Cryptocurrency wallets are the digital mediums to help users in storing, managing and interacting with their crypto assets. These wallets come in different forms and serve different needs. It is always recommended to choose the type of wallet which suits your security needs and how you plan to work with your assets. Following the best wallet security process and keeping it safe by being fully aware is counted as the most secure way of using crypto wallets. We will be taking you through the entire wallet security process in a step-by-step format.
There is diversity in the crypto wallet sphere in terms of security and internet connectivity.Public and private keys are used to authorise crypto transactions via wallets.Transactions via wallets are immutable. Once recorded on a blockchain, they cannot be reversed.
1. Basics of Crypto Wallets
A Crypto wallet resembles a safe deposit at the bank! We can call it the digital version of the same. Consider crypto wallet your bank safe and currency your assets which you wish to lock up for security. Such is the concept of crypto wallets.
1.1. Understanding the concept of crypto wallets
Crypto wallets have a close resemblance to the bank safe deposit. Imagine it as the digital form of your physical wallet. Just like your cash and cards are kept in your wallet, cryptocurrencies are stored in crypto wallets.
If you have Bitcoin and other currencies, your wallet will have a unique “public address” for each of the currencies. This is like a bank account number. This is the address where others send the related currency to you. It is crucial to safeguard your crypto wallet from theft and unauthorised access. To access and manage your funds, you would need a private key, which is like a Pin to your physical wallet. It is a long string of letters which is known to you only. We have discussed the ways to keep your crypto wallets secure from any scams or stealing.
1.2. All about wallet security
The Crypto wallet has to be secured from so many mishaps prevalent in the crypto world. This lesson has disclosed ways to keep the funds safe from potential risks. By choosing the right type of wallet, using strong passwords, having a secure backup method, using two-factor authentication, and exploring different storage measures, we can protect our currency from any unusual activity.
2. Different types of Wallets
Considering the right type of wallet for your needs is very important. Let us know the types of wallets and how they work!
2.1. Hardware wallets
Suppose, we say that your hardware wallet is like a physical safe for your digital money. You have some Bitcoin which you wish to keep away from the reach of online hackers. Instead of storing that Bitcoin’s private key on your mobile or laptop, you can use a hardware wallet. It is like a mini-computer which only manages the cryptocurrencies. It is mostly offline and not connected to the internet, thus protecting your funds from online thefts.
- To make the transactions, you can simply connect the wallet to your computer or phone.
- The wallet then signs the transaction with its private key and generates a secure code which is used to verify the transaction.
- Ledger Nano is a small device with buttons and a screen. After setting it up, create a PIN code and generate a “seed phrase” which is a master key made of a series of random words. This phrase can restore the wallet if it is lost or damaged.
A Hardware wallet could be described as a secure vault for digital currencies which keeps the private keys offline and protects the funds from online threats.
2.2. Software wallets
It is an application which allows us to store, send and receive the crypto on our phone or laptop. Suppose you have some Bitcoin which you wish to manage and use for transactions. Instead of using a hardware wallet, you get your hands on a software wallet. Exodus is one of the well-known software wallets! All you have to do is:
- Download and install the app on your device.
- Create a new wallet in the app by generating the unique address for your Bitcoin.
- Provide your wallet address to receive the Bitcoin in it. To send , add the address of the receiver. The app uses your private key to process the transaction.
- Exodus and other renowned wallets use encryption and other security protocols to shield your private key.
- Seed phrases can also be provided by software wallets as a backup in case you lose access.
Software wallets are connected to the internet and could offer a risk of online threats. It is important to use a reputable wallet and keep the software updated for seamless usage.
3. Security Measures to consider while working with wallets
We have compiled some popular ways to consider in order to protect your assets.
3.1. All about private and public keys
The keys are of utmost importance to be understood well before stepping into the world of cryptocurrency. They are the base of the security protocols in the crypto space. Let us know how!
A private key could be considered a secret password which provides you access to your crypto. It is a long string of characters which is randomly generated. It is used to sign the transactions and authorise the transfers. The Private key shall be kept very safely as it has the potential to give access to anyone who has the private key.
This key is derived from a private key through a mathematical process. It is shorter than the private key in length. It is used to generate the wallet address. The Public key is meant to be shared openly as it is impossible to derive the private key from it.
3.2. Two-factor authentication (2FA)
The added layer of security, two-factor authentication, is a way to protect the account by requiring two methods of verification before granting the account access. 2FA is an extremely helpful way to prevent any unauthorised access to your online account. Even if anyone knows your password, they cannot sneak into your account before they confirm the 2FA code. One common method is receiving the one-time code via SMS on your registered mobile number. Apps like Google authenticator could also be used for 2FA verification. It is very useful to protect any crypto account by acting as an additional shield to safeguard your assets.
4. Step-by-step guide to secure your Wallet
We have curated a step-by-step guide to ensure the security of your crypto wallet:
- Choose a reputable, well-known wallet after researching well on online reviews and feedback.
- Create a strong and unique password for the wallet.
- Enable two-factor authentication for extra security.
- Consider a hardware wallet as it stores your private keys offline.
- Update the software of the software wallet updated on a regular basis.
- Secure your device with a strong PIN or password.
- Regularly back-up your wallet’s private key or seed phrase.
- Avoid using public WiFi for accessing your wallet.
- Do not click on suspicious links or download unknown files.
- Educate yourself about crypto scams to avoid any mishap.
Follow these simple steps to enhance wallet security!
5. Cold wallets and hot wallets: A brief introduction
Based on the level of connectivity to the internet and the security protocols used, we have cold and hot wallets.
5.1. Cold vs hot wallets
|Connected to the internet
|Highly secure against online hacking
|Vulnerable to online threats
|Used for long-term storage which is not required to be accessed frequently
|Often used for day-to-day transactions to have quick access to funds
|Example: hardware wallet, paper wallet
|Example: software wallet, mobile wallet, wallet by crypto exchanges
6. Introduction to Custodial and non-custodial wallets
|Private keys are in control of the wallet provider, implying their control over users’ funds.
|The user has complete control and access to their private keys only.
|More user friendly
|Technical know-how is required to work with them
|Vulnerable to online thefts
|No internet connection makes it safe from online threat
|Lengthy KYC and AML process is there
|No KYC or AML is required
|Easy recovery options
|Impossible to recover if private key is lost
7. Backups and Recovery methods
Backup and recovery methods shall be in place to ensure that we can regain access to the funds in case of device loss, damage , or any mishap. Here’s a guide for you:
- Seed phrases are created as a master key to the wallet. We advise you to write down this phrase on paper and keep it in a secure place, preferably, offline. Never store it digitally!
- Backup data is provided by the wallet software of a software wallet. Store them in multiple secure locations.
- Use hardware wallet recovery sheets. Store them in a secure place.
- It is wise to create multiple copies of your seed phrase or backup files.
- Consider using fireproof safes, safety deposit boxes, or even specialized crypto storage products.
- Encrypt the digital backups using strong encryption methods before saving them.
8. Analysing common pitfalls in wallet scenario
Common pitfalls which need to be analysed before entering into the wallet scenario could be:
- Using insecure or untrusted wallet apps
- Sharing private keys or seed phrases online
- Using weak passwords
- No 2FA usage
- Falling for phishing scams
It is very important to stay out of the messy practices while using a crypto wallet.
|Doing the rounds:
As per the latest news, the global crypto wallets market is set to soar high and reach $3,675.4 million USD by 2023 end.Crypto wallets are very popular. As per the report, Donald Trump holds up to $500k worth crypto in Ethereum wallet.
9. Final thoughts
Crypto wallets have evolved over a period of time! Initially, they were software based , offering basic storage. As the system grew, we have hardware wallets which are safer. Looking ahead, crypto wallets are expected to keep evolving, incorporating new security measures,user-freindly interfaces, and easier ways to protect our funds.
Crypto wallets can be safe if used properly. We consider hardware wallets safer due to their offline nature.
Yes, many wallets support multiple cryptocurrencies.
Having a backup seed is very important just in case you lose access to your wallet.
Disclaimer and Risk Warning
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