Private keys, or a string of letters and numbers similar to a password, are used to unlock access to a holder’s cryptocurrency.
According to the Federal Trade Commission, nearly $82 million was reported lost to crypto scams during the fourth quarter of 2020 and first quarter of 2021.
If you decide to buy cryptocurrency, you can use a non-custodial wallet or a custodial wallet to store your funds.
When using a non-custodial wallet service, you’re fully responsible for remembering your private keys and maintaining security measures to protect your funds.
That means you’re responsible for making sure you employ back-up mechanisms like cold wallets, including hardware wallets, which are physical devices that store your keys offline, Neuman says.
Though hardware wallets are widely considered to be the safest option to store private keys, there are still risks.
“If my bitcoin keys are somehow connected to the internet, then, as I’m sleeping, there could be a hacker that’s trying to get access to my keys,” Lewis says.
To physically secure their keys, some investors use a hardware wallet, while others write their private keys on paper and lock it in a vault.
Most bitcoin wallets require one private key to gain access and move cryptocurrency, but with multisig, multiple keys are required.
With a custodial wallet, a hacker wouldn’t need your private keys to move funds from your account, since the exchange owns the keys, not you.
Regardless of where you decide to store your cryptocurrency and private keys, be aware of bad actors in the space.
When you sign up with an exchange, you set a username and password and can add two-factor authentication, or two FA, to protect your account.
However, for some exchanges, the SMS two FA is the only option.
Once you pick a wallet service, its software will also often generate a unique seed phrase, or a collection of 12 to 24 random words, which could be used to recover your crypto wallet.