You Could Lose Money If You Make These Mistakes With Your Cryptocurrency Wallet
Using cryptocurrencies involves significant risks, and any small mistake can result in the loss of all your funds. This includes mistakes that may occur when using cryptocurrency wallets, which can be devastating, such as improper capital management. In this article, we will discuss how to avoid these mistakes to protect your investments and savings in the UAE.
Do you need a cryptocurrency wallet?
Digital wallets are essential for handling digital assets. There are many types of wallets, and the choice of wallet depends on your needs and usage. You may need a “hot” wallet, a “cold” wallet, or you may not need a wallet if you are only doing occasional small-scale exchanges.
You can delegate the storage of your cryptocurrencies to any reliable exchange, but if you plan to trade regularly or store coins for a long time, the safest option is to purchase a hardware wallet and learn how to use it, which requires avoiding common mistakes when dealing with cryptocurrency wallets.
Don't Make These Mistakes With Your Cryptocurrency Wallet
1. Use a hot wallet to hold cryptocurrencies for the long term
Hot wallets are ideal for fast transactions, but they are not secure for storing large amounts of assets. This type of wallet is directly connected to the network, which increases the risk of hacks and theft. If a hacker discovers a security vulnerability, you could lose all your funds.
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The main risk is the exposure of private keys, which is the main target of many cybercriminals. This does not mean that cold wallets are completely secure, but it does make it more difficult for hackers to carry out sophisticated attacks using social engineering techniques.
A hot wallet is ideal for holding small amounts of cryptocurrency because it offers easy access and speed in transactions, but it is less secure than a cold wallet which is recommended for holding large amounts over the long term.
2. Trying to repair an old wallet
Repairing an old wallet may seem like an economical option, but it can be expensive. At some point, you will need to change your wallet, as old devices may cause technical errors or become incompatible with new updates.
Furthermore, when you open or handle an old wallet, you are opening up a bigger security gap. Remember, your cryptocurrencies are not stored on the device itself; they are stored on the network. Just as you would change your phone when it breaks or gets old, you should think the same thing when it comes to your wallet.
Having only one wallet
Using just one wallet can be disastrous. Don’t put all your money in one place, whether it’s to manage your portfolio or to protect your capital. Having all your money in one wallet or network is like having it in one bank account.
This doesn’t mean you will lose your money, but in case of any unexpected problem like hacking or theft, your funds may become temporarily or permanently inaccessible. Using more than one wallet is a highly recommended strategy. You can use a hot wallet for daily transactions and a cold wallet to protect your funds long term.
Even if you use one hardware wallet, it's a good idea to have a backup wallet in case of emergencies.
4. Storing the recovery phrase insecurely
Your recovery phrase is the key to accessing your cryptocurrencies. It is essential for managing your digital assets and regaining access to them if your device is lost, stolen, or broken. Keeping this phrase secure is one of the most important aspects of the self-custodial process.
There’s no point in spreading your funds across multiple wallets or having a backup wallet if you don’t manage your recovery phrase well. Do you save the phrase on your phone? Take a picture of it? Upload it to the cloud? These are common mistakes.
Always store your recovery words in a physically secure place, such as a safe, using a means that is inaccessible to hackers, such as paper. Electronic devices can also be used, but make sure they are never connected to the Internet.
5. Not knowing how to use your digital wallet
Even if you plan to hold cryptocurrencies for a long time, it is important to use your wallet regularly. You may have bought your coins when they were at their lowest and are waiting for them to reach the point where you want to sell, but that can take a long time.
Trading cryptocurrencies is not like learning to ride a bike; it is not easy to learn just once. The digital market can be volatile, and it is important to be prepared to act efficiently when it is time to sell.
Use your wallet regularly, even if it's just for small transactions. These small transactions can help you learn how to handle your wallet better and make more effective purchasing strategies.
6. Believing your wallet is unhackable
There are wallets that are considered very safe, but believing that they are 100% safe and letting your guard down is a big mistake. As mentioned earlier, dealing in the cryptocurrency market requires continuous learning and monitoring.
The security of the funds you manage through a self-storage wallet is entirely your responsibility. If you believe that your wallet is unhackable or that your assets are completely safe, you are actually opening yourself up to the risk of losing your funds.