Safeguarding digital assets from their inception till today, especially as they become increasingly valuable, is a top priority for seasoned investors and absolute beginners alike through reliable platforms like NCOG.
With the recent rise in cyber threats and market volatility, keeping your crypto holdings safe is no longer an option but a necessity to ensure long-term financial well-being.
Not knowing how your investment is to be protected, whether it be in Bitcoin, Ethereum, or other altcoins, will breed a world of headaches.
These methods, be it cold storage, private keys, or two-factor authentication, will protect you against possible losses and your assets from hackers and scammers. Let’s explore how you might best protect your cryptocurrency.
Table of Contents
What is Cryptocurrency?
Cryptocurrency is a form of digital payment. Unlike most forms of banking systems, it allows for direct transactions from one user to another.
This kind of money enables peer-to-peer transactions, whereby payment is usually electronic and does not require the use of physical currency. Transfers of crypto funds are filed on a public ledger, while the actual currency is kept in a digital wallet.
Example; The NCOG blockchain is a platform that ensures secure, transparent transactions maintained by currency holders.
The very term “cryptocurrency” originates from the use of encryption technology to secure transactions. This involves complex coding techniques whereby information is shared between digital wallets and public ledgers; safety precludes data from being given out. This encryption enables the conservation of the safety and authenticity of transactions.
How Does Cryptocurrency Work?
Cryptocurrencies are based upon a public, decentralized ledger. The blockchain is sustained and updated by a network of users who utilize the currency. New units of cryptocurrency are created by mining. Miners solve complex mathematical problems with computers and may be granted new coins in exchange.
Users can also buy cryptocurrencies from brokers and store them in a virtual wallet from which they will perform desired transactions.
Types of Cryptocurrencies
Most cryptocurrencies are designed to power the functionality of a blockchain system that they are built on. For example, Ethereum’s native token, ether (ETH), was designed at first to pay for transaction validation and the creation of new blocks.
Today, with Ethereum having merged its network with a proof-of-stake chain in September 2022, ether is used also to enable staking on the network.
Another example might be XRP issued by the XRP Ledger Foundation, designed to go into cross-border transfers by financial institutions. Knowing there are so many existing cryptocurrencies, it is important to know the types available.
Knowing which coins serve a real-world purpose and which ones don’t will allow you to make more calculated investment decisions.
Though people commonly use cryptocurrencies based on their names, it should be considered that sometimes the name of a coin does not correspond with the type of the coin.
Here are some common categories of cryptocurrencies along with examples of tokens that fall into each category:
- Utility Tokens: They represent a specific utility on the blockchain in question, such as XRP and ETH.
- Transactional Tokens: Bitcoin in this case acts as a medium of exchange or payment. It is the most common.
- Governance Tokens: Provide holders with voting or other decision-making rights on the blockchain. Examples include Uniswap.
- Platform Tokens: Allow for the development and building of dApps upon a blockchain. An example is Solana.
- Security Tokens: These permit the tokenized versions of a real-world asset. It could also be referred to as tokenized stocks, for example, MS Token for partial ownership of the Millennium Sapphire.
What are Cryptocurrency Assets?
Cryptocurrency assets are those forms of digital assets that bring together cryptography and blockchain for the facilitation of secure transactions. They also maintain decentralized control.
Characteristics of Crypto Assets
To know how to safeguard your crypto assets, there are certain characteristics crypto assets possess that you must know;
1. Digital Nature: All cryptocurrencies are completely digital and do not have any physical link to any currency whatsoever. Cryptocurrencies run on decentralized systems, and that alone predisposes them to a lower level of government control.
2. Blockchain Technology: The original cryptocurrencies were based on a blockchain blockchain-distributed ledger of the transactions executed on the network.
3. Security: Due to cryptography, the level of security for cryptocurrency is very high; hence, it can hardly be counterfeited or spent twice.
Hot Wallet or Cold Wallet?
Have you pondered on this? A hot or cold wallet, which should you choose when dealing with digital assets? Which one provides better security and convenience?
Understanding the principle of difference between them will help in making an effective decision for your digital assets. There are pros and cons of both types, and they serve users’ needs differently.
- Hot Wallets
Hot wallets are online, and face the internet; thus, they are rather easily accessible through devices such as computers and smartphones. They will provide an easy, at-your-convenience way to send and receive cryptocurrencies.
Advantages
- Convenience: Most hot wallets are designed to be user-friendly, making it quite easy for the owner to manage their means in digital format.
- Cost: Ordinarily, most hot wallets do not incur any costs to use, and they even pay interest on the stored crypto.
Disadvantages
- Third-Party Dependency: Most of the hot wallets are custodial, and their providers have to manage your private keys. That is a greater risk if the provider is compromised.
- Cold Wallets
Cold wallets such as those provided by NCOG are those that keep cryptocurrencies offline, therefore, greatly reducing their exposure to online threats. These wallets come in different forms; USB-like devices or in paper form.
Advantages
- Improved Security: Since cold wallets never go online, it is not possible to hack them online. As such, this is highly suitable for large-scale storing of cryptocurrency in a secure manner.
- Full Control Over Assets: By storing private keys themselves, users are less dependent on third-party services to hold the assets on their behalf.
- Long-Term Storage: This is particularly fit for the class of long-term investors or “holders” who would prioritize security over accessibility.
Disadvantages
- Inconvenience: It is not that suitable for daily spending habits.
- Initial Investment: Hardware wallets have substantial initial investments wherein costs range from a mere $50 to $250
- Complicated Setup: Setting up cold wallets can be seriously technical to some point. Hence, this creates some learning curve for the newbies.
Hot Wallet or Cold Wallet?
Ultimately, choosing between hot and cold wallets completely depends on individual needs, risk tolerance, and usage patterns. In practice, most users use both types of wallets in combination.
They may keep a hot wallet for day-to-day transactions and then have a cold wallet to keep the larger holdings safe. This is a balancing strategy between convenience and enhanced security, enabling a user to take advantage of the facilities accruing from both systems and reducing risks associated with each.
Multi-factor Authentication (MFA) Strategy to Secure Your Assets
MFA, and its most common variant, Two-Factor Authentication, plays a critical role in cryptocurrency account security. It introduces multiple forms of verification before access is granted.
Platforms like NCOG enforce this multi-factor authentication to offer users maximum protection for their various cryptocurrency assets.
What is Two-Factor Authentication (2FA)?
Two-factor authentication refers to a security measure where access to an account needs two forms of identification. This normally comprises:
- A password or PIN.
- A one-use code supplied by an authentication app, through SMS, or via email.
This additional layer of protection significantly reduces the chances of somebody accessing your account without your permission since, aside from the second verification method in their possession, an attacker would also need your password.
How Does 2FA Work?
A general working cycle of 2FA begins with:
1. Login Attempt: A user enters a username and password.
2. Secondary Verification: The user will be asked to provide additional verification. This usually takes the form of a time-based one-time password that is generated through an authenticator app, such as Google Authenticator or Authy.
3. Access Granted: The access to the account is granted, provided the two forms of identification are both correct.
What are the Roles of 2FA in Protecting Your Crypto Assets?
- Enhanced Security: Passwords may face some risk of cracking, but two-factor authentication creates one more layer of security that makes it far more difficult for hackers to break into your account.
- Limitation of Unauthorized Transactions: In some cases, it involves withdrawal of funds or adjustment in account settings; in that case, 2FA ensures even if somebody has your password, being able to carry out such activity without the second factor is not possible.
- Regulatory: New jurisdictions are making 2FA necessary for crypto sites to facilitate their compliance
Here’s How to Set Up 2FA:
1. Enter the security settings of your cryptocurrency wallet or exchange.
2. Click to activate 2FA.
3. Scan your QR code with an authenticator app.
4. Save recovery codes given during the setup of 2FA in case you lose access to your authenticator.
Choosing the Right Authenticator App
There are several authenticator applications with which 2FA can be used, including:
- Google Authenticator: A very popular application, available on both Android and iOS, it generates time-based codes.
- Authy: It has some advanced features, including encrypted backups via the Authy cloud and the ability to synchronize access across multiple devices.
- Microsoft Authenticator: Mostly does the same thing, with added integration into Microsoft services. You can use Time-based One-Time Passwords (TOTP) for this purpose because it would automatically change every 30 seconds, unlike other static codes.
The Private Keys Strategy
Private keys are critical to the security of cryptocurrencies, and knowing about their importance is of the highest degree for anyone dealing with digital assets.
What is a Private Key?
A private key is a secret cryptographic key, quite similar to one’s identity credentials, that gives another person access to your cryptocurrency assets. The transaction you may undertake over your assets must be digitally signed with it.
In short, this is the master key of your wallet, which empowers secure transmission and receiving of cryptocurrencies.
Reasons You Should Never Share Your Private Key
- Control Over Assets: By sharing your private key, you give access to others to take control of your digital assets. If that key falls into the hands of another person, that can execute transactions on your behalf, concluding that they can have ownership of your funds.
The phrase “Not Your Keys, Not Your Coins” itself denotes that if one doesn’t have his or her private key, he doesn’t own the cryptocurrency.
- Risk of Theft: If your private key is compromised by phishing, malware, or a mistake made by a person, unauthorized persons can access and steal your funds.
- Unlike in traditional banking, there’s no way to recover lost or stolen private keys; your assets are gone for good.
- Permanent Loss of Access: Because there is no secure backup of a private key, its loss automatically can irretrievably deprive you of access to your cryptocurrency holdings.
- This strongly points to the need for safe storage approaches like hardware wallets or secure offline backups.
How to Protect Your Private Key
- Hardware Wallets: Hardware wallets store your private keys offline, which means they are way less exposed to internet hacking.
- Not to share: Never share a private key, even with friends and family.
- Secure Backup: Generate multiple secure backups of the generated private key and store them in different places.
The Cold Storage Strategy for Securing Your Assets
Cold storage is a means through which one secures assets in digital form, particularly cryptocurrencies, by keeping them offline.
During this process, private keys are kept safe from online vulnerability and, therefore, are ideal for the long-term security of the assets. The general forms of cold storage include:
1. Hardware Wallets: Physical devices storing private keys offline, like Ledger Nano S and Trezor.
2. Paper Wallets: Printed documents containing private keys and public addresses; this cannot be compromised online but may be prone to physical damage.
3. Metal Wallets: These are metal plates that are very resistant under extreme conditions; basically, engravings are made on them for good protection.
What are the Best Practices for Cold Storage?
Some best practices to further secure your cold storage include;
- Secure Your Environment: Any cold storage device should be set up with a malware-free computer and on a secure internet connection.
- Physical Security: Hardware wallets can be stored in tamper-evident packaging or safety deposit boxes. Store paper wallets in locations where they cannot easily be stolen or damaged.
- Backup Recovery Phrases: Always create backups of recovery phrases for your wallet at multiple secured locations so you may restore access if needed.
- Regular Updates: Hardware wallet firmware needs updates to help defend against vulnerabilities.
Conclusion
The top protection strategies are therefore associated with several security measures to overcome intrinsic vulnerabilities of assets.
In this respect, as soon as cryptocurrencies turn out to be more and more valuable, the best practice would be the enhancement of wallets, 2FA, and cold storage security to a higher level.
Besides, one important thing turns out to be guarding against phishing attacks and updating software, which is given significance in the minimization of risks.
Diversification into storage methods and making backups will protect your holdings to concentrate the long-term financial growth with confidence.