Cryptosecurity for traders: An introduction

Being a profitable crypto trader isn’t just about understanding market forces and technical analyses. You also need to know how to handle and secure private keys. Compared to traditional finance, cryptocurrency trading carries an additional security risk: your assets can be stolen from you or from the exchange you trade on. Seven exchanges were hacked this year only. In the past 5 years, billions of dollars in crypto assets were stolen or lost forever. Notable hacks include Mt.Gox (roughly 630,000 BTC stolen in 2013), Bitstamp and Bitfinex (19,000 BTC and 120,000 BTC respectively in 2016), CoinCheck ($500 million stolen in 2018) and this year on Binance.

When I explain this to traditional traders, they immediately get nervous. That’s why we started this blog series. We want to raise awareness and provide best practices and tools for crypto traders. We want you to focus on what you do best and know that you are secure doing it. We will share our experiences and interview successful retail and institutional traders.

Let’s look at some of the wants, goals and concerns of a crypto trader.

1. Profit from trading crypto assets
2. Work with a reliable exchange
3. Know assets are safe
4. Avoid costly mistakes
5. Focus on trading
6. Have a real-time portfolio overview

Some of the frustrations that crypto traders share with us include:

• Compromised/leaked emails (remember the BitMEX incident).
• Swapped SIM card and stolen funds.
• Funds sent to a wrong address.
• Managing multiple accounts.
• Keeping 2FA backup codes secure.
• Not having shared custody.
• Frozen trading account.
• Seized assets.
• Front-ran by blockchain tracking company analysing their transactions.

Here’s my recommended list for how traders can reach their goals and eliminate frustrations while trading crypto.

• Keep your funds in your control. As they say in the cryptosphere “Not your keys, not your coins”.
• Make sure you use a 2FA for login to exchanges and email accounts, preferably a physical key (most hardware wallets have this feature).
• Use a password manager and generate strong passwords.
• Do not use a phone number as 2FA (because your SIM card can be swapped).
• Do not use public networks when accessing exchanges.
• Establish a secure communication channel.
• Create a contingency plan + Backup.
• Use a hardware wallet to store your crypto assets.

Why are hardware wallets an essential tool for traders?

• Wallets on PC’s and Smartphones are vulnerable. With a hardware wallet, the private key never touches the Internet (cold-storage).
• They offer a low cost solution compared to other secure setups.
• The setup is simple. Remember, complexity is the enemy of security!
• They require physical confirmation of transactions on the hardware.
• Hardware wallets are low cost HSMs, so availability for self custody.

I suggest you use the following simple protocol when trading to keep yourself safe from the risks of keeping your crypto on an exchange.

Finally, I want to touch on how I see the industry evolving in the next 24 months. I expect more non-custodial trading using hardware wallets with more liquidity injections as infrastructure improves. Shapeshift is a good example of this, by allowing to trade directly from a hardware wallet. Exchanges and hardware wallets will be more closely integrated for shared custody. We’ll see enterprise-grade custody solutions with multi-sig between provider and trader. Hardware wallet providers will offer asset insurance as well as other high value features to help minimize human errors. These are exciting times for our sector.

I plan to talk to a few high-profile crypto traders in the coming weeks and collect their experiences and suggestions on best practices for security when trading. I will then present my findings in the coming posts for this series.

Happy trading!