Tips on how to keep your cryptocurrency safe
Becoming interested in cryptocurrency ultimately means investing money into a project you believe in. For me, the Ethereum network was the first and most exciting project I invested in (full disclosure: I am still most interested and invested in Ethereum), and in doing so, I immediately became worried about how to secure my investment. Today, I rest easy knowing that my coins are all secure because I either have them stored on my hardware wallet or I’ve stored the private keys on an offline device.
I’ve researched all of the different types of wallets for Ethereum and the only way to know your coins or tokens are secure is if you own the private keys. To understand private keys, let’s start with Public Keys.
What is a Public Key?
A public key is your address where funds can be sent. Your public key is just like your home address; people can look it up on Google Maps, see what your house looks like, and send you mail or packages. However, other people don’t have your keys so they can’t get in your house and take your stuff.
What is a Private Key?
A Private Key is just like your house keys. You use it to get into your address where you store your things. Literally speaking, a private key is a long string of letters and numbers, similar to what wifi passwords used to all be like in the 2000s…
3ef2837abd20398… and on and on and on.
This key is randomly generated when your public wallet address is created and it is specially crafted to signify to the blockchain that you are the owner of that public address and what it contains. Remember, only this number signifies that you own the funds in that wallet, so just like your house keys, if someone else has your keys, they can steal all of your stuff.
If you want to try this out, go ahead and create an Ethereum wallet online. This is quickly and easily done using a client-side wallet generator, like https://www.myetherwallet.com/
WARNING: Make sure you check to make sure the domain is spelled correctly so that you don’t get phished!
Myetherwallet is great because it walks you through the steps to ensure that your wallet information is secure.
Why can’t I just keep my coins on Coinbase or another exchange?
Coinbase has surfaced as the leader in trading mainstream coins (Ethereum, Bitcoin, Litecoin, and Bitcoin Cash) and they are truly a safe and trustworthy business. However, when you buy and store coins on Coinbase, you don’t completely own those coins, because you don’t own the private key for those coins. Coinbase holds the Public and Private Key for those coins, so those coins are technically Coinbase’s coins. Of course, Coinbase has built a business on its reputation and mainstream appeal, so they will always pay out to you when you request the coins you purchased to be transferred out.
Bitcoin recently turned 9 years old and in that short history, millions, I suppose Billions now, of dollars of coins, have been lost to hackers who have been able to siphon them away from exchange wallets. Remember, there is no cryptocurrency FDIC when that money is gone, no one is there to help you get them back.
What’s the safest and easiest way currently available to safely store your coins?
The safest and easiest way currently is to use Myetherwallet.com offline. They have a great guide on how to do this here:
Basically, when you generate a wallet offline, the internet never has a chance to get its grubby little fingers anywhere near your precious private key(s). Once you securely store this private key on a flash drive and you want to bring your computer back online, because the internet is grubby, but amazing, you can rest assured that this wallet will always be secure.
Then, send some or all of your Ether to that address. This is called Cold Storage and is used to store the majority of your Ether.
Not quite as easy: If you have the budget, I highly recommend getting a hardware wallet to store your coins. I use a Ledger Nano S and this keeps your private keys safely away from the internet’s grubby hands even when you are using an online device. Keepkey or Trezor are also good options!
The reason Bitcoin was created in the first place was to allow people to store and transfer value on the internet outside of third-party influence. Keep this idea in your head any time you read anything about cryptocurrency. If you end up needing to depend on other people to store and maintain valuable or sensitive data, be skeptical of what that can mean for your ability to get that valuable or sensitive data back.
If you don't own the private keys, you don't own the coins! It's just that simple.
Cryptocurrency is a working project and requires skeptics, optimists, revolutionaries, academics, convenience seekers, early adopters, and technophobes alike to participate. Ask questions in the comments and that can help me write more about this in the future!