As in most other spheres of life, wallet security can be of varying degrees of complexity. It depends on many criteria, and how much you want to be safe depends only on you. Delving into Coinmarketrate.com, you will be able to trace many cases of wallet hacking, and as a result, a multimillion-dollar loss of funds.
There are several main options for cryptocurrency wallets: hot, or online wallets, and cold, or offline wallets. The latter are safer, but for some less convenient. Whatever you choose, there are ways to ensure maximum security of your cryptocurrency.
Whichever type of cryptocurrency wallet you choose, you will be provided with a set of private keys, often in the form of initial phrases consisting of 12-24 words, which are the final key to your wallet. They are different from your password, which is the first level of security, and which you will use to log in from trusted devices.
In contrast, private keys are the last line of security for your funds: if the device with your wallet is lost or broken, you can use your private key to access the wallet anywhere. Similarly, if your private keys are compromised, your cryptocurrency is most likely gone. Only you are responsible for the safety of your personal keys, and only you (or a trusted family member, in case of an emergency) should have them.
Private keys are usually generated when opening a wallet: they are not stored on the platform or device hosting the wallet, but are located in the blockchain itself. When they are handed over to you, you must keep them in a safe place. If you lose your keys, you will lose your funds, as evidenced by the infamous case of James Howells, who accidentally threw away a hard drive with keys to 7,500 Bitcoin when moving, and still (since July), asks local authorities to search landfills.
The safest way to store private keys is offline, on a piece of paper that is stored in a safe. They can also be stored on an encrypted hard drive, in storage, or on a USB drive protected by a strong password consisting of at least 12 characters.
Cold wallets, considered the most secure way to store cryptocurrency, are physical devices in which you store your cryptocurrency, and are usually USB or bluetooth devices. The most popular are Trezor, Ledger NanoS and KeepKey (although it should be noted that in 2020, Ledger was subjected to a major hack, which resulted in a leak of customer data).
Cold wallets are the most secure because they are not connected to the Internet, which means they are not susceptible to hacking.
When setting up the device, you will be asked to enter private keys or “recovery seeds”, which are taken from an industry-standardized list of 2,042 words. These words can be accepted by any hardware device of one and sometimes several manufacturers, which means that if you lose or damage your device, you can use the keys to access your funds through a new device. However, remember: if you lose your keys, you will not be able to recover your funds, so keep them safe and separate from the device.
Hot wallets are free and easily accessible, and therefore popular. As a rule, a hot wallet is opened through a browser, where you set a password and tell all the important private keys. But you can also open a hot wallet on a centralized exchange such as Coinbase or Binance. Exchanges often require you to enter “Know Your Customer” (KYC) data, and do not provide you with a private key, which means that you do not have full control over your cryptocurrency.
These types of wallets are usually easier to use and interact with than cold wallets, especially for frequent traders. However, hot wallets are more vulnerable to hacking, both at the private level and at the platform level, so users should choose passwords especially carefully. While it’s easier, don’t be tempted to store them in a note-taking app connected to a cloud service.
Mobile wallets are a very convenient option for people who need to have cryptocurrencies at hand and constantly make transactions. They may not have the security of a Bitcoin hardware wallet, but they can still be useful in certain scenarios, which we’ll talk about below.
Mobile wallets are a kind of hot wallet, because it is constantly connected to the Internet and works on our mobile phones, as its name implies. More precisely, a mobile wallet is a smartphone application in which we manage our cryptocurrencies, be it Bitcoin, Ethereum or Cardano.
We can download this software from typical online stores, such as the Google Play Store if we have an Android phone, or the App Store if we have an Apple phone. An example of such a wallet can be Coinbase, SpaceBot, Electrum Bitcoin Wallet, Coinomi Wallet and others.
The main advantage of such a wallet is that it is always with you, because everyone who reads this article probably considers their phone an integral part of their life.
It allows you to make payments wherever you are, pay for goods and services while in a store that accepts cryptocurrencies.
Two-factor authentication (2FA)
When using a hot wallet, two-factor authentication (2FA) is especially necessary, using a third-party application.
In addition to authenticating the login via SMS or email, these applications add an important level of security that no cryptocurrency owner should do without. An application downloaded to a mobile device, 2FA programs generate a unique number or “token” that is used every time you log in to an online account.
Google Authentication app is the most popular 2FA app,
and is free to download. However, Authy is another application worth considering. Its additional advantage is that users can create backups of their 2FA tokens in the cloud. This makes it easier to use the application on different devices, as well as to restore it on a new device in case of loss or theft of the original.
Remember that, like cryptocurrency wallets, each 2FA token has an initial phrase, which must be under the QR code scanned to be added to the application, and it is also important to store it securely.
Application Account Protection
When using your DApp account, through which you transfer money from your wallet to our protocol, it is absolutely necessary to use as many of the security measures described above as possible to ensure your security.
Users should make sure to use a strong password, ideally randomly generated, using a password manager such as LastPass or 1Password, and use the 2FA application to fully protect the account.
Being a fully online digital financial market, cryptocurrencies are vulnerable to entities with negative intentions. Therefore, it is extremely important that users do everything possible to protect themselves, taking full responsibility for their funds, which they can use at their discretion, but require more careful supervision.
You have to pay for the freedom and opportunities provided by cryptocurrencies, which are unlike anything in traditional finance, and this price is vigilance and personal responsibility.