Private keys, scams, storage, KYC and custodial vs non-custodial. These are the 5 main security risks we feel cause the most harm in the beginning due to inexperience. Try not to get hung up on specifics. The goal here is to help folks develop a general awareness of these security features. Not scare anyone or deter one from this traversing the cryptospace. Strictly in terms of security, the following should be understood and remembered now, and for future reference.
- Purpose. To process transactions and gain access to your wallet.
- Risks. Can be used to access your wallet with all your funds. Scammers love to try to convince people to give them up in some way. Fundraising, giveaways, air drops ect.
- Conclusion. NEVER EVER give out your private keys. They belong to you and you alone. It is critical this become just common knowledge. They are the keys to your kingdom. After creating a wallet, write your private keys down, and securely stored them in a safe place free from fire, water or any other natural disaster that may occur. Also, do not store on a computer or any other device that has access to the internet.
- Purpose. To obtain people's money/crypto
- Risks. Unfortunately there are many types of scams associated with the cryptospace.
- Conclusion. Understanding that scams are likely and developing a basic knowledge of key features will give your more power. Here are some to look out for. #1 99.9% of the time no one will ever give you free cryptocurrencies or money. #2 If it's too good to be true, it's NOT true. #3 Do not pay someone claiming they can double any money you give them. Any brilliant "traders" with a winning strategy/indicator exclusively available on 'Whatsapp' (or anywhere else) are scammers. Remember, most of the cryptospace is decentralized. This means your personal information is not necessary in most cases except with well trusted and established entities. Lastly, again, your private keys belong to no one but yourself.
- Purpose. To hold crypto currencies and other digital assets like NFT's
- Risks. #1 Sending funds/assets to the wrong address. #2 Loosing your wallet
- Conclusion. Though the technology is still in its infancy, there are always developing applications that make this function more user friendly, i.e. not accidentally sending assets to the wrong address or loosing a wallet with 100 Bitcoins on it. #1 Pay very careful attention the address you send and receive funds. They must always match. Also make sure your are sending assets using the correct blockchain address if applicable. Example: sending Tether (USDT is an Ethereum based or "ERC20" based stable coin) from an exchange to a wallet on the correct blockchain. In this case the Ethereum network. Lastly, double check for any fine print of any special directions. Some exchanges will not allow transactions from other exchanges. #2 Always keep your wallet and private keys separate. If you loose your wallet, rest assured it can always be regenerated using your private keys. Even with a hardware wallet. Write your private keys down and put them in a safety security box at your bank or in a safe or anywhere you feel satisfied will not be disturbed if left unattended for long periods.
- Purpose. To comply with current regulations enacted by government bodies to prevent certain illicit or illegal activities.
- Risks. There really isn't much risk here outside of a person's free choice. If you do not want to divulge certain information, you will not be able to utilize their services.
- Conclusion. As part of the KYC (know your customer)and AML (anti-money laundering) regulations set by U.S. representatives some exchanges and platforms require KYC. This is a completely normal thing as cryptocurrency exchanges are seen as "money transmitters" by the government and must adhere to current regulation requirements. The alternative would be #1 not using that exchange/platform or #2 understand how defi works.
Custodial exchange vs non-custodial exchange:
- Purpose. To either allow its customer to withdrawal their crypto assets or not
- Risks. Being forced to sell off one's crypto back into a fiat currency to withdrawal causing a "taxable event".
- Conclusion. Though this one is not a major security risk, it is important to understand the main difference between the two type of exchanges. One let's you withdrawal your crypto assets, to store in a wallet and hold for any length of time. The other does not but requires you to sell off your investment back into a fiat currency to then withdrawal. It's important to note this action is a "taxable event" and will need to be recorded on your taxes using form 1099-b
Main conclusion: Just assuming there is risk involved in this space is not enough. This market can be extremely profitable for a lot of people. Unfortunately the bad players know this too. And just like every other market, there are those out there that seek to exploit and capitalize on the less informed. Accept the fact that there are bad apples and risk involved with every potentially fruitful endeavor. Then take the necessary steps required to prevent possible misfortunes. Lastly, we are here to answer any questions you may have and we are here because we have been there. Allow our unfortunate experienced be a guide you moving forward.