Avalanche is a smart contracts-backed blockchain technology that has found a permanent solution to the blockchain trilemma (decentralization, scalability, and security).
In this article, Trading Education shares their safest ways to store Avalanche coins which will help you know the best places to store AVAX tokens.
Avalanche (AVAX) is one of the most demanded cryptocurrencies when trading volume is considered. After opening at $3.15 on the 1st day of January 2021, AVAX has enjoyed all the crypto booms in February, March, April, and the first two weeks of May.
The native asset of the Avalanche blockchain also followed Bitcoin (BTC) through the bearish decline of the market in the last two weeks of May, June, and July.
This is the primary reason why many potential investors continue to ask about the best ways to buy Avalanche (AVAX). The popularity of the Avalanche Blockchain and its digital asset has led to a rise in the number of hackers who would like to profit from the enormous gains the coin has brought long-term investors.
With several unsophisticated traders and investors being beginners who do not know much about safe investment practices, hackers have come up with innovative ways to steal tokens.
Since these traders are new to the space, they go about sharing private details of their accounts (exchanges and wallets).
Hackers use this information to steal millions of dollars in tokens. One of the best methods hackers have perfected is rerouting tokens such as AVAX from one digital wallet to the other.
In such a situation, coins are stolen without hackers being liable for their actions due to the decentralized nature of the new decentralized finance revolution.
This has alerted the whole space and is the reason why questions such as where can I store AVAX, what wallets support AVAX, and can I store AVAX on MetaMask continue to trend on search engines daily.
One question Trading Education is going to help you find answers to is, what are the safest ways to store Avalanche (AVAX) coins.
- Users of cryptocurrencies can lose AVAX coins and other digital asset holdings as a result of computer failure, theft, and loss of private keys, among others.
- For long-term holders or HODLers, hardware wallets should be patronized for storing AVAX so that they can enjoy interest from staking.
- Cold Storage or Offline Storage is one of the safest ways of storing AVAX coins. They are safe because they are not connected to the internet where several malicious programs operate. Despite the availability of several cold storage wallets, millions prefer hot wallets because of their convenience in connecting to several protocols within seconds.
Twenty years ago, fiat currencies (United States Dollar, Euro, and Great Britain Pound) were kept in leather wallets (physical).
Thanks to the advancement in technology twenty years later, fiat currencies are also kept in digital wallets aside from physical wallets.
Digital Wallets are also used to store crypto tokens such as AVAX. Digital Wallets can be Hardware-Based or Web-Based.
Digital Wallets can be kept in 3 ways.
The first way of keeping wallets is writing or printing private keys and addresses used to access tokens on a piece of paper or diary.
The second way of keeping wallets is by downloading a wallet’s application and storing your AVAX tokens on a personal computer.
The third way of keeping wallets is by downloading applications on Windows, Android, and iOS smartphone devices. Private keys are generated for you when you use wallets that support the storing of AVAX such as MathWallet, Coinomi Wallet, Coin98, MetaMask Wallet, Ledger Nano X, and Avalanche Wallet.
Despite the numerous ways of keeping wallets, many still ask the question, how safe are any of these digital wallets? The safety of digital wallets is in the hands of the wallet holder.
Digital Wallets unlike Physical Wallets contain a set of private keys. These keys come in the form of a minimum of 12 words and a maximum of 24 words.
They are written in a particular order and wallet holders are required to write the words down in the order they appear.
You should know that without these private keys or passcodes, you cannot access your AVAX and other cryptocurrency holdings.
The biggest threat many wallet holders have come across in terms of AVAX security is the loss of these private keys either by having them stolen by a friend/third party or forgetting all the words/how they are arranged.
Aside from this, digital wallets operate through the internet, and as a result of phone and computer malfunctions can lead to a crash of essential files and folders.
Many crypto wallet holders have found out that a crash of your phone or computer’s operating system can render your AVAX and other tokens useless.
The virus affected more than 600 organizations in the United Kingdom and thousands more around the world at the time. Victims were held to a ransom of $300 in Bitcoin (BTC) at the time.
As of October 2021, more than 81% of UK healthcare organizations suffered some form of a Ransomware attack.
This was reported because the healthcare systems have a way of tracking medical computers.
What about the hundreds, thousands, and millions of unreported cases that saw the crash of several hard disks that were used to store AVAX and other digital coins?
In all cases, those who fail to meet the demands of hackers will lose access to their most prized files forever.
Before we take a look at some of the best ways to store Avalanche tokens safely, let us analyze why hackers have fallen in love with cryptocurrencies as the sure way to make money.
Check Out: How To Choose A Cryptocurrency Wallet
Crypto asset investing is highly volatile and unregulated in some EU countries. No consumer protection. Tax on profits may apply.
Why Are Avalanche (AVAX) And Cryptocurrencies Appealing To Cybercriminals?
Cryptocurrencies are not governed by any central authority. As a result, transactions cannot be closely monitored.
Digital assets have the lowest levels of regulation among all assets in the trading and investing space.
The primary reason why cybercriminals are interested in AVAX and cryptocurrencies, in general, is because they are pseudonymous. This means that transactions and accounts are not connected to real-world identities and therefore cannot be tracked.
Although you will be able to analyze the flow of transactions, it would be difficult to connect real-world identities with owners of particular addresses suspected of fraudulent activities.
The other reason is cryptocurrencies have relatively faster scaling times and are global thanks to the internet.
Since transactions can be confirmed in minutes, it is possible to send money to someone in the United States or overseas in Africa, the Middle East, Europe, Australia, or Asia.
Hot Wallets are digital wallets that can only be accessed online.
To put it simply, they operate on internet-connected devices such as personal computers, smartphones, tablets, and pads.
Because the internet is open to anyone, these devices operate daily in an area that is largely dominated by viruses in the form of the boot sector, web scripting, browser hijacker, resident, polymorphic, file infector, and multipartite among others.
As a result, the devices are vulnerable since private keys to your tokens are generated on these internet-connected devices.
Aside from this, you need to connect to the internet to access several blockchain protocols.
Although hot wallets are the most convenient when comparing wallets due to their quickness in facilitating transactions, they lack security.
Hot Wallet Security Issues
Security problems are the reason why several hot wallet users have had their holdings stolen.
In March 2021, Tech Crunch (one of the most reputable technology news portals) reported that $5.7 million has been stolen in Roll crypto heist after a hot wallet was hacked.
Roll is a cryptocurrency platform that allows creators to mint and distribute their own Ethereum-based cryptocurrency.
Unfortunately, they had a security breach that allowed a hacker to obtain the private key to their hot wallet and steal their contents. The creators of the $WHALE token reported that more than 2% of their tokens were stolen in the breach while one individual investor said he has lost everything.
Such cases are testaments as to why you should be wary of cybersecurity threats.
Do not engage in anonymous chats with individuals who are solely interested in the type of hot wallet you use, the number of AVAX coins in the wallet, and the entire size of your crypto portfolio.
Positives of Using Hot Wallets
Hot Wallets are highly invaluable to the financial course of low-income traders and investors.
They can be likened to checking accounts of mainstream financial institutions.
According to analyst Jake Frankenfield at Investopedia, checking accounts also called transactional accounts or demand accounts are extremely liquid and can be accessed using electronic debit cards, automated teller machines (ATMs), and checks.
Investment and Savings Accounts hold large sums of money.
On the other hand, checking accounts hold relatively smaller amounts that can be used to meet day-to-day expenses or emergency services.
Hot wallets normally comprise mobile wallets, desktop wallets, web wallets, and cryptocurrency exchange custody wallets.
One of the things several traders and investors that have been in the crypto finance space fail to take into account are the differences in being an account holder on an exchange and digital wallet.
Accounts held on cryptocurrency exchanges that support AVAX such as Binance, Mandala Exchange, FTX, OKEx, Huobi Global, Coinbase, and BitMart are called custodial accounts.
On the other hand, accounts held on digital wallets that support AVAX such as MetaMask and Avalanche Wallet are called non-custodial accounts.
Under custodial accounts, you have access to passwords to the account that holds your AVAX holdings. Unfortunately, you do not have access to the private keys to your AVAX tokens.
Under non-custodial accounts, you have access to both the password of the account as well as private keys (passcodes) to your AVAX tokens.
Now that you understand the differences in storing your AVAX coins, you should know that the security of your AVAX tokens lies in the hands of representatives of cryptocurrency exchanges as well as digital wallets and more importantly, YOU.
You have read in news articles about the numerous cryptocurrency exchanges that continue to engulf the decentralized finance market. In addition to this, you have been informed of the hacking of the hot wallet of cryptocurrency platform, Roll.
In the event the cryptocurrency exchange of your choice is hacked in the future, there is a huge chance that your AVAX tokens could be lost.
This is because several exchanges do not have any form of insurance.
If your hot wallet should be compromised or you forget your private keys, you should be reminded that your AVAX will be lost too.
Trading Education Advice; The primary principle of investing is diversification. It is not a good decision to store all your AVAX coins in a particular hot wallet. Diversify your storage by holding some of your tokens in a custodial account (exchange) and some in a non-custodial account (wallet). Aside from these, you can also store some of your coins in a cold wallet that is not connected to the online world.
Cold Wallets are known across crypto circles as offline wallets or hardware wallets. In reference to hot wallets that are connected to the internet, cold wallets are not connected to the internet.
This way, they are less susceptible to cyberattacks since they are not present in the same area where malicious programs operate daily.
Users of cold wallets see the storage of addresses as well as passcodes (private keys) on programs that operate without the internet.
As a result, users can access their wallets and portfolios in real-time without compromising their private keys since they are not connected to the internet.
Paper Wallets provide a cold storage way of storing cryptos.
They contain public and private key pairs for making crypto transactions.
According to Gemini, Paper Wallets are created with a key generator program and printed on paper as two strings of characters and two QR codes.
Because paper wallets function without the internet, at one point in the history of cryptocurrencies, several analysts considered them to be the most secure way of storing digital assets.
As a novice, you should remember that there are rules that come with all types of storing digital assets.
For paper wallets, you should know that accessibility of AVAX holdings can only be possible when you have access to the paper. In addition to this, your paper wallets are only important when it has a corresponding blockchain it can access.
Without the blockchain, your paper wallets do not have any other corresponding user interface.
This is the primary reason why Trading Education will urge you to do all you can to laminate your paper wallets. Aside from that, do everything you can to store the papers safely either in a private box or a safety deposit box at the bank you save.
The Universal Serial Bus drive device, popularly termed, USB, has been rated highly by experts as one of the best ways to store AVAX and other tokens. As a hardware wallet, the USB drive device stores a user’s private keys securely.
As a hardware wallet, USB has several advantages over hot wallets. Some of the benefits of using USB drives include theft prevention, low cost, availability, high-security level, and offline transactions.
A great example of the benefits of USB can be attributed to the consistent Ransomware that continues to crush the hard disks of several personal computers.
You are online and a virus takes hold of your personal computer which renders your desktop wallets useless.
After formatting the computer with a more updated operating system, you can get your holdings back by connecting your USB drive to the personal computer.
USBs are extremely secure but the safety of the device can only be maintained by the person or company that uses it.
If you want the most secure way of storing your AVAX holdings, you should choose cold wallets.
Before you settle on any type of wallet, in addition to the information obtained here, conduct an independent study to give you an extensive understanding of the pros and cons of using hot and cold wallets.
Read Also: The 7 Best Cryptocurrency Wallets
Other Security Precautions
As a novice, you should always back up your AVAX wallets.
The unpredictable nature of the cryptocurrency market holds for personal computers as well.
No one knows when a personal computer would break down. Backups are essential because they provide quick access to files, help in recovering prized files if the operating system fails, safeguard against failed hard drives, offer protection against power failures, and as well add anti-virus protection.
Wallet.dat files must be backed up and stored on Universal Serial Bus drives, hard drives, and compact discs (CDs). Having backups is not all; you must always set strong passwords for them.
Once you decide to use hot wallets, you should ensure that all the operating systems your wallets run on are up-to-date.
In learning from experience, most Ransomware was able to crash several hard drives because of a flaw in several operating systems. Benefits of having software updates include virus protection, increased efficiency, and the prevention of data breaches.
In addition to updating the operating systems of your wallet, you should choose wallets that have strong security which increases the safety of your AVAX holdings.
Inasmuch as you will find free anti-virus packages online, for a person who is risking your hard-earned money on highly volatile assets, it would be in your interest to pay for quality software protection.
Thanks to numerous hacking incidents, software developers have come up with ingenious ways of protecting accounts.
One of the ways is multi-signature authentication.
One of the primed areas that have been adopted by cryptocurrency exchanges and several digital wallets is two-factor authentication (2FA).
This process requires the person trying to access the account to provide at least two pieces of evidence.
This will help confirm if the person has an inherent understanding of how the wallet operates, they are knowledgeable about the passcodes, and have possession of keys that can access the account.
Some of the benefits of multi-factor authentication include but are not limited to offering a variety of choices to meet your security needs, taking away password risks, and increasing security with third parties and organizations.
Set up 2FA and you will enjoy trading and investing in AVAX.
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Crypto asset investing is highly volatile and unregulated in some EU countries. No consumer protection. Tax on profits may apply.