Whether you’re a crypto novice or a seasoned investor, there’s a high likelihood you hold some, if not all, of your crypto in a digital wallet. But did you know that crypto wallet security is a major concern for the majority of crypto investors? And if you’re not taking any precautions to secure your crypto wallet, you may be putting your funds at risk.
A Crypto wallet, also known as a digital wallet, is software that allows you to store digital assets and make transactions with them. While it may seem like a small detail, a robust digital wallet is a critical part of securing your funds. This is because a secure digital wallet is the most important part of your overall digital financial ecosystem. It’s where you store your private keys, the unique code that provides access to your digital assets. It’s also where you send and receive funds. Therefore, you can say that a digital wallet is basically a key holder for your crypto funds.
Types of Crypto Wallet Security
There are many factors that come into play when determining the best type of security for your digital wallet. Among these considerations are the security standards of the wallet platform you’re using, the type of assets stored in your wallet, as well as your own personal preferences and needs.
Cold Storage – This is what many investors call a “hardware wallet.” This is the most secure type of wallet because only the private keys are kept on the device. Generally, a hard wallet is offline and only accessed via another device.
Hot Storage – With hot storage, the private keys are kept on the device itself and are connected to the internet. Although the private keys are still protected, there are still several security risks when using hot storage.
Multi-factor Authentication – The use of extra security factors, such as a backup phone number or two-factor authentication, is becoming increasingly common.
Smart Contracts – In some cases, you may opt to use a smart contract. This is a type of code that automatically executes the terms of a user agreement, such as transferring funds from one wallet to another.
Staging Area – A staging area is a separate computer or virtual machine that sits alongside the main digital wallet. It’s used for sending test transactions or transaction approvals.
Common Types of Crypto Wallet Security Mistakes
Even though every type of crypto wallet security has its pros and cons, they’re all susceptible to certain mistakes. It’s essential to understand the common mistakes made by crypto wallet users so you can avoid them in your own setup.
Bad Hardware Wallet Setup – A hardware wallet is the safest type of wallet security. But you’re also vulnerable to malware or hackers if your hardware wallet setup isn’t secure. A bad or insecure setup can allow hackers to access your private key and steal your funds.
Bad Offline Cold Storage Setup – Hardware wallets are considered to be the safest type of wallet security. But even hardware wallets don’t offer 100% protection from hackers if the setup is bad. It’s essential to set up offline cold storage in a way that’s both safe and secure.
Bad Password Security – A good rule of thumb is to use a strong password for your crypto wallet security. If you use a weak or easily guessable password, it’s likely hackers will be able to access your crypto assets.
Bad Private Key Security – It’s essential to keep your private key secure. If you publish your private key online, hackers will be able to access your funds. If you put your private key in a shared location, someone else can easily access your funds by pretending to be you.
Online Websites and Applications – It’s essential to use only official websites and applications for your wallet security. There are a lot of fake, scam, and irrelevant websites that claim to offer wallet security.
Weak 2-Factor Authentication (2FA) – Ideally, you should always use a 2FA method for your wallet security. It’s essential to use a combination of a password and the 2FA method to keep your crypto wallet safe.
Using the Same Password For Multiple Accounts – It’s essential to use a different password for every account. Using the same password for multiple accounts puts your entire account at risk.
Using an Unverified Exchange – It’s essential to only use an exchange that’s verified by the government or exchange authorities. Using an unverified exchange is the most common cryptocurrency wallet security mistake made by users.
Using Old Wallets – It’s essential to never use an old or broken wallet. If you need to upgrade your wallet, only use a new wallet. And if you have a mobile wallet, make sure to use a downloaded version.
Common Cryptocurrency Scams – There are a few common scams you should watch out for when it comes to crypto wallet security. If your wallet has been hacked or you suspect it’s been accessed by a hacker, report the incident to your wallet provider.
Complicated Wallets – It’s essential to keep your wallet simple. If your wallet is too complicated for you to manage, it’s likely too complex for most users.
Retrieving your funds is arguably the most daunting aspect of securing a digital wallet. Despite the various types of wallet security, if you lose access to your private key or your device is hacked, you’ll be unable to access your funds. So it’s essential to select a wallet that keeps your private key in an extremely secure location. And if you’re not using a hardware or software wallet, you’re putting your funds at risk. In this guide, we’ve highlighted the most common types of wallet security. And we’ve also highlighted which types of wallet security are most prone to mistakes. It’s up to you to select a secure wallet that keeps your private key in an extremely secure location.
How to Secure Your Crypto Wallet
When it comes to securing your crypto wallet, it’s important to remember that no system is 100% secure. However, you can greatly mitigate the risk of losing your funds by following some common wallet security mistakes:
Storing It In A Paper Wallet – A paper wallet is just a piece of paper on which you write the public address and private keys of your digital wallet. While not verifiable online, paper wallets are still extremely risky to store in a digital wallet. If you choose to store your crypto in a paper wallet, make sure to keep it offline or in a hardware wallet.
Underestimating the Threat of Hacking – Unfortunately, there’s no such thing as a completely secure wallet. The best digital wallet security is only as good as the person using it. Therefore, the most secure type of wallet will always have a higher risk of being hacked compared to a less secure wallet.
Not Changing Passwords – It’s important to regularly change your passwords and keep them completely secure. Otherwise, hackers will be able to easily access your digital wallet.
Social Media Use – The best digital wallet security is useless if you’re constantly making mistakes that put your funds at risk. Therefore, it’s important to take your wallet security seriously and avoid making unnecessary mistakes.
Not Using Two-Factor Authentication – This is especially important if you’re storing large quantities of coins.
Leaving It Online – Whether it’s your computer, phone, or tablet, always keep your digital wallet offline. Otherwise, your funds are at risk of being exposed and stolen.
Cryptocurrency wallets are a convenient way to store your coins, but they’re also a major security risk. Before investing any funds in a digital wallet, make sure you fully understand the security measures in place and that they’re sufficient enough to keep your coins safe. I’ve explained the different types of crypto wallet security and offered tips for securing your digital assets. Now it’s up to you to ensure your wallet is fully secured!