Protecting Your Coins (2FA + Hardware and Software Wallets)
By signing up for an exchange, you are given a wallet for each of the digital currencies that trade on that exchange. Once you have purchased a digital currency, you have the option to keep them in your wallets on the exchange or to move them to a personal software or hardware wallet. However not all coins are easy to move off exchanges to wallets. If you do leave your coins on an exchange:
What are other security measures you can take on Exchanges?
In addition to creating a strong password, that is different than your passwords on other websites and accounts, you should be using a 2 Factor Authentication (2FA). The most secure of the 2FA is to download the Google Authenticator App. In the settings of each exchange, it will have you scan a QR code to link your Google Authenticator App to the Exchange. The app will generate a random set of six numbers every sixty seconds. You will need to enter that code within the sixty second period as a 2nd password for you account. This is a must for all exchange accounts.
2FA via your cell phone text messages has not been a completely safe measure. Hackers have called mobile carriers and impersonated people in order to get phone numbers ported over to the hacker’s control.
What are the Pros and Cons of leaving my coins on an exchange?
Pros: You are able to quickly sell the coins should you so choose. If you have moved them off the exchange, you would need to send the coins back to the exchange, which can take time.
You will also not have to worry about making a mistake when transferring coins back and forth and losing your coins due to that error.
Cons: You are not in full control of your coins. Without much warning (if any), an exchange can begin maintenance on a specific coin’s wallet or on the entire exchange. During maintenance, you would not have the ability to sell or move your coins off of the exchange.
An exchange could be hacked and your coins could be stolen. Exchanges take serious security precautions, but there have been instances recently and in the past where coins were stole due to hacking.
What is the difference between Software Wallets and Hardware Wallets?
Software wallets are website or mobile app based means of holding your digital currency. They are more secure than an exchange, but you need to protect your own Private Key to avoid being hacked.
Hardware wallets resemble a USB or other small device and they allow you to take your Private Keys and store it offline. (You are able to store your private keys on multiple devices, in case you lose your device). There are two market leaders in the space and you can learn how to set up your Ledger or TREZOR using our linked guides.
Another example of a Hardware wallet is a paper wallet, where you are able to print out your Public and Private Keys. These are secure in that you can hide them in a physical location, but the downside it is a more manual process to restore your coins to an exchange or online wallet.
Using these wallets are difficult for those that are not tech savvy, so please find help before making any transfers. If you send your coins to the wrong place, you will be unable to get them back. However, if you are able to navigate these options, you will have more control over the safety of your coins.