How to Secure Your Crypto Wallet
By Nick Anderson 6 minutes
Cryptocurrency is hailed as the solution to the centralized banking system by breaking the barrier of third-party reliance. Cryptocurrency allows transactions to be end-to-end and provides immutability to those transactions.
Generally, when people hear the word cryptocurrency, they immediately think of Bitcoin. However, although Bitcoin is the most valued cryptocurrency right now, there are many other cryptocurrencies in existence. Ethereum is catching a lot of interest lately because of its rising value. You might be one of those who have invested in Ethereum or mined the coins yourself. Here are some of the best crypto wallets to secure your coins.
What is a Crypto Wallet?
A crypto wallet is akin to the physical wallet that you use to hold cash. It is used to store your cryptocurrency for making transactions. Cryptocurrency exchanges are places where you can buy and trade coins from other people, and a wallet is usually a part of the account that you create on the platform. The online wallet acts as a bank account for you.
You can also set up a wallet on your computer or mobile phone. There are several crypto wallets to choose from based on the feature set they offer.
Like bank accounts and credit cards, you must take certain steps to ensure the security of your crypto wallet. It is highly susceptible to theft if you are not careful. And because there is no authority managing transactions, you can lose everything you have earned to a malicious actor.
Many crypto wallets are multi-faceted, meaning that they can hold different cryptocurrencies, not just one.
Types of Crypto Wallets
Crypto wallets range from beginner to advanced based on the number of features they provide. However, they can be classified into two types:
A hot wallet is the easiest to understand because we see that in example every day. A debit card/credit card is an extension of the bank account that you have. It lets you make purchases at the supermarket or online stores.
Similarly, a hot wallet stores your cryptocurrency coins, be it Bitcoin, Ethereum, or any other cryptocurrency. The wallet on exchanges like Binance and Coinbase is another example of a hot wallet. For reasons that will become apparent in a moment, a hot wallet is not ideal for keeping large amounts of coins.
You can start with free cryptocurrency wallets, but advanced users may find paid options more suitable.
A cold wallet is hardware-based and the most practical and secure way of keeping your cryptocurrency fortune. A hardware wallet looks like a USB thumb drive that plugs in your computer. Since it serves as a backup, it must first be connected to a device and unlocked before any transactions.
It is also called an offline wallet because it does not connect to the internet. It makes a cold wallet almost impossible to hack into because it’s not online and does not run an operating system. Even if someone was in possession of your hardware wallet, it could not unlock without the passphrase.
Despite the security advantages, hardware wallets are a bit more complex than their software counterparts because they are not free, and protecting a physical object that holds your entire cryptocurrency fortune can be challenging. But ultimately, it is safe because it’s designed only to hold your cryptocurrency, thus preventing malware attacks.
Another example is of paper wallet. A QR code is imprinted on a paper that stores your private key. Any time you want to make a transaction, you simply need to scan the QR code to authenticate.
How to Secure Your Crypto Wallet
Never Share Private Key
Cryptocurrency relies on public-key encryption that involves two pairs of encryption keys: public and private. The public key is available to anyone wanting to make a transaction with you. But, the private key is a closely guarded secret that must never leave your possession.
The private key is what is you use to make a transaction. Your wallet stores the information about your funds as well as the key that authorizes a transaction. The private key is used to create a digital signature that verifies your identity to the receiver.
Enable Two-Factor Authentication
Much of unauthorized access to digital accounts can be prevented if two-factor authentication is enabled. It involves a two-step process to verify your identity before any access is given. Two-factor authentication relies on something you own (device) or something you inherently possess (biometrics).
The most common way is OTP (One-Time Passcode). It is a randomly generated code sent to your registered device as a second password for the login process.
Don’t Keep Cryptocurrency on Exchanges
A digital wallet is part of the account that you open on platforms like Binance. It is convenient but very risky.
The exchanges are custodial wallets, which gives them control over your private keys. A potential hack on the platform could give away your private key to hackers. And it’s not unheard of – cryptocurrency exchanges get hit by cybercriminals all the time.
Backup Your Cryptocurrency
Never keep more than enough coins in your hot wallet. Treat it like a buffer account that gets refilled once empty. Your backup will ensure that your cryptocurrency is protected against malware that could infect your device or a system failure that wipes out data.
Keep Your Backup Encrypted
In addition to backing up your cryptocurrency in cold storage like a hardware wallet, encrypt the wallet with a strong password. And always keep the seed password for recovery stored offline, where you cannot lose it.
Consider Multi-Signature Keys
Remember how movies show authentication through two keys for launching nuclear weapons or accessing a secure facility? Multi-signature works in the same way. The idea is that someone other than you holds another private key used to authenticate a transaction.
If a hacker gains access to your private key, it would need the other key to spend your cryptocurrency.
Beware of Phishing
Phishing is a technique to trick you into giving up personal information. It is one of the most dangerous and prevalent cyber frauds that make new victims every year.
Always verify the sender’s email address before opening any attachments. Do not click on links in messages that portray a sense of urgency. Always download software from official websites and never through third-party websites.
HTTPS denotes the presence of encryption between the user and the webserver. Any exchange between the two will always be encrypted to ensure no third party can read the data.
Install HTTPS Everywhere plugin in your web browser so that you always land on the encrypted version of a website.
Cryptocurrency is in its prime, and some would argue that its best days are yet to come. Hackers go where the money is. Cryptocurrency has attracted many buyers who simply want to invest and get some level of return on that investment. But, they are not tech-savvy enough to recognize and deal with the various dangers of the digital sphere.
Whether you are new to cryptocurrency or an intermediate investor, these tips will let you secure your crypto wallet.