Familiarize yourself with the jargons of cryptocurrency
When bitcoin, the first cryptocurrency, was launched, its developers and earliest adopters were filled with optimism about blockchain technology as a way to counter the powerful distrust that they held for banks and middlemen.
Let us get face to face with jargons of the blockchain world.
Encryption “hides” data by converting data into a form in which only a computer can read and encrypted data can’t be read by humans. The coded version can be used only if users have another code, which transforms the data back into a format that humans can read. These codes are called keys.
In two-key encryption (also known as public key encryption), security is based on two pieces of information, a public-private key pair.
The first or public key provides the location of cryptocurrency stored on the internet. The second or private key decrypts the content of stored cryptocurrency. This data, which is stored on the blockchain, validates the location, ownership and amount of currency at that location.
Private Key data is the object of cybercriminals’ desire. Breaching blockchain security involves breaking through security measures to possess private keys. That’s because cryptocurrency has no physical form, such as dollars or euros do.
The key to understanding cryptocurrency security is this: Whoever has this private key validation information owns the currency.
No matter which type of cryptocurrency you invest in, you’ll need to store the all-important private key information somewhere.
The “somewhere” you store it in is a digital wallet, a must-have part of cryptocurrency investment. That “somewhere” can be online storage in a wallet or with a third-party storage service, called an exchange. Offline storage on paper or a hardware device is other (many say more prudent) alternatives.
Level of a security threat – The longer the device that stores your private key is connected to the internet, the higher is the risk of losing your cryptocurrency investment.
- Hot wallets are stored at online exchanges and can be accessed with apps or a Web browser. They are “hot” because they are connected to the internet, which makes them more vulnerable to security breaches and malware attacks.
- Cold wallet is a method of storing coins offline (not connected to the internet). This approach eliminates the opportunity for hackers to use an internet connection to break into a digital wallet and steal private key information.
- Hardware wallets are small cold wallet devices that often look like USB drives. They are physical storage devices you can use for cryptocurrency transactions. Each hardware wallet comes paired with a private key, which gives you access to the transaction validation data. Without access to the blockchain and its information, your coins are inaccessible.
- Paper wallets. This term describes the practice of writing private key information onto paper and storing it in a safe place offline.
Ideally, you would use two digital wallets, each for a different purpose. Use a hot wallet briefly to perform coin trades and transactions. Use the cold wallet (also known as cold storage) approach when you want to store your savings long-term.
Also, it’s a security best practice to back up both wallets’ private keys and store them offline in a safe place.
When the first cryptocurrency system was set up and launched in 2009, it included a potential for up to 21 million bitcoins. Since then, only 17 million BTC are in use.
Cryptomining is the way that new cryptocurrency coins (also known as tokens) are released into circulation. The cryptomining process includes gathering and verifying recent transactions of bitcoin or other forms of cryptocurrency into blocks and adding them to the blockchain digital ledger.
The process requires miners to solve an extremely complex puzzle and whoever solves the puzzle first, gets the coin. Staying competitive with other crypto miners, however, requires a computer with specialized hardware, lots of computer processing power and energy resources.