If you’re familiar with the investment world, you’ve probably heard about the thrilling prospects of cryptocurrencies. With its decentralized system that lets you make transactions without the intervention of governments and banks, cryptocurrencies have incredible potential as investments.
However, this decentralized nature makes many doubt the security of cryptocurrencies, which poses a question: are they really safe? If you’re curious to know more, here’s an in-depth guide to help you understand how safe digital assets are.
What makes cryptocurrency safe
To keep your cryptocurrencies safe, crypto developers use cryptography. However, what is cryptography and how does it keep your cryptocurrencies safe?
Cryptography is a set of codes used to translate plain text into codes that cannot be easily deciphered. In cryptocurrency, cryptography secures transactions, user-information and ensures that no central authority can interfere in the operations of the blockchain.
Cryptocurrency runs on a decentralized platform called ‘blockchain’. In essence, the blockchain is similar to a database powered by numerous computers that maintain its information and function.
On the blockchain, all of your transactions are placed in ‘blocks’ protected by walls of cryptographic codes.
Once these blocks’ are filled with transaction data, they’re chained onto a previously filled block, forming a chain of data that makes it immutable and resistant to hacking and breaches.
When each block becomes a part of the chain, it becomes difficult to alter its individual content since each block has its own hash code, the hash of the previous block, and timestamp.
Hashing is essential in cryptocurrency mining. A hash code is a mathematical algorithm that converts any digital information, in this case, cryptocurrency transactions, into a string of numbers and letters. Some of the most common types of hash functions are MD5, SHA1 and SHA-256.
Since hashing requires a huge amount of data and electricity, it’s virtually impossible to untangle by anyone outside the network. Other than keeping crypto transactions safe, hashing is also used in different kinds of cybersecurity.
Blockchain enables P2P transactions that allows users to send information real-time without interference from middle-men.
No centralized authority like banks, and even governments can manage these blocks—only those involved in its transactions. This lessens the transaction fees and red-tape that people experience in traditional transactions.
Different kinds of cryptocurrency keys
Your cryptocurrency is incredibly protected and virtually unhackable. This is because they can only be accessed through the usage of special keys. Below are these keys used in cryptocurrency:
Public key in cryptocurrency is a type of cryptographic code that allows users to receive cryptocurrency. However, to utilise this, a private key is required to finalise the transfer.
private keys are characterized as the secret half of public/private key pairs used in public-key cryptography with asymmetric algorithms like RSA or ECDSA. Usually, private keys come in the form of 256 binary, QR and 64 hexadecimal codes and gives the user power to access their funds.
Keeping cryptocurrency safe
As cryptocurrencies continue to become more valuable, more hackers begin to rise and take full advantage of them. However, you won’t be ill-equipped for this battle against hackers. Below are some of the things you can do to keep your cryptocurrency tokens safe:
Use digital and hardware wallets
When storing your tokens, make sure to use both digital and hardware wallets. This is because both of them have varying levels of security and hackability.
When using a digital wallet, make sure to place only as few of your tokens there. For in case someone grabs ahold of keys to your digital wallets, they won’t get a large amount of these tokens.
On the other hand, if you need to store larger amounts of cryptocurrency, it’s a good idea to store them in hardware wallets. This is because these are not connected to the internet where people could potentially reach them. However, make sure to place them in heavily fortified places such as safes to keep others from stealing the storage itself.
Create two strong passwords and don’t share them with anyone
Never use the same passwords for all your cryptocurrency accounts. This is because it’s easier for hackers to breach all your accounts.
Though cryptocurrency has stronger security, there’s a strong chance for them to be cracked if your accounts all share the same password. So give them all separate passwords and never share them with anyone.
To ensure security, make sure your keys are made of unique letters and characters that are difficult to guess. Additionally, don’t use unprotected browsers without encryption when making transactions.
Work with trusted cryptocurrency platforms
Before purchasing cryptocurrency tokens, make sure the exchange you’re using is trustworthy. To learn about a platform’s integrity, take the time to research their history and even the reviews of people investing cryptocurrency through them. Some of the most trusted exchanges in the market are Binance, Coinbase and Kraken.
Don’t open suspicious emails
When receiving an email, link, or other data storing site, make sure to thoroughly examine them. Especially if it’s about your cryptocurrency data like your keys and passwords.
Don’t use wallets hosted by token providers
As much as possible, investors should refrain from using wallets by their cryptocurrency providers. This is because you’ll have to store your keys and various other important information within their server—which are out of your control.
So in the unfortunate event that the company gets compromised or someone else takes over the company, they’ll have access to all of your sensitive information. If it can’t be helped, it’s best if you deposit a limited amount of funds in your account if you’re using a hot wallet.
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