Updated: Aug 28, 2022
Hello, friends! This is James Agenda here.
Today, I will talk about a really important topic for crypto users: how to keep your tokens safe.
One of the most known proverbs in crypto is "not your keys, not your coins".
There are many cases of people that made a fortune on crypto and lost everything because of poor strategy in keeping their gains safe.
Today I will present the following tips on how to keep your portfolio safe:
The importance of wallets for Polkadot and other tokens
You only have full control of your tokens if they are in a wallet. This happens because wallets provide keys, while exchanges don't.
If you don't fully control your tokens, they aren't yours. Instead, you're trusting someone else to store them for you.
There were a lot of exchanges that blocked their clients from accessing their assets.
The most recent one was Celsius Network, a lending platform with almost $12 billion in assets under management.
In this article, I wrote about Celsius and other crypto savings platforms and recommended not using them for Polkadot!
These exchanges are not properly regulated yet, so it's difficult for their clients to do something about these withdrawal blocks.
OK, now you know that keeping custody of your assets is crucial, but maybe you're thinking:
"Why should I invest my precious time securing my tokens if I only have a few?"
The following graph answers your question:
On November 4th, 2021, Polkadot reached its ATH at $54,98.
This value is approximately 9x the lowest price reached in this bear market (until now).
Imagine how much money these few tokens you have could be worth in the next bull market.
The future is unpredictable, but you have a real opportunity of multiplying your money by 10x, 20x, or even more!
Abdicating from keeping custody of your tokens today risks a huge profit in the future.
By delegating the custody of your tokens to an exchange, you're also giving up one of the most important crypto fundamentals:
Withdrawals were taking a long time to be completed or were even frozen!
This is a problem that cryptocurrencies solve:
You are your own bank. You own your money.
I compared my two favorite Polkadot wallets in this post.
Use a cold wallet instead of a hot wallet.
To maximize your safety while storing your tokens, you must prefer to use a cold wallet rather than a hot wallet.
The reason is simple: hot wallets rely on your PC/Smartphone security.
This increases the chances of fraud occurring because of hackers and malware.
On the other hand, cold wallets are special devices created to deal with your tokens, thus being way more secure.
The most famous brand of cold wallets is Ledger.
In this post, I talk about some tips to avoid problems when staking Polkadot (DOT) and Kusama (KSM) with a Ledger wallet.
Another good option for a cold wallet is Parity Signer, a dedicated hardwallet for Polkadot and Kusama.
And the best part, you don't need to buy a new device. You just need a spare smartphone that you can use.
Keep the seed phrase safe
For those who don't know, a seed phrase is a group of 12 to 24 words generated by your wallet. It's used as a password for backing up and recovering your wallet.
With these words, anyone can access all your funds from anywhere, so you must take good care of them.
I just said that, for wallets, relying on your PC/Smartphone security is not the safest. Regarding the seed phrase, it's not different.
Never write your seeds anywhere online or virtually!
Keep your seed phrases offline and physical.
Writing on paper:
When using this method, you must ensure that it is a good quality paper that will last many years.
You should also store in dark ambient and avoid exposure to heat and moisture.
You can comb with this ghost pen to make it even safer.
This method is way safer because metal is far more resistant than paper.
Your most important precaution must be hiding the wallet. Just don't forget where! A good option is a safe box.
Remember, crypto wallets have no "forgot my password" button!
Keeping your seeds safe is also very useful in the case that you aren't in this world anymore.
Don't get me wrong, no one wishes for your death, LOL. But, as I said before, the future is unpredictable.
A good trick to pass the inheritance on is telling someone you trust where the seeds are stored.
If something bad happens, the people you care about will be able to access your funds.
For a more advanced strategy, you may use a multsign wallet or even the Proxy Account function on Polkadot's blockchain.
Beware of scams - Trust no one!
Maybe I'm being repetitive, but believe me, the internet can be really dangerous.
Websites and forums are full of scammers and malicious people.
Therefore, you must be careful with every opportunity you see on the web.
In general, anything that seems to be too good is not safe.
NEVER give your keys or seeds to anyone you don't know.
100% of people that asks for your seeds are scammers.
This includes "company support" trying to help you.
You also need to be attentive when permitting websites to access your wallet, like for minting NFTs.
Always DYOR on the website's reputation and look for other community feedback,
before giving permission,
And also double-check the "https://" address requesting authorization!
Learning on Kusama first
Another tip is to experiment and learn always on Kusama before applying it to Polkadot.
This is because Kusama is an "experimental network" (not a testing network!) for Polkadot.
The fees are cheaper, and unbound periods (staking) are shorter. This is essential for experimenting when you are not sure of what you're doing.
When learning about finance and investments, it's common to hear "not to put all your eggs in the same basket".
In crypto, this doesn't just apply to portfolio diversification but also when storing your assets.
It's recommended that you have more than one wallet. The more assets you store, the more wallets you should have.
When you need to connect a wallet to a website you aren't sure is safe, you should use a wallet with small balances.
This way, you minimize your risks.
Diversifying your storage will decrease your losses if you get stolen, hacked, or lose your seeds and keys.
If something happens to your small funds' wallet, it will also warn you that you are exposed and that you should be more careful with your main fund's wallet.
This bonus trick is inspired on how Stash Account and Controller Account works when Staking Polkadot.
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