How to keep your crypto-wallet safe
You want to invest in bitcoin, but how secure is a crypto-wallet? You understand the risks surrounding your physical wallet, but with a crypto-wallet, it’s a different story altogether.
Bitcoin is a decentralized digital currency that uses cryptography to secure transactions, which is recorded in a blockchain. Even though the constant review of blockchain technology is making it harder to hack bitcoins, savvy hackers can still find ways to target your crypto-wallet. It is therefore important to understand how you can keep your crypto-wallet safe.
How is Bitcoin stored?
Bitcoin is stored in a wallet that is known as a digital wallet, which is either hardware-based or software-based. Software wallets are downloaded and installed on a personal computer or smartphone and they are known as hot wallets (they run on internet-connected devices such as phones, computers, or tablets.) Software wallets offer a high level of security, however, they can’t protect you fully against hackers and viruses. Hardware wallets are entirely cold and secure and they store your private keys on an external drive, like a USB. Compared to software wallets they are considered safer but on the downside, they aren’t free to use.
A private key is used for access, which will make sure that you are the only person with access to your bitcoin wallet. This is not an actual key, of course, but a secret, alphanumeric password/number in the form of a 256-bit long number that is picked randomly when you create your crypto-wallet. The biggest danger for the security of your funds is to lose your private key or have your private key stolen. It is therefore important to understand how to keep your crypto-wallet safe.
Options to keep your crypto-wallet safe
Opt for a cold wallet
Keeping a cold wallet is not cheap (the average price is around $100) but it might be worth the investment considering the higher level of security that it provides. With cold wallets, you can carry your cryptos with you wherever you go, in the same way, you carry your normal wallet. There are many popular cold wallets like the Ledger Nano, Trezor One and ELLIPAL. Cold wallets are completely non-custodial, meaning that only the wallet’s owner holds the keys with access to the funds. Hot wallets, on the other hand, can either be non-custodial or custodial.
Consider a non-custodial hot wallet
Hot wallets are connected to the internet and are therefore considered to be less secure, yet they are the most popular type of crypto wallets. If you choose to have a hot wallet, a non-custodial wallet would be the safest option. With a custodial wallet, a third party, such as an exchange, is in control of your private keys. Some people prefer custodial wallets because this way they don’t have to be responsible for storing or forgetting their private keys. However, custodial wallets are more vulnerable to hacker attacks, as hackers wouldn’t need your private keys to move funds from your account.
Take basic web precautions
Taking basic precautions such as using a secure internet connection when making crypto transactions is important to keep your digital wallet safe. Other precautions include changing your device password regularly and using two-factor or multi-factor authentication. Also, be aware of spear-phishing campaigns. By asking victims to click on spear-phishing email links, hackers could gain access to their password manager and steal the crypto-wallet keys.
Before investing in cryptocurrency it is important to understand basic safety precautions to keep your crypto-wallet safe. Don’t forget that even if you do everything right to protect your investment against hackers, you are advised to regularly keep track of your wallet transactions and see if there is suspicious activity. Thankfully, technology is able to provide almost every tool that is needed to hacker-proof your bitcoin wallet.
The article contains market commentary information, it should not be regarded as investment research or investment advice. Past performance is not a reliable indicator for the future.
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