Reducing Risks
As with pretty much everything in life, there are always benefits and disadvantages. Perfect scenarios are more of an illusion, than a reality. The benefits of self-custody far outweigh the risks, and as a result, savvy Crypto investors will always choose non-custodial solutions over custodians. However, when it comes to mobile (hot wallets) wallets there is always a heightened risk of hacks.
Up until more recently this has not been much of an issue. However, we have seen a dramatic increase in regard to the hacks of mobile and desktop wallets. Just a few months ago, Atomic Wallet was hacked, and more recently, a MetaMask exploit cost Marc Cuban $870K. This is becoming a lot more prevalent than before and is pointing toward cold storage as a necessity, as opposed to a luxury.
That being said, even cold storage is not 100% secure, due to upgrades and the inherent nature of Crypto. However, it is the strongest level of defense that we have. I personally had assets in Atomic Wallet when the hack took place. Fortunately, I was not affected. I did however choose to shift my assets as soon as I became knowledgeable of the hack. This is precisely why I advocate such strong levels of diversification.
The chances of multiple attacks taking place simultaneously are a lot more unlikely, and so once again, diversification acts as a level of protection. Something I have also addressed in the past is to have a workhorse wallet for DeFi interactions. In other words, a wallet that is kept empty and only “loaded” for approved DeFi protocols. Similarly, new opportunities can be tested with low and insignificant balances.
Once a DeFi protocol or smart contract has been approved, balances can be increased in order to transact with a level of safety and peace of mind. Never use one wallet for everything, especially if you are utilizing DeFi protocols. Personally, I am looking to make a lot more use of cold storage solutions. As the space grows and matures, so do the skills of hackers and other nefarious actors.
Diversification As A Rule
Even when it comes to cold wallets, diversification should be practiced. Choosing to utilize the highest level of security, as well as practicing diversification is the safest move any investor can make. It might not provide a guarantee, but it’s the wisest way to go about storing your keys. Essentially, you are not actually storing the coins, but rather the keys that control them. The coins remain on-chain.
It is the keys that are actually being stored or are changing hands in the form of transactions. Making use of multiple cold storage solutions is definitely becoming increasingly important. In fact, I will be setting up a new hardware wallet later today that incorporates an auto-destruct feature. The device is embedded with multiple sensors, and should an attack be detected, all security data is wiped.
This will prohibit hackers from gaining access to your keys. In such an event, assets can be recovered by simply entering your mnemonic phrase. Remember, the assets remain on-chain. As long as you record and safely store your keys, you have access to your Crypto assets. Unfortunately, Ledger is no longer a viable option in my opinion. One wrong move can have disastrous repercussions.
Final Thoughts
I expect that a lot of Crypto investors will soon be moving to cold storage solutions. This is especially true of long-term investors. If you are going to be holding assets for years, then you are going to want them offline, and out of the reach of hackers. Self-custody, and especially cold storage self-custody is yet another area where investors have to take responsibility for their actions, and investments.
At the end of the day, all an investor can do is to make well-informed and wise decisions. Whatever happens after that point is beyond their control. Anyway, I am off to set up my new hardware wallet. Have a good one! See you next time!
Disclaimer
First of all, I am not a financial advisor. All information provided on this website is strictly my own opinion and not financial advice. I do make use of affiliate links. Purchasing or interacting with any third-party company could result in me receiving a commission. In some instances, utilizing an affiliate link can also result in a bonus or discount.
This article was first published on Sapphire Crypto.