Risk Management in Blockchain Space

Risk Management in Blockchain

Тew crypto users and traders could be anxious about new crypto space opportunities. Hence, understanding crypto and blockchain risk management is the first thing to do when entering the market. Today, we want to share some risk management practices that might help and protect you in the crypto space.

What is Risk Management in Crypto?

There is no question that you will face both ups and downs during your crypto journey, be it trading or using DeFi applications. Blockchain space is no different from traditional applications and exchanges in this sense – there are risks involved, and without proper risk management practices you might lose your funds.

Your risk management practices define how you intend to control the risks you will face in your daily crypto life. They shield you from the risks and black swan events and keep you in control of your losses. With the correct risk management, you can decrease the possibility of losing funds due to exploitation, rug pull, or bad market conditions.

Diversify storage

First thing first, let’s talk about funds storage. As your portfolio grows or you start using various chains and applications, you need to start thinking about setting up multiple wallets, both hot and cold, to store your assets. As blockchain transactions are non-reversible, it is wise to minimize potential exposure to exploits coming from losing private keys or giving spending approvals to harmful intelligent contracts.

When it comes to wallets, the best risk management advice one can give would be to use a set of different wallets. For the main portfolio and savings, it is better to use a cold wallet, e.g. Ledger, as it is an offline wallet with higher security. For day-to-day operations, it is advised to set up various hot wallets, e.g. Metamask, TrustWallet, etc, and store small amounts that you are comfortable spending or losing in case of an exploit. Again, the best practice with hot wallets would be creating a wallet dedicated to a specific DeFi application or use case, i.e. one for using decentralized exchange, one for each application you use, etc. It might be less convenient to go through all of them – but it will decrease your risk exposure and protect your funds by the end of the day.

Security fundamentals

It makes no difference whatever wallet you use; there are a few common security rules to follow to keep your crypto safe.

Let’s get started –

  • To begin with, never reveal your private keys or account passwords to anybody. Even if it’s an accident, even if it happened only for a couple of seconds – assume that your wallet is compromised and remove funds to another wallet.
  • Use different passwords for different accounts – and make them strong! The stronger and more unique your passwords are, the more difficult it will be for someone to hack you.
  • Back up your devices regularly! The same is true for regular program and operating system updates; they generally include bug fixes and additional security updates, so make sure to schedule them at least once a month.
  • Employ multi-signature solutions (like Gnosis Safe) as an additional layer of your funds’ security. With multisig, you have multiple wallets acting as guardians to the main vault  – even if one of your addresses is hacked, your vault will stay safe and you’ll be able to move funds elsewhere.
  • Be wary of scams and phishing! Check the addresses, contracts, and websites you visit and use, and don’t let malicious actors manipulate you into giving away your personal information on a fake website.
  • Watch the protocols you actively use to minimize your exposure to exploits or rug pulls. You may utilize risk management platforms like Apostro to monitor activity across protocols, act quickly, and remove money in the event of a hack or suspicious behavior.

Yogesh Patel: Yogesh Khetani is a famous Tech Blogger who loves to be surrounded by tech gadgets. So obviously, we can see his contribution here in that field. He also contributes to Now I am Updated website.