Kash here.
I recently received this question from Bet Chat reader Ron…
“I would like to know more about [cryptocurrency] security. Not that ‘It can go down as well as up’, but what measures are in place to stop an investor’s money being accessed or stolen.”
I answered this question in the recent Q&A call, but I wanted to give a more in-depth overview on crypto risks because this is a very important topic.
You see, while crypto is outperforming every other asset class in 2020 and 2021…
(Bitcoin is the brown line below…)
Those returns don’t come without some caveats.
So, in Part 1 of “Risky Bitcoin” (what you’re reading right now), we’re going to cover…
? Hardware wallets
? Software wallets
? Social wallets
? And keeping your money on crypto exchanges
Let’s get stuck into this risky business…
? Crypto wallets ?
Crypto wallets are for, you guessed it… storing crypto! Generally speaking, they work like the banged up old leather wallet you keep your good old British pounds in, except they have some extra security “layers” to keep your crypto safe.
In fact, pick the right wallet and it’s more like carrying around an impenetrable vault in your pocket, on something as small as a USB stick or even your smartphone.
There are four main ways to store crypto: hardware wallets, software wallets, social wallets, or keeping your money on crypto exchanges.
Here are the pros and cons of each…
? Hardware wallets ?
What is it?
A crypto hardware wallet is a physical device for storing your crypto. It looks a lot like a USB stick, like this Ledger Nano S wallet…
Each crypto wallet has a private key, and a public key. The public key is the one you give to other people so they can pay you (like your bank account number). And the private key is only for you to know, so you can access your crypto coins.
Every hardware wallet comes with a recovery seed phrase. This is a string of numbers and letters that will allow you to recover your crypto if you lose the physical device.
What are the benefits?
? Uses the most secure cryptography on the planet
? Small and easy to store
? Can set to require physical button presses for every transaction (very safe)
? Can store most major cryptos
What are the risks?
? You forget your recovery seed phrase (customer support can’t help here)
? You reveal your recovery seed or private key to someone else
? The wallet is tampered with before you receive it (generally only a risk with low quality suppliers)
How do I stay safe?
? Write down your seed phrase keep it somewhere safe
? Never reveal your private key or seed phrase to anyone else
? Buy your hardware wallet direct from the manufacturer, or a trusted supplier (like Amazon)
What do you recommend?
? #1: Ledger Nano S… £54
? #2: Trezor One… £52
? #3: Yubico 5 NFC… £47
? Software wallets ?
What is it?
A software wallet is a digital crypto wallet, usually packaged as a plugin for your browser, or an app for your mobile phone. They’re required for storing some types of crypto. For example, DeFi coins on the Ethereum platform.
This is what the phone app for the popular Ethereum wallet MetaMask looks like…
Thank you for taking the time to read this.
Like hardware wallets, software wallets have a public key and a private key, and usually a seed phrase too (unless they’re using the new “social guardian” security – see the next section on “Social Wallets”).
What are the benefits?
? Can’t lose it because it’s not physical like a hardware wallet (although you can still lose your recovery seed phrase)
? Use with niche cryptos on platforms like Ethereum (this includes DeFi cryptos, which is the current best performing sector)
? Easy to manage as it’s just like any other app on your phone, or plugin in your browser
? Still uses the most secure cryptography on the planet
What are the risks?
? You forget your recovery seed phrase (customer support can’t help here)
? You reveal your recovery seed or private key to someone else
? Less secure than a hardware wallet (unless you pair it with your hardware wallet)
? More vulnerable to browser based scams and hacks
How do I stay safe?
? Write down your seed phrase keep it somewhere safe
? Never reveal your private key or seed phrase to anyone else
? Only connect your software wallet to legit crypto exchanges and services (do some research first)
? Pair your software wallet with a hardware wallet
What do you recommend?
? #1: MetaMask… FREE
? #2: Trust Wallet… FREE
? #3: MyEtherWallet… FREE
? Social wallets ?
What is it?
This is a new innovation in the crypto wallet world. Instead of having to write down and keep safe a recovery seed phrase, like with most software and hardware wallets, you instead rely on people you trust to keep your wallet safe.
Known as “guardians”, they can be family, friends, workmates, bosses, even other crypto wallets.
The idea is that you pick three or more guardians and then if someone hacks your crypto wallet and, for example, tries to steal all your crypto, the majority of your guardians (so a minimum of two out of three) would have to sign off on it.
Your guardians can message, ring, meet you in person, send a pigeon, anything you like, to make sure it’s you. And if you forget your wallet security details it’s the exact same process. Simply contact your guardians and collectively they can recover your account for you.
What are the benefits?
? Don’t have to store a recovery seed phrase somewhere, which you might lose
? Good way to get your friends and family into crypto too, then you can all help keep each other’s crypto safe
? Easy to use smartphone apps (and some with browser plugins and web access too)
? Potentially less risks than other types of crypto wallets (although it’s still early days for this relatively new idea)
? Access to niche cryptos (like DeFi cryptos on the Ethereum platform)
What are the risks?
? Can be a bit more complex to set up (although this should get better over time)
? Currently your guardians need to have a crypto wallet too (although it doesn’t need to be the same brand)
? If the majority of your guardians gang up on you, they could steal your crypto (so pick people carefully, and maybe don’t tell them who your other guardians are)
How do I stay safe?
? Pick guardians from different social circles who don’t know each other
? Pick guardians you trust!
? Arrange for your guardians to contact you directly if they’re alerted to any funny business on your account
? Use the built in “delays” some social wallets offer, giving you time to check with your guardians
What do you recommend?
? #1: Argent… FREE
? #2: Loopring… FREE
? #3: Still waiting for newcomers in this space!
? Crypto exchanges ?
What is it?
These are centralised privately owned websites where you can buy and sell cryptos with the British pound. If you own some crypto already, you probably use an exchange as they’re currently the most popular, and easiest, way to buy crypto.
Storing money on an exchange doesn’t really count as storing it in a crypto wallet (although some exchanges do offer their own wallets, but the alternatives listed earlier are generally better). If you do this, it’s like holding your money with any other privately owned company. And comes with the same risks (see below).
What are the benefits?
? Super duper simple to set up and use (takes about 10 minutes)
? Buy cryptos with the British pound (and many other national currencies)
? Very quick to buy and sell cryptos
? Easily swap cryptos into other cryptos
? Customer support for everything to do with the platform (they can’t help you if you lose your recovery seed phrase for your crypto wallet)
? Most exchanges curate the cryptos they list, so there’s a decent “standard” to the ones you can buy
What are the risks?
? Vulnerable to account scams and hacks (like your email account or any other online account)
? Have to show official ID, like passport or driving license, which could be a problem if you’re a intergalactic super villain
? Some newer or more exotic cryptos are unavailable (although overtime they can get added)
? If the company running the exchange gets hacked and loses your crypto it’s likely you won’t get reimbursed (and there’s no government safety net like with bank accounts)
? Potentially high fees depending on which exchange you pick
How do I stay safe?
? Only keep small amounts of crypto on exchanges
? Only store larger amounts for short periods of time (send them to a more secure wallet as soon as you can)
? Stick to popular exchanges and avoid ones that aren’t established or have low trading volumes (see below for recommendations)
? Get any long term crypto holds off the exchanges and into a more secure wallet ASAP
What do you recommend?
? #1: Coinbase… fees info
? #2: Binance… fees info
? #3: Kraken… fees info
Well, there you have it…
Crypto wallets demystified. Hopefully, anyway!
As always, if you have any questions about crypto wallets, exchanges, or anything else crypto related…
Simply email your questions to clients@thebetchat.com, and I’ll make sure I cover them in the days and weeks to come.
Thank you for taking the time to read this.
