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What Is 2FA (Two-Factor Authentication) in Crypto?

Cryptocurrency Editor

Camila Karam

Cryptocurrency Editor

Camila Karam

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Camila is a Crypto Editor at Cryptonews, where she crafts research-driven, value-packed evergreen content on cryptocurrencies, exchanges, and other Web3 topics. She is passionate about gathering...

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Last updated:

September 17, 2024

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Two-factor authentication (2FA) adds an extra security step to your crypto accounts. After entering your password, you must verify your identity a second way. This could be a code from an app, SMS, or a fingerprint scan. Even if someone steals your password, they can’t access your account without this second step. In essence, 2FA provides additional protection.

Key Takeaways

The enhanced security of two-factor authentication (2FA) adds an extra layer of protection to crypto accounts, requiring both a password and a second form of identification, like a one-time code or biometric verification.
The most common 2FA methods include SMS codes, authenticator apps, hardware tokens, and biometric scans, each offering varying levels of security.
The central importance of 2FA for crypto is that wallets are prime targets for hackers, and enabling 2FA significantly reduces the risk of unauthorized access.

How Does 2FA Work?

2FA uses two different factors to authenticate account access:

Knowledge Factor: This is usually a code that is memorized and known by the user, such as a password or PIN. For instance, when you log in to your crypto wallet, the platform’s first request is your password.
Possession Factor: The second piece of information is usually something the user has, like a smart card, mobile phone, or security token. In this step, one possibility is to receive a unique code on your phone that you need to enter into the website to complete the process.

Here’s a step-by-step breakdown of the 2FA process on crypto platforms:

User Login: The user begins by entering their username and password.
Second Factor Prompt: The system requests a second authentication factor, such as a one-time code from an app, SMS, or biometric verification.
Validation: After providing the correct second factor, the system verifies it.
Access Granted: Once both the password and second factor are successfully validated, access to the account is granted.

An example of a 2FA system is the Google Authenticator App. The app generates one-time codes to protect any account the user syncs to the system.

Another example is the one-time code you receive via SMS and biometric methods, such as fingerprint or facial recognition.

Why 2FA Matters in Cryptocurrency?

With cyberattacks on the rise, cryptocurrency safety is more important than ever. Two-factor authentication adds a critical security layer beyond a password, helping safeguard your digital wealth from theft.

In addition to two-factor authentication, understanding the broader risks in crypto is essential. Phishing scams trick users into revealing sensitive information like private keys through fake websites or emails, leading to theft.

Hacking targets crypto wallets and exchanges, while social engineering manipulates individuals into unknowingly giving up access to their assets. Because crypto operates on decentralized platforms with no central authority, it’s irreversible once a transaction is made. This lack of oversight makes securing your assets and staying vigilant against these risks especially important.

A significant example occurred with Crypto.com in January 2022, when hackers bypassed 2FA controls and stole around $34 million in cryptocurrency from nearly 500 customer accounts. The hackers bypassed the 2FA process despite having passwords, gaining unauthorized access to wallets. In response, Crypto.com revamped its security measures, including transitioning to multi-factor authentication (MFA) to strengthen user protection.

Types of 2FA Methods

There are several methods of 2FA, each offering different levels of security and convenience. These include:

Text Message Codes: Users get a one-time code on their mobile phones. They must inform the platform of this code to complete the login. This method is not the most secure because the messages can be intercepted, giving access to third parties.
Mobile Authenticator Apps: Some examples of these apps are Google Authenticator and Authy. They generate time-based, one-time codes. The apps also sync with the exchange or wallet servers. They randomly generate the codes at set time intervals. This gives the user enough time to access the code and finish the login.
Email Codes: Similar to the SMS codes, you’ll receive the one-time code through your chosen email address. Hackers can also intercept the email, causing some security concerns.
Hardware Security Tokens: These are physical devices that resemble a flash drive. Usually, they have buttons that generate one-time codes or require button presses to authenticate users. Even though they can be pricey, they also offer high security.
Biometric Verification: It consists of recognizing fingerprints or facial features through biometric verification. This is also a highly safe method, since it’s more challenging to mimic a fingerprint or face.
Backup Codes: When you set up your crypto wallet, you’ll receive a series of codes that can be used if his first choice of 2FA doesn’t work. We recommend that these codes be registered in a safe physical location where other people don’t have access to them.
Push Notifications: These notifications are triggered when a login attempt is made. The user then receives a notification on their phone, which they can accept, completing the login or deny, canceling the attempt.

How to Set Up 2FA Using an Authenticator App

One of the easiest and safest ways to set up a 2FA system for your crypto wallet is through an authenticator app. Follow these steps to enable two-factor authentication for your account:

Download the Authenticator App: Look at the App or Play Store to choose the app you like the most. Consider the user reviews, and after making your decision, download the app.
Login to Your Crypto Account: Access your wallet or exchange account using your credentials.
Find the Security Settings: Go to the exchange platform. Find the account security settings. Click “Enable 2FA” or something similar.
Link the Authenticator App to the Account: Open the app again on your mobile device and click “Scan QR Code” or “Add Account.” Now, scan the QR code provided by the exchange platform.
Store the Backup Codes or Recovery Keys Safely: If the app provides a series of backup codes or recovery keys, store them safely offline. They will be necessary in case you lose access to your authenticator app or phone and need to recover your account.
Enter the One-Time Password (OTP): After you scan the QR code, the app will provide you with an OTP. Enter this code on the platform to finish the setup process.

After the process is complete, we recommend that you test the 2FA to make sure everything is working properly. Also, check your authentication settings, verify your recovery info, and ensure the app is up-to-date.

Remember never to share your recovery information, OTPs, or keys with anyone. Keeping them a secret will ensure that your wallet is more secure.

What Actions Are Secured by 2FA?

Some crypto trading platforms also allow you to enable 2FA for actions other than logging in. You can check the platform’s security settings section and check the available options.

Some of the actions that can be secured using 2FA are:

Crypto and fiat withdrawals
Transactions between users
Changes in personal information, such as addresses

2FA Limitations

While all the above-mentioned methods aim to improve security, they aren’t foolproof. People with some knowledge of hacking can still gain access to some accounts. Some standard techniques hackers use are phishing, exploiting recovery procedures, and using malware.

One example of phishing can work like this:

John is an investor who sets up 2FA on his exchange account using codes sent via SMS. After some time, he receives an email that appears to be from the exchange platform, asking him to update his security credentials. The email looks real, so he clicks on the link and enters his login credentials and the SMS code.

Unfortunately, the email was fake and used for phishing. Now, the hackers have both his password and one-time code. John only realized what had happened when he couldn’t log in to his account anymore.

Even though the 2FA didn’t prevent the attack described, it provided an extra layer of security that the hacker needed to pass through. When you get suspicious emails, verify their legitimacy. If in doubt, contact the exchange’s customer service. 2FA has flaws, but it is vital. It is safer than just using passwords.

How Do I Reset My 2FA?

Each platform will have its own method for resetting 2FA setups. If you don’t have access to your authentication methods, you can use recovery options. You must verify your identity and use any available backup codes. If this process doesn’t work, contact customer support for further assistance.

Advanced Security Measures Beyond 2FA

Beyond two-factor authentication (2FA), crypto wallets can implement advanced security measures such as multi-signature wallets, which require multiple private keys to authorize transactions, adding an extra layer of protection. Cold storage solutions, like hardware wallets, keep private keys offline, making them immune to online hacks.

Biometric authentication (e.g., fingerprint or facial recognition) and encryption of sensitive data further enhance wallet security. Additionally, some wallets incorporate phishing detection and address whitelisting, ensuring only pre-approved addresses can receive transactions. These advanced measures significantly reduce the risk of unauthorized access or theft.

Multi-Factor Authentication (MFA)

Multi-factor authentication (MFA) is another possibility to enhance security. It adds an extra layer after the second authentication required by the 2FA method. For example, you can use a password, SMS, and fingerprint authentication, in that order, to access your crypto wallet.

Hardware Wallets and Cold Storage

Hardware wallets and cold storage are kinds of crypto wallets that safeguard cryptocurrencies by keeping private keys offline and away from potential online threats.

Crypto hardware wallets are physical devices, like USB drives, designed to securely store a user’s private keys offline. They are protected by encryption and are only connected to the Internet when necessary for transactions, reducing the risk of hacks and malware.

Cold storage, a broader term, refers to any method of keeping private keys offline, including hardware wallets, paper wallets, or air-gapped computers. Cold storage is handy for long-term holders as it ensures keys remain inaccessible to hackers and other cyber threats. Both methods provide higher security levels than online (hot) wallets, which are always connected to the Internet.

Conclusion

2FAs, or two-factor authentication methods, are essential for anyone who invests in crypto. Their primary function is to add an extra layer of security beyond passwords, making hacking accounts more difficult. The system requires a second form of identification, such as a one-time code sent to a mobile device or generated by an app.

Despite its limitations, 2FA is essential in every cryptocurrency user’s knowledge level. It helps protect their valuable digital assets from threats. Their high value and anonymity make them prime targets for cybercriminals. However, security doesn’t stop at 2FA.

To fully protect your funds, it’s essential to understand the types of crypto scams. Phishing, romance scams, fake crypto exchanges and wallets, and cloud mining scams are all methods scammers use to trick investors. By learning about these common crypto scams, you’ll be better equipped to spot warning signs and keep your investments safe.

FAQs

Can I withdraw crypto without 2FA?

Some platforms let you withdraw crypto without 2FA. It’s not recommended, though, as it greatly increases the risk of theft. Most reputable exchanges and wallets require or urge 2FA for withdrawal security.

Which crypto wallet has 2FA?

Many crypto wallets offer 2FA, including popular ones like Coinbase and Binance. These platforms provide options to enable 2FA through various methods, such as mobile apps or hardware tokens.

How do I get a 2FA code?

To get a 2FA code, you must set up an authenticator app like Google Authenticator or Authy on your smartphone. Once installed, the app generates time-based, one-time codes that you can use to log into your accounts.

Can hackers break through 2FA?

2FA greatly improves security. But, it is not failproof. It can be compromised by phishing, malware, or SIM swapping.

What is an example of a 2FA authenticator?

Google Authenticator is a popular 2FA app. It generates time-based, one-time codes to secure accounts. Users link the app to their accounts by scanning a QR code, after which the app provides the necessary codes for login.