Best practices of using cryptocurrencies — Do’s and Don’ts
Note: This article does NOT contain affiliate links. This is independent and honest research and recommendations.
Welcome to the age of internet money. Now you can own money, which can’t be censored or confiscated by a third party or a government. However, with great power, comes great responsibility. So let’s take a look into the best practices when using decentralized networks and digital assets.
The whole crypto ecosystem can be quite confusing. It’s not only a complicated technology in its core, but also presents users with new challenges regarding their usage of the decentralized infrastructure. In order to help you with a smooth transition from WEB2 to WEB3 we will take a look into what you can do right and wrong:
Let’s start with our ten do’s:
Don’t let others store your assets. Use a self-custody wallet like a hardware wallet to own and protect your holdings. Funds stolen from centralized exchanges such as Binance, Bithump or Bitfinex are still the leading cause of lost funds according to the blockchain graveyard. Not familiar with self-custody wallets? Check out my video or blog-post about them.
If you’re serious about crypto you should certainly get one. Most of the time the hardware is connected to another device via bluetooth or USB. Should you initiate a transaction you need to sign it with your private key. A hardware wallet does this for you and only communicates the signed transaction. Hence, your private key never leaves the device, which makes it the most secure option to store digital assets for individuals.
Consider different scenarios and evaluate associated risks such as theft, fires and floods or inheritance for your backups. Assure you will be able to restore your wallet in 5 to 10 years. It also makes sense to note, which wallet was used to create the recovery phrase to avoid interoperability issues. Also consider a stainless steel plate for an everlasting backup.
Good resources: General backup video by the wallet provider “blockchain”
How do mnemonic seedword work by Andreas Antonopoulos
This is especially important for financial investments like ICOs, so you only invest in what you understand. Also evaluate the trustworthiness of a wallet provider or other important software, which you use like your password manager.
Humans are terrible in remembering 50+ unique passwords. When set-up properly a password manager will make your life more secure and convenient. Here are some of the leading providers on the market. I will leave some useful resources in the video description for further research.This video by Tech-radar also provides a decent overview.
A second factor helps to protect your accounts from unauthorized access. Always set-up 2FA for cryptocurrency exchanges! Avoid SMS authentication if possible and instead use Authy, the Google or Microsoft authenticator or others, which are integrated into password manager like KeeWeb or Lastpass.
However, the most secure 2FA solution is a Universal 2nd factor (U2F) via special hardware devices like a ledger or yubikey. These open standards are developed by the open-authentication industry consortium known as FIDO Alliance.
Due to the immutability of blockchains, transactions can’t be reverted. So always double-check the correctness of your transactions. Special caution is also required for SSL (HTTPS) certificates, so better bookmark important websites instead of typing their URLs.
Like all other financial assets cryptocurrencies are subject to taxation in most jurisdictions. Actually, there are a lot of programs, which even collaborate with exchanges, to facilitate the accounting process.
Useful summaries: Bitcoinworldwide or News.bitcoin.com
Appreciate what you have and try not to be tempted by emotional sentiment like fear-uncertainty-doubt #FUD.
Now if you do all of that you might still lose your precious assets due to a silly mistake. So let’s take a look at our don’ts.
By bragging about your profits and large holdings you only make yourself attractive for potential attacks. Also nobody likes braggers.
Don’t expose your private key or mnemonic phrase to unnecessary risks. Encrypt this crucial information should you store it on one of your devices or on a cloud solution.
If it sounds too good to be true it probably is. Guaranteed returns of 20 % or more should be treated with great suspicion. Representatives of crypto companies (like wallet provider or your exchange) will never ask you for passwords, private keys, your recovery phrase and won’t contact you personally on telegram or other social networks!
Be aware of fake Elon Musk’s and Vitalik buterin’s on twitter. Do not trust random URLs and be cautious with links sent to you via email.
There is so much more 🙁 I will publish a video about that topic in the upcoming weeks.
“The number of security holes in these programs is atrocious. It would be a shame if you enabled 2FA on everything in your life but then let a single string of characters give someone access to your entire computer and every account.” — MyCrypto security team
This also accounts for third party clipboard managers or auto screenshot uploaders. Just don’t!
Speculations and predictions about the price of Bitcoin or other cryptocurrencies is like a council of human rights in China — It might look promising, but in the end it’s lacking any substance. Especially mainstream media, which is controlled by a small elite has no incentive to provide the average user with useful information about financial self-sovereignty.
There are more than 2.000 coins or tokens, which are currently traded. This includes a lot of useless, dead or copycat projects as well as a lot of scams. Especially, new users are advised to avoid seemingly lucrative investment opportunities. The probability that you lose your money is just too high. Also don’t be fooled by the twitter account @bitcoin or bitcoin.com — both are in the hands of Bitcoin cash promoters.
While some cryptocurrencies might be considered a so-called safe-haven for citizens of Venezuela, Chile, Argentina, Libanon, Hong Kong, China, etc. this probably isn’t the case for most people reading this blog-post. Cryptocurrencies are still a high risk investment. Also, beginners are not advised to do margin trading.
These were ten Do’s and seven don’ts, which hopefully help you to protect your precious digital assets. Setting up one’s security is a never ending process. Don’t aim to fulfill all the points by tomorrow, but rather try to continuously improve your security setup over time.
Another good read:
Own your keys