The rise of cryptocurrency as an asset class is gaining enormous traction. It comes with exciting possibilities; however, opportunities must be balanced with effective strategies. Safeguarding your cryptocurrency wallet is paramount. Whether you are a holder of Bitcoin, Ethereum, or any altcoin, failing to understand how to protect your wallet puts your assets at risk of theft, hacking, or permanent loss.
What is a Crypto Wallet?
Similar to physical wallets, cryptocurrency wallets are as the name suggests. A cryptocurrency wallet is software that gives you the ability to manage and store your cryptocurrencies. Your private keys that give you a claim to the cryptocurrencies are stored on it. These are the keys to the castle and failing to secure them translates to permanent access loss.
There are two main types of wallets:
- Hot Wallets (Software Wallets) – Connected to the internet.
- Cold Wallets (Hardware Wallets) – Offline and more secure.
Every wallet type has its unique benefits and security risks.
Various Types of Crypto Wallets
Hot Wallets (Software Wallets)
Hot wallets are a type of online wallet that is always connected to the internet. These wallets are an everyday necessity since they can be used for simple transactions or trading; however, they are more prone to hacking.
Examples: Exodus, Coinbase Wallet, MetaMask.
Pros: They are user friendly, provide instant access to funds, and have mobile and desktop applications.
Cons: Hot wallets are easily hacked since they are always online.
Cold Wallets (Hardware Wallets)
Cold wallets are offline wallets that keep private keys away from the internet. These wallets are perfect for the long-term storage of crypto.
Examples: Ledger Nano S, Trezor Model T.
Pros: They are extremely secure and immune to online hacks.
Cons: They are difficult to access frequently or for quick transactions.
How To Properly Secure Your Wallet
- Use A Strong Password
Ensuring that a wallet has a safe password to protect it is the key. A user is better off choosing a safe and unique password that is hard to guess.
Best Practice: A user is better off using a password manager to both create and store safe passwords while avoiding using the same password for multiple accounts. - Enable Two-Factor Authentication (2FA)
2FA (Two-Factor Authentication) will help protect your wallet even further. It adds an additional step to logging in. Aside from your password, 2FA would also ask to verify your identity through a code sent to your phone.
Where to Use: Enable 2FA on your wallet, exchanges, and on emails associated with your crypto.
Best Practice: Use more secure 2FA authenticator apps like Google Authenticator and Authy. - Backup Your Wallet
Backup protects your wallet. It enables you to retain access to your crypto even on the likelihood you lose your device or it gets damaged. With most wallets, recovery phrases (a set of 12-24 words) allow seamless recovery.
Best Practice: Your recovery phrase should be written on paper and stored securely in a safe. Do not keep it stored digitally as that would allow it to be easily hacked. - Keep Your Private Keys Safe
The importance of the wallet’s security lies on the private keys. If private keys are given, that user will have full access to the crypto.
Best Practice: Protective measures should be taken to prevent compromise of the private keys. Do not share them, avoid online storage, and use a cold wallet for long term storage for large amounts of crypto. - Use Secure Internet Connections
Never access your wallet over public Wi-Fi networks. Public networks are especially vulnerable to attacks that retrieve your data.
Best Practice: Using a VPN (Virtual Private Network) is the best practice when banking with your crypto wallet over a public Wi-Fi or unsecured networks. A VPN protects your data by encrypting the connection.
Picking the Right Wallet in Terms of Security
While hot wallets are easy to use for frequent transactions, cold wallets are far better for storing large quantities of crypto. Therefore, it is advisable to keep most of your crypto in a cold wallet and only have hot wallets for small quantities and trading.
Hot Wallet:
Best for day-to-day use and small amounts of crypto. These are accessible online and can easily be used for transactions.
Cold Wallet:
Best for long-term storage. Cold wallets store your private keys offline which makes them more secure from online attacks.
Best Practices for Crypto Security
- Stay informed
Cryptocurrency security is always changing. Follow credible sources to keep track of what is changing and new security measures and threats. - Phishing Scams To Be Concerned With
Phishing scams have the ability to get a hold of your private crypto wallet. Always guard yourself against unsolicited emails or instant messages with private keys, recovery phrases, or wallet information.
Tip: Email links often have phishing links so always go to the exchange or wallet directly through their official webpage. - It is not a wise decision to keep loads of crypto on exchanges
Though exchanges facilitate trading of cryptocurrency, they are not the best or the safest to hold a large bulk of cryptocurrency. Crypto exchanges are known to get hacked often.
Best Practice: Always keep your long-term crypto investments in cold wallets. Do not load up your crypto on exchanges, keep just the required amount for short-term trading. - Use Account Locking or Additional Withdrawal Checks
A few crypto wallets and exchanges offer additional tightening of security measures like account locking for added security or extra checks for withdrawal measures.
Best Practice: Use control measures for whitelisted addresses so funds are only sent to trusted wallets.
Conclusion
When it comes to cryptocurrency, the right wallet combined with strong security measures will amount to significantly reduced chances of crypto loss. Careful selection of these assets will enable a more secure environment.
Key Takeaways:
- Securing your crypto assets will always require strong passwords: your wallet gets a unique and complex password to guard it.
- Enable 2FA: Strengthen your account with two-factor authentication.
- Backup Your Wallet: Document your recovery phrase and keep it in a secure location.
- Store Large Amounts in Cold Wallets: Protect your assets long-term by using hardware wallets.
- Be Cautious of Phishing: Protect your private keys and recovery phrases against phishing scams.
Using proper security protocols allows you to take advantage of cryptocurrency with reduced risks.
FAQ: Securing Your Crypto Wallet
Q1: What are the risks and advantages of a cold wallet?
Investing in a cold wallet (hardware wallet) minimizes the risks of losing your private keys.
Q2: How do I reset my wallet?
With a secure recovery phrase backup, you can reset your wallet from any device.
Q3: Is a hot wallet intended for daily transactions?
Yes, a hot wallet is intended for daily transactions with a limited balance, while the cold wallet is for long-term holds.
Q4: What are the signs of a phishing attempt?
Asking for sensitive data via emails or messages supposedly coming from your wallet provider are common phishing attempts. Do not click any links provided in emails, instead, always go directly to the official website.
