digest
Stop over complicating crypto security. It's easier than you think. Today, I'm breaking it down into five clear levels so you know where you stand and how to level up so your crypto remains secure for years to come. But here's the crazy part. Only 10% of crypto holders ever make it to level four. And that's a straight-up fact. So, let's get into it.
Level one, reckless. This is the most dangerous level when it comes to securing your crypto. It's so beginner that most people skip it and go straight to level two. That said, I know some level one-ers, and most of them are still hesitant about getting into crypto, so they don't take security as seriously as they should. Investors at this level don't even set up an account on a crypto exchange. Instead, they use more traditional payment apps like PayPal, Cash App, or Revolut to buy their crypto. Now, buying your crypto on an app like PayPal isn't dangerous in itself. In fact, it's actually really easy. But storing your crypto there, that's where things get sketchy. All payment apps are controlled by centralized companies who must comply with anti-money laundering and know your customer laws. So, for really any reason, they can freeze your crypto and even lock your account. The reason could be something as simple as logging in from a new device or from a different network, such as if you use a VPN, or if you go against something in their user agreement. They could also lock your account. So, not only do these apps control your crypto, but you don't actually own your crypto. They manage the wallets on your behalf that control the crypto, sort of like an IOU, which is exactly why they can freeze your funds. And if your funds are frozen or your account gets locked, then you aren't able to sell your crypto, which means you can miss out on opportunities to sell your crypto for a profit, which is probably the reason you got into crypto in the first place. The one good thing about apps like PayPal, Cash App, and Revolut is that they are really beginner-friendly for buying and selling crypto. And at least now you can send your crypto to an external crypto wallet after you go through all of their verification steps. But when it comes to storing your crypto securely, level one is by far the least secure method. It's really reserved for that one family member who's been asking you every Thanksgiving for the past three years about your crypto and finally decided to throw $20 into the market.
That said, level one isn't too far off from level two, exposed. Unlike level one, level two is almost worse because it gives you a false sense of security. Now, this is where 99% of people start when they get into crypto, and there's no real cheat code around it. We all have to pass through here. But unfortunately, most people don't graduate past level two. Instead of using a payment app like in level one, level two investors use crypto-specific platforms like Coinbase, Kraken, and Uphold to both buy and hold their crypto. Now, although these exchanges are marketed as crypto-specific exchanges, they act nearly identical to the payment apps and banks. That means exchanges also have to comply with anti-money laundering and know your customer laws, which means more control over you and your crypto. And sure, they offer more features than traditional payment apps for buying, selling, and trading your crypto. And they even reward you for holding your crypto on their platforms. But crypto exchanges were never designed to be a secure place to actually hold your crypto. Exchanges just want to keep you on their platform so that they can rake in money from all the fees that they charge you. But the truth is, holding your crypto on an exchange is a huge risk, and this has been proven time and time again. The first risk is the same as in level one. Crypto exchanges are custodial wallets, which means they own and control the keys that control the wallets that hold your crypto, which means they can freeze your funds and lock your account for basically any reason. And yes, this kind of thing happens every single day. It's happened to me, has happened to my best friend, and has happened to thousands of subscribers here on the channel. The second risk is hacking. Crypto exchanges are constant targets, and they're not as secure as most people are led to believe. Since 2011, more than $100 billion worth of Bitcoin has been stolen from exchanges. And that's not even accounting for all the other types of cryptocurrencies that have been stolen. So no matter how safe you think an exchange is, it's really only as secure as the person behind the scenes who's controlling the wallets. Take Bybit, for example. Once a reputable exchange with over 70 million users, it became a laughing stock overnight when the CEO accidentally signed off on a bad transaction, sending $1.5 billion worth of crypto straight to the hacker's wallets. Fortunately, customers didn't lose any money, and the exchange quickly recovered. But this is the best-case scenario. The worst-case scenario is the exchange gets hacked, they lose a bunch of money, they file for bankruptcy, and then they leave their users high and dry. And yes, this has happened multiple times in the past. But what about insurance? Won't that save us? Not exactly. Past exchanges offered insurance and they were hacked, but it's kind of pointless if it takes years to get your crypto back into your hands. By that point, you've probably missed out on all the ups and all the potential to make profit, and your crypto might be worthless by then. That said, the fear of moving crypto off exchanges, combined with rewards that keep people hooked, causes paralysis. And that's why 90% of crypto users never graduate past level two, and they are left exposed to hacks, scams, and total control. Unfortunately, most people only advance to the next level once something bad has happened and it's already too late.
Level three, vulnerable. Although more secure than previous levels, level three is still extremely dangerous because if you're at this level, you're probably interacting with websites that put you at greater risk of being hacked. At this stage, you have moved some or all of your crypto off exchanges onto hot wallets. These are software-based wallets like MetaMask, Trust Wallet, Exodus, or maybe even something like Coinbase Wallet. The good thing about hot wallets is that, unlike exchanges, they are self-custodial wallets. That means you own and control the keys to that wallet, so nobody can freeze your funds or lock your account. But the big risk with hot wallets is where those keys are stored. When you set up a hot wallet, the keys are created in the software, which lives on your internet-connected device like your phone or computer. That means the keys to all of your crypto are sitting on that device. So, if your device ever gets malware or some kind of spyware, your crypto is instantly at risk. And this happens all the time, not just to beginners, but to even more advanced users. One of the most recent examples comes from another YouTuber, Alex Choy. He was contacted by a project that wanted to partner with them. So, he jumped on a couple of video calls with their team, but it turns out they were actually scammers. They managed to install malicious code on his computer without him knowing. A few days later, disaster hit. He kept his crypto in a hot wallet on that computer. It was compromised, and he lost $996,000. But this doesn't just happen to YouTubers or people with a lot of crypto. Scammers target everyone and from all angles: emails, text messages, social media, you name it. Even clicking on a bad Google ad could install malware onto your device without you ever knowing it. So, if you're storing crypto in a hot wallet, it's not a matter of if you'll get hacked, it's a matter of when. Because at level three, it only takes one click to lose everything.
Level four, armed. If you reach level four, you are literally in the top 10% of most secure crypto users in the world. According to a study done in 2023, only 10% of crypto users use a cold wallet to secure their crypto. And I bet that number is even less today. So, if you've reached level four, go ahead and pat yourself on the back because you're better off than most people in the crypto sphere. But don't get too excited yet, because simply using a cold wallet isn't enough. Even with crypto in your cold wallet, you can still lose it. You think you're doing everything right, then one day you wake up, you check your wallet, and everything's gone. Now, it is true that cold wallets are the most secure way to store your crypto, but cold wallets are not immune to user error. If you've ever seen Reddit threads or comments about someone's cold wallet getting hacked, it wasn't the wallet's fault. It's the user. There have been very few cases of cold wallets actually getting hacked. It doesn't happen that often. That said, there is a right and a wrong way to use a cold wallet. Fortunately, using it the right way is actually really easy. All you need to do is keep it cold. So, how do you do that? You need to treat your main cold storage wallet like a savings account. Here's what that looks like in practice. Have one dedicated cold wallet for holding the majority of your crypto. You mainly use this wallet to safely send and receive crypto. You can also use the wallet's native app features to buy, sell, swap, and stake if you want to. But here's what you don't do. Don't connect your main cold storage wallet to websites. By websites, I mean decentralized exchanges like Uniswap, NFT marketplaces like OpenSea, or websites where you claim airdrops or mine crypto. Here's why, and where the real risk comes in. Anytime you sign a transaction with your crypto wallet, you are signing a digital contract, a literal agreement with the platform that you're interacting with. Part of this agreement is something called a spend approval. Anytime you swap one crypto for another or buy an NFT with crypto, for example, you are agreeing to this spend approval. This spend approval is you telling the contract, "Yes, you can take crypto from my wallet as long as you give me what we agreed upon." This is a completely normal part of crypto. Where you can run into issues is if that transaction you sign is malicious, or if it turns malicious in the future. Many spend approvals request something called an unlimited spend. This allows a contract to take as much crypto out of the account in your wallet as it wants. And this approval is indefinite unless you manually revoke it using something like revoke.cash. So even if the platform that you sign the transaction on is safe today, if it's ever compromised in the future, your crypto could be stolen straight from your wallet since you've already signed that unlimited spend approval. And if you sign a malicious contract from the start, you're giving scammers instant access to your wallet so they can drain it immediately. So, the only way to prevent this from happening to you is to avoid signing contract approvals using your main dedicated cold storage wallet. Instead, you just use a separate wallet. This is what I call a burner wallet. A burner wallet can either be a hot or a cold wallet. It doesn't matter as much since you're mainly using it to interact with websites and do quick transactions. You're not using it as a form of storage for your crypto. Keep just enough crypto in your burner wallet for whatever it is you need to do. Afterward, you transfer anything that you want to hold long-term back into your cold wallet for safekeeping. And to be clear, sending crypto from an exchange to your cold wallet, or from one wallet to another wallet, is completely safe. That's not what I'm talking about here. I'm strictly talking about signing transaction approvals with your main cold storage wallet. That's where the real danger lies, and that's why people who use cold wallets still end up getting their crypto stolen. So, if you use your cold wallet the right way and just stay here at level four, it's very likely that your crypto is going to remain safe for years to come, and you could stop right here. But either way, to reach level four, you need a cold wallet. My two favorite wallets for beginners and for security are going to be Tangem and the Ledger Flex. I'll make sure to drop links, discount codes, and my reviews of both of these wallets in the description for you. But if you want to master crypto security, level five is the ultimate goal. Sadly, most people never make it this far.
Level five, untouchable. This level separates the paranoid from the ultra mega paranoid. Rightfully so. But level five isn't as complicated as you might think. You don't need to set up multi-sig accounts or go buy a crypto-specific computer. Those things just add complexity. Being untouchable means finding the perfect balance between security and simplicity without overcomplicating things. And the best part about level five is that anyone can get to level five without spending a bunch of money, and it really doesn't take much more effort than level four. So, what does it take to be untouchable? The first thing, and one of the most underrated security features in all of crypto in my opinion, is something called a passphrase, also known as a hidden wallet or 25th-word seed phrase. Different names, same thing. Almost every reputable cold wallet comes with the passphrase feature, and it's super easy to implement. All you do is enable it on your cold wallet, and this will allow you to add your own word or phrase on top of your existing 24-word seed phrase. This creates a completely separate hidden wallet with its own set of receiving addresses. And again, it's completely separate from your standard 24-word wallet. So even if someone were to get hold of your 24-word seed phrase, they wouldn't be able to access your hidden wallet because you need the seed phrase and the passphrase combo to access it. And the insane thing that most people don't realize when it comes to passphrases is that you can create as many passphrases as you want from a single 24-word seed phrase. So even if you only have one cold wallet device, you can pretty much create an unlimited number of wallets. That said, it's smart to store your seed phrase and passphrase in separate physical locations for obvious reasons. Which brings me to the second thing all level five users do: diversify. We're all human. We all make mistakes. But diversification can limit the impact your mistake could have on your entire crypto portfolio. The best way to diversify your crypto is to split your funds across multiple cold wallets. That way, if you do make a mistake and your wallet is compromised, you don't lose everything. There are a couple of ways you can do this. Option one is to use different passphrases on one cold wallet device. This is perfectly safe, but you can only access one passphrase at a time, so it's not super convenient. Option two, which is what I do, is use multiple cold wallet devices. This isn't necessarily more secure, but it is more convenient in my opinion. This way, you can have dedicated devices for different portfolios. Both methods allow you to store your crypto in separate wallets, which is the goal here. As far as how much crypto you should keep in each wallet, that's really up to you, and only you can answer that. Everyone has their own personal level of risk tolerance. And just to be clear, that doesn't mean you need to go and buy 10 different cold wallets. That's completely unnecessary. And honestly, you shouldn't expect any of your wallets to be compromised. If you apply all the tips from all of these levels, it's very unlikely that your wallet will be compromised. The name of the game in level five is simple: reduce risk. I've been untouchable for years, meaning none of my cold wallets have ever been compromised. Next, we have the cherry on top. Since the seed phrase is the master key to your crypto, being untouchable means making sure that it lasts a lifetime. That means paper backups are out of the question. Metal backups, on the other hand, are built to last decades, and they can withstand things like fires and floods and really anything life throws at them. So, if your goal is long-term crypto security, this step is non-negotiable. These metal seed phrase plates come with all the tools you need to put your seed phrase into the plate; they don't do it for you, for obvious reasons. That said, the Keystone Tablet Plus is my personal favorite. It holds 12 and 24-word seed phrases, and I'll make sure to leave a link along with the discount code in the description if you want to check this one out. Otherwise, you can just go to Amazon and order one from there. But arguably the most important step to reaching level five is choosing the right cold wallet for you. So, if you're still unsure how to choose the best cold wallet, no matter what level you're at, the next video shows you exactly what to look for. God bless. Peace.