Digital Currency Exchanges: How To Protect Your Digital Investment

• Adam Cifu
• August 16, 2021

Alongside the massive rise in popularity of cryptocurrency trading has come a meteoric rise in the platforms needed to execute the actual trades. Crypto exchanges are a vital component of trading this commodity, and before you can even begin considering buying your first crypto coin, you must open an account. However, what exactly is one, why do you need one, and the risks of using one?

What is a Digital Currency Exchange? 

Digital currency exchange is an online or offline marketplace where people can trade cryptocurrencies. The digital currency exchanges are similar to the stock markets. But, unlike the stock markets, there are no physical locations that you need to go to trade currencies. The way these exchanges work is through a process called “pairing.” This process usually involves trading one cryptocurrency for another with similar values and price tags on the market right now, based on supply and demand fluctuations in the market. Some governments do not regulate exchanges as they are not viewed as legal currency. The exchange of currencies is not backed by a central bank, allowing them to be susceptible to market manipulation.

How to Choose the Right Crypto Exchange

Some of the factors you need to consider before choosing an exchange are its fee structure, country, cryptocurrency trading pairs, and reputation. An excellent way to find the perfect crypto exchange is by doing research online. You should look at reviews and compare some of the factors we mentioned before. Ultimately, it’s up to you to determine which exchange best fits your trading preferences. However, whichever you end up choosing, you must be aware of keeping your cryptocurrency safe. To keep your investment safe, you should safely store crypto using a reputable hardware wallet. These wallets are designed only to allow you to access your investment using a unique private key. This is a string of numbers that is almost unbreakable and will ensure complete safety. Furthermore, to add an extra layer of security, you should o[pt for a hardware wallet which will be discussed below.

What Is A Wallet?

Cryptocurrency wallets store your public and private keys used to send and receive bitcoin transactions. The first cryptocurrency was Bitcoin which was introduced in 2009. Today, there are more than 4000 different cryptocurrencies worldwide, with many of them being more popular than Bitcoin. The idea behind all cryptocurrencies is that they are decentralized digital currencies that can be utilized without any central bank or third party to create transactions between people in a peer-to-peer manner. This means that you can use it to send money to anyone you know without going through banks or other financial institutions. To transfer and use these coins effectively, you need to use them in conjunction with a “wallet.” These work by providing users with a public key and a private key. The main differences between keys are:

• Public key: This is a sterling of numbers you will give to other people when you want them to deposit money into your wallet. It is one way, and people cannot use it to withdraw.
• Private key: This is a similar string of numbers, except it is used to withdraw or spend your crypto. It should only be known by you. You could think of it as your bank card PIN.

In other words, you can think of private keys as a person’s account number, and you can think of public keys like their routing number or account number for their bank account.

Types of wallet

There are three main types of wallets, and each serves its purpose. Nevertheless, it is commonly agreed that a hardware wallet is the most secure, but you also have the highest chance of losing it. Unlike a software wallet, it will be on some form of external storage like a USB flash drive.

Software

You can further break down software wallets into three additional categories:

• Web: This is by far the most straightforward of all options as you don’t need to download anything to use your wallet; you simply access it via a web browser. Nonetheless, it is also the most insecure and provides you with the least amount of control.
• Desktop: This involves you downloading a wallet onto your computer. You have complete access to it, but it can be hacked if you have or download malware. Unless you have your laptop with you, you also have limited access to your funds.
• Mobile: these are similar to the desktop wallet, only downloaded onto your phone rather than your computer. It affords you more usability because most people have their home with them at all times.

Hardware

Hardware cryptocurrency wallets are more secure than other cryptocurrency wallets. They can’t be hacked by malware or someone getting a hold of your physical device. Users can also use them for transactions without connecting to the internet and being online at the transaction time. You can always access your cryptocurrency wallet as long as you have your private key, and it will not be in danger of being corrupted, lost, or stolen. You will also be able to do transactions without an active internet connection if you have a hardware wallet because they don’t need to be connected to do any transaction. They are also accepted as the most secure form of wallet.

Paper

These are essentially a document with all of the relevant information on them, including your public and private keys and any other pertinent information. While these are the most secure because they are not connected to the internet, nor can they ever be hacked, they are also the most inefficient method. Moreover, while their non-digital nature makes them unhackable, their physical nature renders them easily lost or damaged.

Crypto exchanges are great places to trade the cryptocurrency of your choice. However, you should never leave your investments on the exchange’s servers. You can use a wallet, but which type of wallet you opt for will depend on your tolerance for risk and desire for ease of use.