Keeping your cryptocurrency safe is most investors’ single biggest concern. With crypto headlines regularly focusing on scams, hacks, and irretrievable funds, newcomers to the space can often feel uncertain about how to keep their investments safe.
While crypto is still largely unregulated, the risks of trading cryptocurrencies can be mitigated. Below, we’ll explain how to trade crypto securely and give some tips on keeping funds safe.
Choose a trustworthy exchange
When buying or selling cryptocurrency, you’ll need to make use of an exchange.
These come in 2 forms:
This type of exchange uses off-chain, centralized servers to process transactions, and hold your funds for you. They tend to have higher liquidity and are fully compliant with the regulations and laws of the countries they operate in.
Due to their being centralized, these exchanges are more prone to hacking attempts and need to employ strict security measures.
Well-regarded examples include Coinbase, Binance, and Swyftx.
Also known as DEXs, these use “automated market makers” (AMM) to provide liquidity and do not require KYC (know-your-customer) checks to operate. Decentralized exchanges are self-custodial and often operate with lower fees. However, they can often be slower than their centralized counterparts.
Examples include dYdX, PancakeSwap, and Uniswap.
Which is safer?
In theory, a centralized exchange is currently the safest choice. Decentralized exchanges are still relatively new and exploits are sometimes found causing users to lose funds. Being regulated, centralized exchanges, however, offer robust security and when funds are lost, refunds are offered.
Secure your account
Whether you choose a centralized or decentralized exchange, you will want to secure your account or wallet.
To secure a centralized exchange account your focus should be on your password and account access. This is because your funds are held by a third party for you and are technically their responsibility to keep safe.
However, you will still need to keep your account secure. To do this, enable two-factor authentication (2FA), making it impossible to sign in without access to your phone or email. You will also want to use a unique, complex password that is difficult to guess. Never use a password that you use for other accounts.
For decentralized exchanges, your funds are accessed through your crypto wallet. This means security is in your own hands. Whenever you access a DEX, you’ll need to sign in with your crypto wallet, e.g. MetaMask. This is ultimately the biggest security risk with a compromised PC, for example, potentially revealing your private keys to bad actors.
Regularly perform a virus scan on your PC, be wary of browser extensions, and never connect your crypto wallet to disreputable or unknown exchanges.
Avoid phishing scams
Phishing is a trick used by scammers to access your exchange account or wallet. Phishers will often impersonate an influential or trustworthy member of the crypto community or offer significant rewards for engaging with them. These scam artists will use Discord, comment sections on Youtube, Twitter, and other platforms to try and convince traders to reveal their private keys or password.
To ward off phishing attacks, simply never reveal your username, email, password, or private keys. If someone offers unprompted help or show you a technique to double your investments, they are most likely phishing.
Use a cold storage wallet
Whether you’re storing crypto for the long-term from a centralized exchange or buying, swapping, sending, and receiving funds with a DEX, it’s recommended to use a hardware wallet such as a Ledger Nano.
Hardware wallets are classed as “cold” storage, meaning they never directly reveal your private keys to the internet for verification. This ensures that your private keys are safe even if your PC is compromised.
With crypto still a nascent technology, there are risks involved. However, understanding the principles above will help keep your funds safe and allow you to trade crypto securely.