Outsiders may find the world of cryptocurrency to be... mysterious. It's easy to become lost in translation when you start hearing terms like "transactions," "public addresses," "wallets," "seed phrases," and "gas" (not the kind used to power automobiles). In light of this, it was time to return to the fundamentals.
It cut through the clutter with five easy guidelines that would maximize the security of your cryptocurrency holdings while lowering the dangers. Let's take a moment to make sure you understand the terms before we get started.
Speak The Language
- Similar to a traditional wallet, a crypto wallet is used to hold valuables. You will discover that there are several types of wallets.
- A key pair is typically used to access wallets; the private key is needed to transfer assets, while the public key serves as the wallet's identity.
- Private keys are comparable to really lengthy passwords. They are produced using your seed phrase to make them easier to recall.
- One well-known crypto project is Ethereum. Help for sophisticated smart contracts is its primary contribution.
- Self-executing contracts with explicit coding terms may be created, implemented, and enforced with the help of smart contracts.
- We are referring to this new financial services sector as "DeFi" (Decentralised Finance) because of smart contracts.
- Financial services (loans, borrowing, swaps, etc.) are offered innovatively by DeFi ventures. Their users are always in charge of their money and have access to the inner workings of the system. Since consumers do not need to trust DeFi projects in order to utilize them, a new kind of connection is fostered between the two parties.
Rule 1: Have Faith Only In Yourself
With the development of blockchain technologies, tremendous promises have been made. Enthusiasts worldwide are witnessing the realization of the initial promises of cryptocurrency with the rise of Bitcoin, Ethereum, and other blockchains. These products range from payment solutions (which we are developing at Monolith) to trustless lending and decentralized stablecoins like Maker's DAI.
However, despite the development and growth of these decentralized finance services, sometimes known as “DeFi”, most of us are not reaping the benefits of decentralization: many still interact with crypto assets through a third party that holds their funds for them. This translates into countless hacks and loss of funds, the total value of the assets lost because of hacks has been estimated at $1.5B.
In the end, never entrusting third parties with your valuables is the safest defense against such an assault. It does take some effort to manage your seed phrase—more on that later—but it's the most secure approach to keep your cryptocurrency assets safe. The use of an exchange wallet or other custodial service to keep your assets exposes you to counterparty risk.
Rule 2A: Recognize The Meaning Of Your Seed Phrase
Your seed phrase controls your wallet. Your seed is very important because if you use a conventional wallet, anybody with access to it may instantaneously move all of your assets to an address that is not under your control. It follows that maintaining its safety and security is crucial now more than ever. The arrangement of the 12–24 words that make up your seed matters.
Please make sure the software you are using for your mobile wallet is storing your seed in a safe enclave; if not, it is at risk.
Rule 2B: Maintain Secrecy. Preserve It
Although there are a number of ways to protect your cryptocurrency access, the majority still require you to have a seed phrase stored somewhere.
A Piece Of Paper Can’t Be Hacked
Using a channel where such an assault is impossible is the greatest defense against one. Even Hollywood's hackers are unable to remotely view a piece of paper, as far as we are aware. Put your seed information on paper. A digital replica of it should not be made in any way (photo, written down in a text file, etc.).
Redundancy Is Security
Paper is impervious to fire but not to hackers. Maintain a minimum of two handwritten copies of your seed phrase, kept in several physical locations.
The Grim Reaper Takes ETH, Too
You are not immortal, but your wallet, when properly guarded, is. If you have a sizable quantity of cash in your wallet, think about alerting a trusted third party so they may get the money in the event that you are not well. Hardware wallets are another intriguing choice for streamlining the procedure, especially if you have a variety of cryptocurrency holdings.
It's important to consider the word order of the 12 phrases while supporting your seed phrase. Consider your valuables carefully; don't put yourself in danger. Sharing particular details about your cryptocurrency holdings, especially online, is usually a terrible idea. Participate in the debates, please, but don't expose yourself to undue danger by disclosing specifics about your assets.
Read More: Revolutionizing Industries: How Blockchain Technology is Transforming Key Sectors
Rule 3: Learn About The Network
Understand The Authentication Mechanisms
Ethereum addresses come in two varieties. ERC-20 tokens, the most popular standard for creating tokens that exist on the Ethereum network, and ETH may both be stored in these sorts of addresses.
- The "basic" ones are keyed in and referred to as "externally owned accounts" (EOA).
- Smart contracts have contract accounts, or contract wallets, that can store and run code.
The Address And Public Key
Similar to your email address, your address serves as your public identification, and it is all that is required for someone to give you ETH and other assets. It comes from the public key that you have.
Please remember that every piece of data kept on the Ethereum blockchain is accessible to the public. Sending money to someone gives them access to your wallet's contents, including your assets and past transactions. This data is accessible to anybody who knows your wallet address. If you feel that privacy is essential, please investigate specialized options.
Lastly, use caution while disclosing your public addresses online. We advise you to create a separate public address just for that reason if you must put your address online to receive donations, for example.
Authentication keys
You'll often need a second method of authentication, such as a PIN or biometrics for a mobile wallet, depending on the kind of wallet you use.
These keys are unique to the wallet you use to interface with it; they are not connected to your address. As long as you have access to your valuable seed phrase, losing these keys won't mean losing money.
The key used to encrypt your seed phrase is stored by the Monolith app using the trusted execution environment of your device. The authentication mechanism of your operating system (TouchID, FaceID, or PIN, depending on your device) is necessary each time you need to access it, such as when you need to confirm an order.
A PIN is required by the hardware wallet, such as a Ledger, in order to authenticate you. In all cases, you can always reinitialise your wallet and create a new PIN using your seed; thus, forgetting your PIN does not mean you lose any money.
Rule 4: Transactions Should Speak
Since the Ethereum blockchain makes all of its data publicly accessible, you may use an explorer to track the activities of any address, even your own. The most popular one for Ethereum is called Ethereumscan.
You may use Etherscan to look up any public address and view its transaction history. Alternatively, you may use the txid, which is the distinct number assigned to every transaction, to go the opposite way.
Transactions are shown in Etherscan in two major tabs:
- Transactions: Any Ether-related inbound or outbound transaction.
- ERC20 Token Transactions (Txns): These are Ethereum-based, uniformly standardized transactions utilizing ERC-20 tokens.
Not every transaction resembles a typical money transfer. For instance, you have to pay the network to call one of the services of ENS in order to communicate with smart contracts.
Transaction Status
There are three possible transaction statuses:
- Pending: A transaction's default status when it is started is pending. Its status cannot be changed until the average block time or even longer. This typically takes about 30 seconds on the Ethereum network.
- Failure: A transaction is considered to have failed if it does not fulfill all of the conditions. For example, it can be due to a shortage of money or petrol. You continue to pay for gas even in the event that a transaction fails, but the Ether or tokens never leave your address.
- Success: At this point, the exchange of tokens is complete and irrevocable.
To keep things simple, we concentrated on the Ethereum blockchain. Still, all of the information above is applicable to any public blockchain, including Bitcoin. Lastly, because the entire network is accessible to the public, services like EtherStats and EtherViewer allow you to see the activity throughout the entire network if you prefer a more eye-catching depiction.
Rule 5: How The Commons Are Paid For
Ethereum is not only a simple account balance recording decentralized ledger. The Ethereum Virtual Machine (EVM) is an execution environment that the network implements on the blockchain. The network nodes execute the code that is triggered by the transactions within the EVM after going through the transactions that are mentioned in the block that they are validating.
Every node in the network carries out each instruction when a contract is carried out as a result of being triggered by a message or transaction. There is a set price for each execution, which is stated in units of gas.
In this way, gas functions as a type of "fuel" for Ethereum, representing a cost that transaction senders must pay to have their activities carried out. The miners who run the code sell it to you for ether. In order to process and broadcast transactions to the network, two parameters that control the gas cost of the transactions are necessary:
- GasUsed: The total amount of gas used in the exchange.
- Gastric: The transaction's stated price (in ETH) for one unit of gas
The product (multiplication) of the gas price and the gas used represents the transaction's total cost.
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Conclusion
Blockchain technology represents a major paradigm change. We now have a technology that, for the first time, enables instantaneous global sending and receiving of distinctive assets without the involvement of reliable third parties. One of several Ethereum advantages is that it may eliminate middlemen from tasks that are now needlessly expensive, like lending money or seeking funds for a project.
These advantages, meanwhile, are only possible provided the user always maintains complete custody of their cash and uses appropriate caution. Without Ethereum, we're only bringing some of the hazards from the banking sector into the cryptocurrency realm and making yet another trade-off.
