What is 2FA in Crypto?

2FA or Two-Factor Authentication has been a common phrase in our digital lives for the past few years. From logging into our email accounts to purchasing goods from Amazon, there are various use cases for this security protocol. In the world of cryptocurrency, 2FA is one of the main security measures used to protect your digital assets from getting into the wrong hands.

This guide will look to dive deeper into the topic, and answer the question what is 2FA in crypto? We will also detail how this technology works and the levels of security that it offers. By doing this, we hope you will be able to confidently implement this tool to safeguard your crypto.

What is Two-Factor Authentication (2FA)?

In simple terms, Two-Factor Authentication(2FA) means verifying your identity by two separate methods—or “authentication factors”. It is a multi-layered security measure that adds an extra level of protection to users when operating online and in the world of Decentralized Finance (DeFi). This could range from those who manage their assets on crypto exchanges or wallets to those trying to access their email or any platform that holds private and sensitive data.

The first step of 2FA will usually require you to provide your login credentials, typically a username and password, once logged in you will then be asked to enter a one-time password (OTP) that will be sent to you via text, email, or through an authenticator app. By combining these various forms of authentication, 2FA makes it significantly harder for unauthorized users to access sensitive data.

2FA form

In general, 2FA protects against cyberattacks, especially in cases where third-party hackers may compromise a user’s password. Recently, it was revealed that tech platforms like Facebook and Amazon are among the most targeted when it comes to phishing attacks. As a result, 2FA is a key layer of safety offered to users. Now that you have a better understanding of the functionality of this system, let’s see how 2FA in crypto works.

How Does 2FA Work in Crypto?

Although protecting your email, social media, or even Amazon account may be significantly important to you, it pales in comparison to that of your digital assets and cryptocurrencies. These assets may be worth a substantial amount of money, with unwanted access to them potentially life-changing for both you and your hacker. So how can you protect your cryptocurrency using 2FA?

Crypto exchanges, crypto wallets, and online payment platforms that act as custodians of funds are prime targets for cybercriminals. Most recently, Turkey’s largest crypto exchange was hacked, with over €51 million stolen by the perpetrators. With 2FA, the account holder is prompted to provide an additional form of verification before logging in and also prior to completing transactions. As such, it becomes more difficult for an attacker to steal assets, and transfer them to their wallets, to then liquidate.

Since cryptocurrency transactions on the blockchain cannot be reversed by the exchange, platforms, or banks, the extra guardrail offered by 2FA is a crucial element in the safekeeping of funds. 2FA in Crypto works by requiring the user to authenticate via two separate methods.

  1. Password: This will be the traditional username/password combination that will get you into the app, however, you will not yet be able to access the account.
  2. External authenticator or Mobile device: After accessing the app, you will now be sent a time-sensitive OTP on an authenticator app or via text message. Once entered, you will now be able to view your account.

This two-step process ensures that it is hard for third parties to get access to your crypto wallets, and exchanges and helps to offer you a more secure trading environment.

Different Types of Crypto 2FA

So now we have a better understanding of what 2FA in crypto is, let’s explore the different types of this security system.

Mobile Phone Message Codes

Historically, the most common has been sending codes to your mobile phone by SMS messages. After you log in with your username and password, you’ll be prompted to send a text with a one-time password to your registered mobile phone number. Once you receive this, you must then enter the code to complete the login process.

Although this is the most convenient method for 2FA crypto users, the SMS-based 2FA is considered less secure than some of the other methods. This is because attackers can easily exploit vulnerabilities in texting services, such as SIM-swapping.

Earlier this year, it was reported that a $400 million hack at failed crypto exchange FTX, was a result of SIM-swapping.

Authenticator Apps

Another common way to set up 2FA access is via an authenticator app like Google Authenticator which generates time-sensitive codes. These codes must be entered before they expire, or you will be issued with a new code.

The benefit of such apps is that they do not require an internet connection or mobile network, as such, they are harder for cybercriminals to target. The app generates a unique code that refreshes every 30 seconds, adding a more firm level of defense against hackers.

Authenticator

Email Codes

When it comes to email-based 2FAs, codes are sent as a one-time passcode to the email address you used to register for the crypto exchange or wallet. Similar to the above methods, you must then enter this code to verify your identity on the app before being permitted to gain access to any funds.

Although it provides an extra layer of security, it can also be slightly vulnerable if your registered email address becomes compromised.

Security Tokens

One of the more specialized types of 2FA for crypto holders is security tokens. Devices like YubiKey or other similar physical devices offer a hardware alternative for account authentication. To use these you will need to insert the security token into a USB port or tap it to a device with Near Field Communication (NFC) capability to authenticate your login.

These tokens are one of the most secure options on the list as they cannot be easily intercepted or replicated

Biometric Verification

Another method that has strong security capabilities is biometric verification. This uses unique physical characteristics to verify your identity. These range from features such as fingerprints or facial recognition scans. This form of 2FA is becoming increasingly popular due to the convenience and level of security it offers.

For crypto users, biometric 2FA ensures that only the authorized individual can access the account. Even if someone else has the login credentials, they will not be able to gain full control of the account.

Backup Codes

Most crypto wallets or platforms will offer you a range of backup codes or secret seed phrases once you sign up. These are a set of one-time-use codes provided during the initial setup of 2FA and typically should be written down and stored in a place that no one else can access.

These codes are seen as an alternative, in the event the primary 2FA method—such as an authenticator app or text message—is unavailable for whatever reason.

Push Notifications

Lastly, we have push notifications, which work by sending a message to your mobile device, asking you to either approve or deny the login attempt. If the login attempt was in fact from yourself, you can simply approve the login by tapping the option provided.

Typically, you will receive a notification of the time and location the attempt was made, so ensure you verify this before accepting. This method offers speedy authentication without needing to enter codes manually and is increasingly popular on crypto exchanges.

Why Is 2FA Important for Crypto Users?

Unlike typical banks and other parties who safeguard traditional financing, cryptocurrencies do not have centralized authority figures protecting your funds. Even on centralized cryptocurrency exchanges, your funds are not protected by any legislation and it is unlikely that exchanges will reimburse users if they fall prey to crypto scams.

As such, it is important to implement your own security infrastructure, to protect your capital for would-be hackers who often target vulnerable crypto investors. Two-factor authentication is seen as the minimum level of security needed to operate in this space, to avoid having your account compromised.

In September 2024, it was announced that over $120 million was stolen from crypto exchanges, as hackers were able to target vulnerable accounts.

Is 2FA Enough to Keep Your Crypto Safe?

Although 2FA does provide a strong safety blanket for retail investors when it comes to protecting crypto assets, it is important to remain vigilant. Ensure you select a strong type of authentication, this could be biometric authentication, authenticator apps, or even security tokens. Essentially, you want to make it as difficult as possible for cybercriminals to access your account.

As such, it is important to fully understand the different types of authentication tools, and choose the best one for you. This will increase your chances of securing your cryptocurrencies and other digital assets.

Two-Factor Authentication vs. Multi-Factor Authentication

Two-factor authentication (2FA) and Multi-Factor Authentication (MFA) both offer strong security measures that have been designed to protect your crypto assets. The key difference between the two is this, while 2FA only requires the passing of two steps to access your account, MFA goes beyond this.

Not only does MFA require a username/password/OTP combo, but additional steps can often be required. These verification steps could include biometric data (fingerprints or facial recognition), security tokens, or push notifications.

In essence, MFA incorporates both the core requirements of 2FA but can also go a step (or steps) further, depending on your settings. 2FA may be preferred by those who want quicker access to their account, whilst MFA will be for those who don’t mind sacrificing speed for stronger security.

Conclusion

Two-factor authentication is a simple yet effective way to enhance the security of your cryptocurrency accounts. Although 2FA provides an additional layer of safety beyond a username and password, it is advised to be careful, and potentially employ additional safeguards like MFA to further increase your account security.

The crypto market is highly volatile and it can be easy to lose funds based on bad trades and investments. However, if successful and have made money, it is as important to protect these earnings by employing best practices techniques such as 2FA.

FAQs

What is 2FA in crypto?

Two-factor authentication (2FA) in crypto is a security tool that requires you to provide two different forms of verification to access your accounts.

What are the different kinds of two-factor authentication?

The main types of 2FA are mobile phone messages, authenticator apps, email codes, security tokens, biometric verification, backup codes, and push notifications.

How can you activate 2FA for crypto?

Activating 2FA for crypto typically involves going into your account settings on the exchange or wallet platform, selecting the security option for 2FA, and following the steps to link your account with your preferred second factor.

References

  1. Password hacking warning for Google and Facebook users (Forbes)
  2. Turkey’s biggest crypto exchange hacked ( Euronews)
  3. $400m FTX hack blamed on sim-swapping (CoinTelegraph)
  4. Over $120 million lost in crypto hacks in September (CoinTelegraph)
  5. SIM swap fraud explained and how to help protect yourself (Norton)

About ReadWrite’s Editorial Process

The ReadWrite Editorial policy involves closely monitoring the tech, gambling and blockchain industries for major developments, new product and brand launches, AI breakthroughs, game releases and other newsworthy events. Editors assign relevant stories to in-house staff writers with expertise in each particular topic area. Before publication, articles go through a rigorous round of editing for accuracy, clarity, and to ensure adherence to ReadWrite's style guidelines.

Elena Dickens
Editor

Elena worked as a journalist covering traditional finance for over 15 years. She mainly commentated on bonds, equities, and IPOs, before moving into the blockchain. Now, she focuses on macroeconomic analysis of the crypto markets, as well as breaking down complex topics in the space.

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