Perhaps the most essential thing to have when dealing with cryptocurrency is a wallet. After all, they are the means through which you can access your tokens and complete your transactions. The crypto wallet you use and how well you care for it will go on to dictate how seamless your crypto experience is.
With that in mind, you need to know how to keep your crypto wallet safe. The profitability of the crypto sector means that wallets are constantly under attack from criminals, so we’ll break down the risks associated with crypto wallets and how to mitigate them.
Crypto Wallet Risks
If you’re going to use a crypto wallet, you need to be aware of the risks associated with it. One of the most obvious is your wallet being broken into by malicious parties and this happens almost exclusively to hot wallets i.e. wallets connected to the internet. In this case, users are tricked into giving up their password or recovery phrase or clicking on malicious links that grant the hackers access to their wallets. Another risk is losing the wallet altogether, which mainly happens with cold wallets (physical wallets) or paper wallets (the password/recovery phrase written down on paper). This happens because humans inevitably lose things and there are people who have been searching for their physical wallets for years.
There is also the risk of losing your password and recovery phrase and this is especially scary because not even the wallet makers can break into a wallet without this information. Your crypto transaction could also be accidentally sent to the wrong address and this is irreversible as they are based on permanent ledger technology. Don’t forget that your information can be made public when you use traditional wallets. Because all crypto transactions are recorded on blockchains, anyone can see what money has gone in and out of your wallet address.
Securing Your Wallet
Besides being aware of the risks associated with crypto wallets, you also need to know how to secure your wallet from various risks.
- Use Anonymous Wallets
As we’ve said, having your crypto transactions recorded on a blockchain means that technically, anyone can see what you’ve been up to. But this can be mitigated by opting for anonymous crypto wallets. These are wallets that do not require much in the way of know-your-customer (KYC) details and so, your privacy is protected. It also masks user details as they complete transactions so it is much harder for anyone to track their activities.
With all these benefits, it comes as no surprise that, as Kane Pepi writes, anonymous crypto wallets are so popular among users. And if you want some of these benefits for yourself, you might want to get one.
- Don’t Use Exchanges as Wallets
One of the most common phrases in the crypto industry is ‘not your key, not your coins’. This basically means that if you store your crypto on any platform you don’t control the private keys to, you risk losing them. This includes crypto exchanges as your account could be suspended for any reason, cutting you off from your tokens. Also, consider the fact that crypto exchanges are routinely targeted by hackers and hundreds of millions of dollars have been lost this way. If this were to happen to you, it could take years before you recover your funds so it’s best to avoid using exchanges as a storage solution.
- Keep Your Keys and wallet Safe
When you set up a crypto wallet, you’ll need to create a password and a recovery phrase and write these down somewhere. It is of the utmost importance that you keep these hidden enough that no one can steal them but accessible enough that you don’t lose them. There are countless examples of people who can’t access their million-dollar crypto fortunes because they have lost their passwords and recovery phrases and you don’t want that.
At the same time, your cold or paper wallet needs to be kept as safe as possible as you also lose your money if you don’t have access to them.
- Use Cold Wallets Preferably
Of all the wallet types, cold wallets are generally considered the safest option. Because they exist essentially as flash drives that are not linked to the internet, they are near-impossible to hack into. A common method of crypto theft is phishing schemes that hack into hot wallets. But you cannot hack into a wallet not connected to a browser.
They are also safer than paper wallets because a flash drive-esque object is harder to lose than a piece of paper. And with the abundance of cold wallet makers in the industry, you’ll be spoiled for choice.
- Diversify Your Wallet Use
One way to minimize the risks associated with using crypto wallets is by using multiple wallets. The worst case scenario is that your wallet is hacked into for whatever reason and your funds are compromised. If all of your funds are in one wallet, your entire portfolio could be gone. If your funds are split across different wallets, the damage can be reduced.
Consider splitting your funds according to tokens i.e. all your Bitcoin in one wallet and all your Ether in another or splitting all tokens evenly across different wallets. If you are HODLing, you can put your savings tokens in a cold wallet and your trading tokens in another.
- Look Out for Phishing
If you’re going to keep your crypto safe, you have to learn how to spot and avoid phishing schemes as much as possible. If you get any email that seems off, take note of the address that sent it to you and search it online. Chances are that it is a popular phishing address. Avoid clicking on unverified links, even those promising airdrops, free iPhones, and the like. If you get an email saying that your account with Amazon or PayPal is being closed, don’t click any of the links and reach out to the company directly.
- Avoid Public Wi-Fi and Update Your Wallet
If you choose to use a hot wallet, you’ll have to be very careful about the Wi-Fi you connect to. Using public and unverified Wi-Fi connections can expose your information to hackers who can go on to steal your funds. To be safe, use a Virtual Private Network (VPN) when accessing public Wi-Fi or avoid using it at all.
You’ll also want to update your hot wallet frequently as developers release safety features for new versions. Thus, having them makes your wallet, and your funds, much safer. Of course, visit the official website of your wallet provider or an official app store like the Google Play Store or the Apple Apps Store to do this and don’t trust unverified links.
Conclusion
Crypto wallets are amazing ways to store and manage your crypto. But with these wallets come a number of complications such as the risk of your wallet being hacked into, losing your wallet, and so on. While these might seem daunting, there are many steps you can take to mitigate these issues such as choosing a cold wallet, storing your password/recovery phrase properly, and even diversifying your wallet use.
