Hackernoon logoYour Crypto Assets Are as Safe as Your Blockchain Wallet by@pixelplex

Your Crypto Assets Are as Safe as Your Blockchain Wallet

As you go from being a crypto enthusiast to a crypto millionaire, it is critical to understand that going from a prince to a pauper merely takes seconds. With the growing interest of the institutional investors in crypto surging, corporate treasurers considering bitcoin investments, and a new crop of digital assets such as NFTs gaining in value, the need for protecting digital assets has never been greater. Here are some general principles for keeping your crypto investments safe: Spread your crypto assets across more than one digital wallet.
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PixelPlex

Blockchain Development Company http://pixelplex.io/

As you go from being a crypto enthusiast to a crypto millionaire, it is critical to understand that going from a prince to a pauper merely takes seconds.

This naturally brings up the questions like, is my ether wallet safe? Or, in the case of bitcoin, is my blockchain wallet safe?

With the growing interest of the institutional investors in crypto surging, corporate treasurers considering bitcoin investments, and a new crop of digital assets such as NFTs gaining in value, the need for protecting digital assets has never been greater. Whether you are an investor or a crypto exchange development company, your interest in keeping crypto-assets safe is unison.

Whatever the reasons for any individual or an organization to invest in digital assets, one aspect remains universally valid: protecting the private keys is critical.

Before you begin to google things like, 'is my ether wallet safe?' or 'how to use blockchain wallet?', here are some general principles for keeping your crypto investments safe:

  •  Do not use or retain self-custody keys or have non-custodial wallets
  • Spread your crypto assets across more than one digital wallet.
  • Use both the cold wallets and the hot wallets to store private keys.
  • Implement other recommended security policies to reduce risk.
  • If your digital asset portfolio is substantial, invest in hiring specialty vendors to help protect your digital assets.
  • Routinely conduct thorough due diligence on cybersecurity.
  • Ensure that security solution vendors provide indemnity.
  • Make yourself aware of the current liability/data security regulations that apply to you and your vendors.
  • Ensure appropriate governance at the board level and have redundant sources to access your digital assets
  • Speak with a specialized insurance broker that offers coverage of digital assets.

The alphanumeric private key used to access a crypto wallet should never be in the custody of a single person or should access one wallet with all crypto assets in it. It is also critical that such a private key not be in the custody of a company that has not installed appropriate firewalls between custody, trading, and liquidity services or a company that commingles corporate assets with client funds.

Increasingly, a large number of vendors now implement appropriate security firewalls, allocate substantial resources, and employ the technical capabilities needed to mitigate the risks involved.

If your wallet is hacked, spreading assets across multiple wallets is a relatively safer way to reduce the chance of losing it all. It is ideal to limit the size of holdings in any single wallet and work with a custodian to set up for secure storage of crypto assets. Revisit the distribution of crypto assets regularly as your assets grow in value and consider including governance best practices into your compliance and risk management program.

In the same manner that you open up multiple accounts, spreading your assets is ideal for storing them. Doing this for cryptocurrency is critical because of its intangible digital nature, which opens it up to hacks that can cause significant losses.

Similar to managing any other funds management, the use of Hot and Cold wallet ensures further safety. Unless you’re going to trade the entirety of your assets during any given day, you don’t need to store all your cryptocurrency in a hot wallet.

Your trading volume generally represents only 1 to 5% of a specific portfolio, depending on strategy and size. If you are not consistently trading all your digital assets, consider storing them offline in a cold wallet,  This is a much safer way to secure those assets.

Like checking and a savings account, you keep the amount you need for daily use in your checking and the surplus amount in a savings account.

Here are some good policies for risk reduction to adopt:

  • Implement dual control procedures requiring at least two people to initiate any transaction, access virtual vaults, or utilize shared private keys.
  • Adopt procedure to record the following: system, access to vaults, signing authority, or related risk management procedures and make them auditable. Make sure the audit trail is reviewed frequently.
  • Do background screening of anyone cleared to have a certain level of authority or responsibility related to cryptocurrency. Redo the background check periodically or when the level of authority granted to the person changes.

It is interesting to note that the express purpose of using blockchain is to eliminate a single point of failure, so why would you not mirror it when securing your private keys?

Many vendors now offer third-party specialized digital asset custodian tools to serve the crypto marketplace. These solutions are created to fulfill custody regulatory requirements and provide independent accounting and audits of your assets.

Many new investors fail to understand the indemnity of digital platforms when trading crypto assets.

When it is related to a vendor’s errors, omissions, failure to perform, or negligence related to managing crypto funds, the responsibility shifts to the platform to secure your assets. It is essential to work with an exchange with strong indemnity provisions built into their contracts to protect your interests.

Many traders mistakenly believe that if the hack occurs at an exchange, it’s no longer their responsibility, which is false.

When using an exchange to trade digital assets, be sure to ask them or go over your contract to ascertain:

  • What indemnity applies to the exchange platform when the exchange makes a mistake or is negligent in providing security services to you to avoid the hack?
  • Does the exchange platform have enough assets to back their indemnity to you?
  • Does the exchange platform have insurance or other off-balance sheet resources to bolster their ability to compensate you for the loss? Should they cause you or your customer financial harm?

In conclusion, it is essential to mitigate and prevent all factors that expose you to a hack's risk and place responsibility for the loss where it belongs.

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