Cryptocurrencies and DeFi empower users to take full control of their assets. However, with great power comes great responsibility. Self-custodying cryptocurrency can be a daunting task for beginners and even experienced users make mistakes that could result in permanent loss of funds.
In this guide, we will discuss some of the most common mistakes made when self-custodying cryptocurrency and how to avoid them.
Not Backing Up the Seed Phrase
The most critical step to self-custodying cryptocurrency is backing up the seed phrase. This 12 or 24-word phrase acts as a master key that can be used to restore access to your funds in case of loss or theft of your device. Many users make the mistake of not backing up their seed phrase, making them vulnerable to losing all their funds. It is crucial to write down the seed phrase on a physical ledger and store it in a safe place.
Storing Seed Phrases Online
Password managers are becoming more and more popular due to their convenience, but storing your seed phrase online is extremely risky. If a hacker gains access to your password manager, they will also have access to your seed phrase and can easily steal all your funds. It is best to store the seed phrase offline in a secure location, such as a safe or lockbox.
Publicly Announcing Your Crypto Wealth
Privacy is a key aspect of cryptocurrency, and publicly announcing your crypto wealth can make you a target for hackers and scammers. It is essential to keep your crypto investments private and only share information with trusted individuals. Although content creators may want to share their success with their audience, it is best to keep specific details about your crypto holdings private.
Not Using A Multi-Signature Wallet
A multi-signature wallet requires multiple signatures from different devices or individuals to authorize a transaction. By not using a multi-signature wallet, you are putting all your trust in one device or individual, making it easier for hackers to access your funds. It is recommended to use a multi-signature wallet for added security when self-custodying cryptocurrency.
Not Diversifying Your Risk
If 100% of your cryptocurrency holdings are in one wallet, you are at risk of losing everything if that wallet is compromised. Although it can add to the complexity of managing your crypto, it ensures that if a physical attack (kidnapping, forcing you to reveal wallet details) happens, only a portion of your holdings will be compromised as thieves may not be aware of the others.
Final Thoughts
In closing, note that NO crypto portfolio management software should ask for your private keys. If someone asks for your wallet’s private key, it is a red flag and should be avoided at all costs. Moonrig.io empowers users with a free crypto portfolio tracker that does not require any private keys, ensuring the highest level of security for your crypto investments. Get instant crypto alerts without giving up your self-sovereignty!
