Cryptocurrencies are here to stay, and the number of people investing in them is increasing daily. These cryptocurrencies are stored in crypto wallets which can be either software or hardware-based.
The wallet is where you can store, send, or receive your cryptocurrency. But with more transactions, there have been hacking and cyber-attacks on crypto wallets. Recently, the USA recovered $2.3 million in the form of Bitcoin, which it had to pay as a ransom for the Colonial Pipeline cyberattack.
Such scams can occur to anyone at any time. Hence, it is even more important to keep your cryptocurrencies safe by choosing the right type of wallet.
Types of Crypto Wallets to Store Cryptocurrencies
The use of a wallet is essential to store your cryptos. Currently, there are over 85 million blockchain wallet users. There are several different types of cryptocurrency wallets, each with its unique features and benefits. However, these wallets are broadly classified into two categories:
A hot wallet is any digital wallet connected to the internet. Hot wallets are great for quick transactions but aren’t recommended for storing large amounts of cryptocurrencies because they can be hacked or compromised by cybercriminals who have access to your computer or device. Some examples include Coinbase, Jaxx, and MyEtherWallet (MEW).
A cold wallet is any digital wallet that isn’t connected to the internet at all times, i.e., one that isn’t constantly being accessed by you or anyone else who might use it. The primary benefit of cold storage is security.
Even if someone gains unauthorized access through your network connection, they won’t be able to transfer funds out of your account without having physical access to your device itself. Examples include Trezor and BitLox hardware wallets, paper printouts, etc.
Many crypto exchanges offer their wallets for storing cryptocurrencies. However, exchange wallets are usually not safe and can lead to cyberattacks. For instance, crypto.com, a crypto exchange for buying and selling cryptocurrencies, has a local desktop wallet, which was attacked. Crypto.com has confirmed a loss of $35 million in a cyberattack. Hence, it is best to store your cryptos in other wallets.
Hot Wallets Vs. Cold Wallets
Hot wallets are connected to the internet and more vulnerable to hacking. On the other hand, cold wallets are not connected to the internet and are more secure. Hot wallets can be accessed via a web app or an app downloaded on your smartphone. They’re great for day-to-day use but require caution as they aren’t completely airtight in terms of security.
How to Keep Your Cryptos Safe
Crypto hacking is increasing. More and more crypto users are losing their currencies to these attacks. FTC says that many consumers have reported crypto-investment scams worth $80 million between the last quarter of 2020 and the first quarter of 2021. This can happen to you if your cryptos are not stored securely.
It’s important to keep your wallet secure. When storing cryptocurrencies, you need to be aware of the different types of wallets available and how to use them safely.
Spread Your Investments
You might be tempted to keep all your cryptocurrencies in one place, but spreading the risk is essential. If you can store some of your funds elsewhere, do it. You don’t want to put all of your eggs in one basket. This is true if you’re storing significant money that could be lost if a hack occurred.
Remember that you shouldn’t store all of your money in one currency or even with one wallet provider. If something happens to them, then so does everything else. You should, instead, spread your investments across multiple currencies and wallet providers. This way, if something happens to one of them, you won’t lose everything.
Another way to keep your cryptocurrencies safe is by using multi-signature or multisig wallets. These wallets require multiple parties to sign off on transactions when sending funds. This helps prevent hackers from stealing your funds if they gain access to one device you have used to store cryptocurrency since they’d need access to all devices with your private keys to steal the crypto you have stored there successfully.
You can easily set up a multisig wallet by looking for a service provider that allows the creation of multiple private keys for your cryptos. This will help you overcome the biggest downside of hot or software wallets, which is security.
Another use of multi-signature wallets is that they eliminate the chances of lock-in. For example, Gerald Cotten, CEO of a Canadian crypto exchange named QuadrigaCX, died in February 2019.
He was the only one with the private key for the cryptocurrencies stored in the exchange wallet. Thus, he took all the knowledge for account passwords to the grave, resulting in exchange users losing access to cryptocurrencies worth $190 million. In such scenarios, multisig wallets can be helpful.
Keep Your Private Keys Safe and Have a Backup
When you create a cryptocurrency wallet, it will generate a set of private keys for you. You must keep these stored safely and not on a computer or smartphone device that could be lost or stolen.
There are several ways to store your private keys:
- Paper wallet – This is the most secure method, but it can make it hard to access your funds when needed.
- Hardware wallet – A USB device where you transfer your cryptocurrency before storing it safely in a safe place, such as under a mattress.
- Software wallet – An offline version of software wallets is downloaded onto another computer with no internet connection, so they can’t be hacked remotely by hackers trying to steal passwords or credit card information during online shopping.
You must also have a backup of your wallets. You can use a seed phrase, hardware wallet, or export private keys to safeguard them. If you don’t know how to do this, use these methods to back up your crypto wallets.
We hope this article has helped you understand what it takes to store your cryptocurrencies securely. From there, we encourage you to research and find the best solution for your needs. Remember that securing cryptocurrencies is to use them later, so make sure you don’t lose them.