Cryptocurrencies are digital in nature, and there are no physical assets. On the other hand, hackers and frauds always have an eye on your crypto, so it’s necessary to acquire some technical knowledge to keep cryptos safe.
We will review different types of wallets and some security fundamentals, in this post.
Don’t use exchange default wallets!
Common exchanges like Binance and FTX use “custodial” wallets. Many users buy their cryptocurrency from one of these common exchanges and then leave their holdings in the exchange’s wallet. Exchanges make an attractive target for hackers, because they are a crossroads for billions of dollars of transactions everyday.
We heard of many hacks which made exchanges lose hundreds of thousands or even millions of dollars, so these incidents show the risk of leaving cryptos in the custodial wallets.
Hot Wallets vs. Hot Wallets
Cold wallet could be a computer that’s disconnected from the internet or a specialized USB flash drive called a hardware wallet. This is an option for people who want to hold their cryptos as a long-term investment or someone who is not comfortable carrying around their cryptos. Hardware wallets are not so popular among the users, because they are expensive (against software wallets which are free), and they add extra steps and some complexity into transactions.
Different types of software wallets
Some of the software wallets have just one job: storing public and private keys. Some others have extra features like swapping. There are three types of wallets: mobile, desktop, and online.
- Mobile wallets: most of these wallets use decentralized technology to store your cryptos. They are safe, but you must be careful not losing all of your cryptos. You must store your private key in a safe place, because if you lose your private key, or seed phrase, you will lose your money. No one has access to your cryptos, except you.
- Desktop wallets: a desktop wallet is a software installed on your computer and it gives you lots of control over your money. But you must be very careful: a malware infection could give the control to an anonymous user or a hard-drive failure could make a bad situation for you.
- Online wallets: this type has least security among all. Online wallets are hosted on servers owned by an exchange. Private keys are usually accessible for exchange owners, and if servers of the exchange get hacked, your money will be gone too. Also, theoretically, there’s not much to stop exchange owners from simply taking your cryptos.
Due to all of these, we suggest using a decentralized wallet, but with keeping some security tips in mind.
Regardless of which of these wallets you choose, there are some tips you can follow to keep your cryptos safer:
- Write down and hide your seed phrase in a safe place
- Don’t share your seed phrase or passwords with anyone
- Be aware of scams, they are everywhere: if something seems too good to be true, it may be a scam.
- Use multi signare security. This will help you if one of your devices is compromised.
- Encrypt your wallet with a strong password
- Be cautious if your device is connected to the internet, you can use antiviruses.
- Regularly back up your wallet and store your backups in multiple locations