Not your Keys Not your Coins
Not your Keys Not your Coins
You may have heard of the Phrase ‘Not your Keys Not your Coins’ a few times, as some rather high profile Crypto Decentralized Exchanges have crashed recently and taken investors’ money with them.
The expression “not your keys not your coins” refers to needing to own the private keys associated with your funds. “The person who owns the private keys decides how the associated crypto assets are spent.” If you do own your keys, then you have complete control over how to use your funds. If someone else has the keys, then they have control! This is the same as having cash in your hands Vs cash in your bank account. Banks or governments could prevent you from accessing your cash on your account, but no one can prevent you from using the cash you have in your hands.
Owning your keys also means being responsible for their security. The risk of loss is on you! In this blog, we will look at some safety measures you should consider, to protect your private keys and the pros and cons of using third parties to hold your private keys.
“In our first Crypto Currency and Blockchain training module, we discussed the two types of wallets where you can store and transact your Cryptocurrencies: the Public and Private Keys are stored there.”
Hot and Cold Wallets
Hot wallets are online wallets that connect to the internet. This connection makes them more vulnerable to hacking attempts. Cold wallets use offline storage devices, like a USB drive or an external hard drive. They are less vulnerable to hacks because they are not online.
Let’s quickly look at some of the pros and cons of Hot Wallets v Cold Wallets in more detail:
Hot Wallet Pros:
– They’re easy to use. You can transact quickly without having to go through the process of physically connecting to your wallet each time.
– They’re convenient. You can access your funds anywhere, anytime. All you need is an internet connection.
– Some hot wallets offer additional features like in-built exchanges. This can be handy if you want to quickly convert one currency to another without having to sign up to a separate exchange.
Hot Wallet Cons:
– They’re less secure. Because they connect to the internet, hot wallets are more vulnerable to hacking attempts.
– If you store a large amount of currency in a hot wallet, you increase the risk of it being hacked.”
Cold Wallet Pros:
– They’re more secure. Cold wallets are offline storage devices, so they can’t be hacked.
– They’re suitable for large amounts of currency. If you want to store a large amount of currency offline, cold storage is the best option.
– Some cold wallets can be integrated with hardware wallets. This adds an extra layer of security, as the private keys are stored on the hardware wallet and not on the computer. An example of a cold wallet integrated with a hardwareyes wallet would be the Ledger Nano S.
Cold Wallet Cons:
– They’re less convenient. Cold wallets can take longer to set up and you’ll need to have your cold wallet with you whenever you want to transact.
– There is also the risk of losing your physical (private) key. If you lose it you will lose all the cryptos on your cold wallet.
Private Key Safety
There are a few key things to consider when it comes to the safety of your Crypto Currency private keys:
Where are they stored?
The first and most important safety measure is to never store your keys on an exchange or any third-party wallet (unless you fully understand the risks and are happy to do so). If you do, you’re giving up control of your coins to that company or individual. “If a third party controls your keys, they could potentially “exit scam” with your assets (also known as a rug pull), get hacked, or make a mistake that causes you to lose your coins and the value of those coins with it.”
The second safety measure is to use a combination of hot and cold wallets. Keep the majority of your coins in a cold wallet for long-term storage. (This is ideal if you are looking to hold your Crypto assets for a long period without trading or selling them). Only put the amount you need for trading or short-term use in a hot wallet. That way, if your hot wallet gets hacked, you won’t lose everything.
The third safety measure is to use a strong and unique password for each of your wallets. A strong password has at least 12 characters, including uppercase and lowercase letters, numbers, and special characters. And you should never use the same password for more than one account or wallet. If a hacker gets your password, they could access all of your accounts.
The fourth safety measure is to enable two-factor authentication ( also known as “two-step verification”) whenever possible. Two-factor authentication adds an extra layer of security by requiring you to enter a code from your phone in addition to your password. This makes it much harder for hackers to access your account.
The fifth and final safety measure is to keep your software up to date. Cryptocurrency wallets, exchanges, and other platforms are constantly releasing updates with new security features and bug fixes. By keeping your software up to date, you’ll have the latest security measures.
So what are the benefits of using a 3rd party to hold your private keys and invest your funds?
The main benefit is convenience. It’s much easier to send, receive, and trade cryptocurrencies when you don’t have to worry about managing your private keys.
Another benefit is that you can earn interest on your cryptocurrency without having to do anything. Some exchanges and wallets offer “staking” or “earn” programs that let you earn interest on your cryptocurrency just by holding it on their platform.
Remember that the downside of using a third party to hold your keys is that you’re giving up control of your coins. If the company goes out of business, or makes a mistake, you could lose your coins. And if you want to move your coins to another wallet or exchange, you might have to go through a lengthy and complicated process.
Remember
So, the next time someone tells you to “not your keys not your coins,” remember that there are pros and cons to using a third party. It’s up to you to decide what’s best for you.
If you are considering investing in Crypto, please consider becoming part of a community where you can share and talk about your own research, views and experiences. As a new investor, this is often a great way to start your journey by gaining insights from others who have walked the path before you and learned from their own experiences already and are willing to share them. If you feel that this would help you, then why not sign up and join our Crypto College Community here and see how you can benefit.
Good luck and see you back here again soon!
Jack
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