A weekly newsletter decoding crypto, blockchain and the entire ecosystem.
By Rohas Nagpal
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How to keep your crypto safe
When you own crypto, you actually don’t “own” coins or tokens. You own “private keys”. In today’s edition, we are going to discuss how to keep your crypto safe.
But before that, let’s check out some of the latest crypto news.
On the bright side, Ethereum has deployed a major technical upgrade - the London Hard Fork or “EIP-1559”. This brings in transparency in terms of transaction fees on Ethereum and is likely to boost the ecosystem and probably the ETH prices.
On the dark side, Bitcoin SV (BSV) has undergone multiple 51% attacks. This attack happens when “malicious” miners control more than half of a blockchain’s mining hash rate or computing power. The bad guys can
exclude new transactions from being recorded
modify the order of transactions
prevent transactions from being validated
block the “good” miners from mining
reverse transactions to enable “double-spending” of cryptos
1. Addresses & keys
A crypto address represents a “destination” on a blockchain. Consider it as a bank account number. You can generate unlimited addresses on your own.
This is an example of a Bitcoin address:
In most blockchains, the addresses are public, and anyone can see the transactions and balances relating to an address using a blockchain explorer. You won’t be able to do this on “privacy-based” blockchains like Monero.
To “move” your crypto, you need a private key. This is an example of a Bitcoin private key:
A crypto wallet is designed to
store your public and private keys,
send and receive cryptos,
monitor "balances", and
interact with supported blockchains
A hot wallet is one that is connected to the Internet and is considered the most vulnerable to hacking. Examples include mobile wallets and crypto exchanges.
Metamask is a popular browser-based crypto wallet.
Trust wallet is a popular free mobile app for trading and storing cryptos.
A cold wallet, on the other hand, is not connected to the Internet and is considered more secure. Examples include hardware wallets and paper wallets. There are many free services for generating paper wallets, e.g. Future Money Wallet.
3. How to stay safe
1. Use a credible crypto exchange
Credible exchanges have a robust verification process that confirms your email address and phone number. They also verify your government-issued ID and may also carry out a video verification. Your exchange must have security features like two-factor authentication and must also display active sessions and account activity.
Centralized exchanges link your wallet to a username and password that can be recovered in a traditional way. Don’t forget that you’re trusting your exchange with your crypto. If the exchange is attacked or goes bankrupt, your funds may be gone forever.
2. Write down your seed phrase
If you are using an HD Wallet (Hierarchical Deterministic wallet), you must write down your seed phrase and keep it somewhere safe. This is the only way you’ll be able to recover your wallet. Don’t store the phrase on a computer. Write it down and keep it safe. Here’s an example of a seed phrase:
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3. Bookmark your web wallet
If you are using a web wallet, bookmark the site to protect yourself from a phishing scam.
4. Common crypto scams
Victims receive an email claiming that their computer has been “hacked”, and the hacker has hijacked their web camera and recorded “intimate” moments. The scammer then threatens to release the video online unless some bitcoin is paid to him.
2. Fake Exchanges
A “fake” exchange tricks investors by offering Bitcoin or other cryptos for a very low price.
3. Free Giveaways
Scammers offer free cryptos in exchange for a small “registration fee”. Once you pay the fees, they vanish!
Scammers create fake social media accounts that impersonate famous people. These accounts are used to carry out a variety of frauds.
Many victims end up downloading malicious software and apps. These apps can change crypto addresses when they’re copy-pasted from the victim’s clipboard. The result - you end up sending crypto to the scammer’s address instead of the actual person you are paying.
6. Meet-in-person attacks
Never meet anyone in person to buy crypto. You could get robbed and even murdered! Scammers may also pay you in counterfeit currency in exchange for your crypto.
7. Phishing Emails
Never engage with emails that ask for your seed phrase, private keys, or passwords. These emails may look authentic but remember that there is no legitimate reason for anyone to ask for your seed phrase, private keys, or passwords.
8. Phishing websites
People land up on phishing websites by clicking on links in fake emails and sometimes even through search engine results. These websites can steal your passwords and even fool you into installing malware.
9. Ponzi Schemes
Beware of schemes where you are offered a large guaranteed return in exchange for a small deposit.
10. Pyramid Schemes
Beware of pyramid schemes, which promise you high returns based on the number of people you invite into the crypto network.
11. Pump and Dumps
In a pump-and-dump scheme, scammers artificially pump up the price of crypto and sell it to unsuspecting victims. Once enough people have bought the crypto, the scammers disappear, and the value of the crypto crashes to near zero.
12. Scam Coins and rug-pulls
While there are many great cryptos, there are also many scam coins. Be careful while investing in new cryptos. Check out the team, whitepaper, website, and other publicly available information carefully before investing.