DLIVE - CRYPTO 101: Wallets & Coin Safety: 3 Security Suggestions
Crypto wallets explained! Here are the best crypto wallet options & the safest ways to store & secure your cryptocurrency. From hardware wallets to paper wallets to two-factor authentication, I'll explain it all!
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Disclaimer: This is not financial advice. I absolve myself of all responsibility (directly or indirectly) for any damage, loss caused, alleged to be caused by, or in connection with the use of or reliance on any content, goods or services mentioned in this article. As usual, DYOR.
Number 3: Two-Factor Authentication
There are countless examples of people getting there coins stolen from large exchanges like Bittrex and Binance, some of whom were even using two-factor authentication, which you'll often see abbreviated as 2FA. Even though two-factor authentication is a great tool that you should also ALWAYS use, it has proven to be ineffective at times. What exactly is two-factor authentication? Think of it as an added layer of security that requires a piece of information you can access, since you immediately have it on-hand. In today’s day and age, that often means a smartphone. By providing your phone number—or by downloading an authentication app—you prevent yourself and others from being able to login to any of your accounts with just your username & password. It can come in the form of text verification, which sends you a text with a temporary, one-time code that you have to type in every time you login. Those who choose to use an authentication app can simply open the app on their phone & look up the unique code the app generated for you, which is constantly changing every minute. Two-factor authentication goes a long way in added security, but for reasons unbeknownst to me, it doesn’t always suffice. Hackers are simply getting too smart these days…and that's exactly why in today's video, I'll also be discussing the different cryptocurrency wallet variations available to you, which have also proven to be the safest.
Number 2: What are the different options?
There are 5 legitimate options and I want to start things off by discussing the hardware wallet, or hard wallet for short. There are 3 very solid hard wallets that I can recommend for you to choose from. A Trezor, a Keepkey, or what I personally choose to use: the Ledger Nano S. A hardware wallet is an electronic cryptocurrency wallet that stores your privates keys in a secure hardware device. These keys are placed in a secure section of a microcontroller, and can't be transferred out of the device, meaning you don't actually know what your keys are. This is what helps make hardware wallets so secure. Before I move on any further, it's important for you to know what a software wallet is. A software wallet is an electronic wallet that's downloaded directly to your computer & is accessible only to that one computer. You can probably tell that this isn't the smartest option to use, since access to both your computer and funds are susceptible to hacking or computer failure. Similar to these are mobile wallets (which is the cellphone equivalent of a software wallet) and online wallets (in which your private keys are cloud-based & accessible from any computer anywhere in the world (but are also susceptible to hacking, while at the same time are controlled by a third-party). Going back to hard wallets, devices like Trezors or Ledgers are immune to all that. It's impossible for them to be infected by viruses; meaning unless someone can guess your 24-word seed, there's no way they can get hacked. In addition, transfers & withdrawals can only be made with you present & able to unlock the device, since each transaction must be physically confirmed by pressing on the device's buttons before sending. Again, this is to prevent someone from being able to access & send your funds off remotely. Another highly secure wallet type is the paper wallet. As I said earler, a paper wallet is simply a piece of paper—either digital (like a Word doc) or an actual piece of paper—that has both your public & private keys either written or printed on it. One example of creating an Ether paper wallet is by making one on myetherwallet.com, which I showed you how to do in my video on how to participate in an ICO. Even though this wallet is accessed digitally, it's still considered a paper wallet because your private keys are not cloud-based, and it's up to you & only you to write down your private keys. Myetherwallet.com will not centrally store your private keys for you. From here we can deduce that the one biggest disadvantage to using a paper wallet is that if you ever lose that piece of paper or document containing your private keys, your funds will be forever lost. The last wallet type worth mentioning is the hot wallet. Hot wallets are wallets connected to the internet; so basically they're the wallets on exchanges, like Bittrex, Binance, and even Coinbase & GDAX. The only time you should ever be keeping your funds in a hot wallet is if you plan on actively trading. Quick access to coins is important for traders, and with how fast crypto prices move, it's important for traders to be able to make moves as fast as possible without having to transfer funds out of cold storage onto an exchange. All other long-term investors & HODLers should be using cold storage, like hardware wallets or paper wallets for example.
Number 1: What if I lose my hardware wallet?
You can probably tell by now that my preferred method of storage is the hardware wallet. But what are you supposed to do in the unfortunate event that you lose your Ledger? Well you'll be happy to hear that all three hard wallet devices work with a safety net in the form of a series of 24 words that you were required to write down when initially setting up your device. This 24-word phrase is called your mnemonic seed. It is crucial, of course, that you do not keep this seed anywhere near your wallet. You won’t be needing them unless you lose actually lose your wallet, so be sure to store them securely & well away from your wallet; ideally in a place that, realistically, won't get compromised. One quick & effective tip some people use is to break up the 24-word seed into several parts (say, four parts of six words each for example) and giving each part to one of four different trustworthy friends or family members. That way, one friend can't do anything with the six words you've given them, and it's not until you combine the four parts from each of your friends & family members that you'll have your full 24-word mnemonic seed. Doing so essentially makes your seed act as a sort of multi-signature wallet.
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