private key in every time you use it.
• You need it on you to access it – unless you’re really good at remembering very long strings of random characters.
• Still vulnerable when you trade.
• Easy to lose or damage.

Should you use one?

If you just plan on holding your cryptos for a long time and not trading them, this is the cheapest and easiest option. You simply generate your paper wallet, send your cryptos there and forget about it.

You can check if your cryptos are still on the wallet easily with your public key. For instance, to check the balance of your ether wallet, you just put your public key (not your private key!) into etherscan.io.

Just as with a cold wallet, if you’re trading regularly, a paper wallet isn’t really any safer than a web or desktop wallet. You still need to type in your private key every on your computer time you use it. If your computer has malicious software on it, you could still lose your cryptos.

One good tip if using a paper wallet is to write it down with one or two digits changed (so long as you can remember which ones you changed!). That way, even if someone finds it, they won’t get access to your cryptos.

6. Hardware wallet – seriously, just use this

These are a more sophisticated type of cold wallet. They are essentially tiny computers cased inside USB sticks. The two leading companies are Trezor and Ledger, and they are both very well regarded.

Hardware wallets give you all the advantages of a cold wallet or paper wallet, with the speed of a desktop or mobile wallet. They are also much more secure than any of the other types of wallet and very easy to use. But they cost around £100.

Your private keys are stored, encrypted, on the device. So no one can see them. Even the computer you connect your wallet to when you use it to trade can’t see them. So in theory, hardware wallets cannot be hacked.

And if you lose it, or even if someone steals it, it’s not the end of the world.

If someone finds your Trezor or Ledger wallet they still need your pin code to use it. And with every wrong attempt the time they need to wait before they can try again doubles. After a few wrong attempts they are locked out for years. This means they can’t be cracked by a password cracker.

But what if you lose it?

When you set up your device you also create a “passphrase” of 20 or so words. You write these down on paper and store them like you would a paper wallet. This passphrase can be used to restore your wallet if you lose or break your device.

Honestly, if you have the money – and if you have the spare cash to invest in cryptos you really should – just get one of these.

They are faster, easier to use and safer than all the other methods, and they can store a large variety of different cryptos. So you don’t end up trying to keep track of multiple different wallets for your multiple different holdings.

Both Trezor and Ledger are great. I’d say just pick whichever supports more of the cryptos you hold. They both support bitcoin, Bitcoin Cash, Ethereum and all Ethereum tokens.

Here are the official sites:

trezor.io/
ledgerwallet.com/

However, even with hardware wallets, we’re still left vulnerable to the “sock drawer attack”.

Don’t forget about your passphrase

So, you have your cryptos super securely stored on a hardware wallet. And you have your passphrase written down on paper in case your wallet breaks or gets lost.

But now, you’re vulnerable to the sock drawer attack, as perfectly illustrated by this cartoon.

So, when storing your passphrase, it’s a good idea to either write it down in a code that only you know, or to store it like any other valuable – in a safe.

It’s quite funny that one of the best places you can store your passphrase is in a bank’s safety deposit box, given that bitcoin was created as an alternative to our current corrupt banking system.

How to spot scams – by Sam Volkering

Keeping your crypto safe means storing them correctly as we’ve just explained. But it also means knowing how to spot and avoid scams as well.

At some point you’ll need to transfer your crypto from one location to another. That might be to pay for goods and services. It might be to simply exchange for other crypto tokens. It may be to contribute to an initial coin offering (ICO).

Whatever it may be you need to make sure you’re not playing into the hands of scammers. You need to make sure that your crypto gets to where it needs to be. Unfortunately the sad thing is every day we see victims of scams.

Here’s two of the most common ways people fall for scams in the world of crypto.

1. Web addresses

This is a classic scam technique and one to easily avoid. Often when sending crypto to an ICO or to an exchange you need to generate a receiving address. Often you simply go to the project or exchange website and get the address details.

However smart scammers have figured out they can perfectly replicate websites to look exactly like the legitimate site. Then they embed a fake address for you to send crypto to.

However these are fake sites and scam addresses. And when you send crypto to these scam addresses, that’s it, say goodbye to your crypto. Now while the fake sites can look exactly the same there will always be one difference – the actual HTML address.

For example a legitimate site address may look like:
https://tokensale.project/pre_sale
And examples of a fraudulent site might look like:
https://tokensaIe.project/pre_sale

Notice a difference? Take a closer look. In the fake one “tokensaIe” includes a capital “I”whereas the real site uses an “l”.

Or here’s another example of what a legitimate address may be:
https://project_crypto.info
And a fake one:
https://project__crypto.info

This time the only difference is two underscores (“_”) in the address. That’s all it takes. Just tiny differences in the web address and scammers can have their way.

That’s why one of the most important things you can do is to double-check the right address. And avoid clicking links where possible. Always do your best to input the right web address yourself

2. FOMO emails

We all have registered our email address at one point or another with a crypto project. Sometimes to receive updates. Sometimes to get on a whitelist. But hackers sometimes get a hold of our email addresses.

And they know that in the crypto world there’s a lot of “fear of missing out” (FOMO). They play to this fear and during token sales will often send out mass emails claiming ‘time is running out’ or the sale “is offering a new bonus to reward early adopters”.

Any offer of an extra reward of free tokens or anything the project hasn’t officially mentioned is likely a scam. The scammers will also give a crypto address to send tokens to so you can “get your special access”. That’s a big red flag.
You need to check the sender of the emails and always check the legitimacy with developers. FOMO emails are one of the easiest ways to fall victim to scammers.
So there you have it. If you follow the advice we’ve given you today you should be able to stay a lot safer in the world of cryptos.

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