It’s no secret that investing in cryptocurrencies is risky business and not for the faint of heart. We could go on and on about why that is, but ultimately a big reason is the decentralization of it all. There are no centralized authorities or governing bodies helping you guarantee security like there are in centralized brokerage houses or banks.

This means that for the most part you are on your own and that is why it is even more important to ensure you are taking the appropriate measures and precautions when engaging in cryptocurrency trading. It’s a bit of a catch 22: on the one side centralization provides some level of protection but at what cost: privacy, control and fees; and on the flip side decentralization provides privacy, control and lower fees but at what cost: increased risk.

We could write an entire series on things do to to protect yourself in the crypto community, but for this article we’ll focus exclusively on wallets and wallet backups, why they are so important and some general rules of thumb and common sense methods to follow.

First of all, your funds are never really even in a wallet. By definition crypto always resides directly on the blockchain, not in a wallet. The wallet is a piece of software that provides a user interface that allows the user with the private keys to peer into the blockchain and grants them access to move those currencies around.

Now this isn't an intuitive concept for most people to grasp and I often find myself having to explain over and over again even to those that consider themselves advanced crypto enthusiasts. So if I leave you with anything today, please remember your currencies are never really in any wallet, the wallet just acts as a looking glass into the blockchain to view/move the currencies but only if you have the private keys. Anyone who has the private keys controls the crypto.

There are also public keys, public keys are just that: public. They can be shared with anyone and act as a bit of a one-sided (deposit) write only access. With the public keys, you can see the transaction history, funds and deposit funds, but you can never withdrawal funds with a public address.

Next, not all wallets are created equal.

Holding your funds in an exchange wallet, isn’t really holding them in a wallet its leaving them with the exchange which puts you at risk for all sorts of problems. First the exchange could get hacked, as we often see; Second, the exchange could go belly up, as we’ve also seen; Third, the exchange could decide to freeze your funds without explanation, as is also common. And that’s just to name a few. So, I wouldn’t recommend ever keeping your funds on an exchange unless you are willing to lose them.

So, you’ve taken my advice and decided to move your funds off the exchange.

Good first step, but where to now?

There is a plethora (Three Amigos Anyone??) of crypto wallets available and new ones popping up every day. Do your research, engage the community, do some testing and choose a wallet or better yet a group of wallets.

Next, try them out before putting all of your eggs in one basket.

And this brings me to my point, once you’ve found your wallet(s) it is of utmost importance to follow some common sense practices to ensure your funds are as safe as they can be:

BACK UP YOUR WALLET! — this means write down or print out the private keys, wifs, encrypted keys & QR codes and make sure they are accurate and complete..incomplete or inaccurate backups are useless. TEST YOUR KEYS— before putting any funds in your wallets make sure the keys you’ve printed out or written down actually work. You can do this by simply logging out and logging back in with those private keys. You definitely want to do this before depositing funds, updating or uninstalling and reinstalling a wallet or you risk loss of funds. Think of it like testing the code on the safe works before you place your valuables inside. KEEP YOUR KEYS SAFE — never share your keys with anyone and keep them stored somewhere you know is safe. How you do this is up to you, there are a number of ways and the levels of safety are yours to choose. PRACTICE SOUND JUDGEMENT— this is any number of things including but not limited to: do not leave your laptop open with the wallet and keys sitting on the screen, do not print out the keys and leave them on your desk, do not screen shot your keys and upload them to Google photos, do not email your keys to anyone anywhere for any reason. This list could go on and on and on but you get the idea. STAY ON TOP OF WHATS NEW — follow the news related to your wallet, change wallets to better, safer, faster tech. Don’t ever get complacent when it comes to your funds or your wallet. Things move lightning fast.

If you want to take your security to the next level and I recommend you do, then invest in a hardware wallet and use that in conjunction with a standard wallet.

Until then happy crypto-walleting and please be safe and sound in your decision making and actions and always MAKE SURE YOUR BACK UP WORKS AND IS KEPT SAFE.