Are crypto wallets safe? As cryptocurrency became popular and people started investing, it got the attention of potential hackers and cyber thieves for easy targets. People who are new to cryptocurrency and invest sometimes get robbed and get their funds stolen. This happened because they did not know the overall system well.
Cryptocurrencies are driven by Blockchain technology under the hood and have decentralization as their core motive. However, the lack of central authority figure means that you have a greater responsibility to protect your own assets and wallets. Obviously, you can let some other company hold it for you but in Crypto we say ‘Not your keys, not your crypto’.
You need to make sure to learn how to store your crypto safely by understanding the importance of a private key and public key in any blockchain.
To make it clear, crypto wallet doesn’t store your crypto assets or coins. It just holds the private key which helps you undertake crypto transactions online. Think of private key like your fingerprint that’s unique to you.
Similarly, private key helps digitally identify and verify you to prevent fraudulent transactions. Remember, there is no way you can login to a wallet if you lose private key. Also, you can’t reverse a blockchain transaction after sending it. So, make sure to learn the importance of wallets and private keys.
To make it simple for wallets, a crypto wallet is basically like any wallet where we store our funds. Instead of fiat currency, it holds bitcoin or other cryptocurrencies.
Let’s take a deep look if crypto wallets are safe and how to keep them safe with extra knowledge
Store Private Keys Offline
Do you ponder how to keep your virtual currencies safe? When you look out for wallets, there is a lot of options. So, it is natural to ask “Are crypto wallets safe”. The answer is yes and no. If you follow all safety guidelines to store crypto safely, then crypto wallets are safe. But, if you are careless and neglect best practices, then you may lose your crypto.
Crypto wallets give you a private key and public key pair. Make sure to place importance on private key. It gives you access to the assets stored in a crypto wallet. The usage of correct private key tells people that the real owner of the wallet is transacting in contrast to an impersonator or an attacker.
When we say store private keys offline, it doesn’t mean no use of computer or technology. It just means the secure storage that doesn’t have direct internet connection where attacks may happen.
The main problem arises when you lose your private keys or when it is stolen. Since private keys are the only power and control you have over your crypto wallet, make sure to store private keys offline.
Here are some ways to store your private keys offline
Desktop wallets are the easiest to use since you have a pretty good user interface. Moreover, you can download like any other executable application in Windows or dmg in Mac. Once you install and open desktop wallets, it allows you to create your key pair to secure your wallet.
Make sure to save your private key in a safe place in your computer. Most desktop wallets won’t work unless they are connected with the internet. So, they are not fully offline. But, they are the most crypto newbie friendly option for crypto wallets.
A desktop wallet is a crypto wallet that you can access from your personal computer. Desktop wallet is definitely better than a web wallet that is prone to online attacks or phishing or hacking.
However, with Desktop wallets, your personal computer can get under a malware attack over the internet or through a virus-infected CD, DVD, or a USB thumb drive. And, as a result, you can lose your private keys.
Desktop wallet is not the completely safe option. If you are investing less than $1000, then desktop wallet may be good. But, if you are going to invest more, there is nothing better than getting a hardware wallet. So, in conclusion, Desktop wallet is safer than web wallets but not as safe as other offline wallets that we will discuss next in this article.
A hardware wallet can be used to store your private keys in a normal hardware device such as USB devices.
Up until now, there has been not even one verifiable incident of Bitcoins or other Crypto stolen or missing from any reputed hardware wallet. Hardware wallets don’t have a lot of history, but they have a stellar record of keeping your crypto safe so far. The record is attributable to the huge research and development in the cryptography field.
Just like how private key is important in Desktop wallet, your seed phrase is important in hardware wallet. Private key is generated securely in the hardware chip of your wallet using your seed phrase of 12 words or 24 words based on the wallet. If you lose the seed phrase, then no one can help you get access to your crypto assets. So, having multiple safe backups of seed phrase is important.
However, any stellar record will be tried to broken and there will be many attackers trying to attack the hardware wallet centralized entity. They are a really high valuable target for attackers. So, hardware wallet companies invest a lot and make sure to stop those attacks at the earliest and not lose their edge.
These risks are minimal because of high safety features on hardware wallets but still have to be considered if you are deciding the level of trust to have on a hardware wallet. If you are looking for an expert recommendation, then I will suggest to go for Ledger Nano wallet.
Advantages Of Hardware Wallet
- Portability – You can carry these external hardware devices anywhere
- Security – It is way more secure than a desktop wallet
- Virus Protection – A virus can not infect a hardware wallet so your private keys are protected
- Not Hardware dependent – Make sure not to lose your seed phrase for any reason. It is okay to even lose your hardware wallet. No one will be able to login to your wallet if you use a strong password. If you lose your hardware wallet, you can retrieve your access to crypto assets by using the same seed phrase on the new hardware wallet.
- Multi Factor Authentication – Hardware wallets possess strong multi factor authentication factor to ensure the transaction goes through only after multiple legitimate verification of ownership.
One way to further reduce risk is to use multiple hardware wallets and try to store assets in multiple wallets. So, even in the event of an attack, you don’t lose all of your crypto in one go. As in any asset class, don’t put all your eggs in one basket.
A paper wallet is a simple paper with your private key and its QR code printed. You can easily generate a paper wallet from several websites on the internet.
Make sure to delete your visiting history on that particular website after generating your private key and its QR code. Paper wallets got the attention of many people when bitcoin was in its infancy and hardware wallets were not around.
Most crypto investors think that the chances of losing or damaging the paper or misreading and sending wrong transactions from paper wallet is high. So, the risk may outweigh the security benefits it brings. So, any serious crypto investor will opt for hardware wallets for their impeccable security record at this point.
Paper wallets are away from the Internet, so they are more secure than Desktop wallets and web wallets and cryptocurrency exchanges. They can help if you want to invest and forget. If you are a trader who wants to constantly readjust your portfolio, then paper wallets don’t work the best for you.
Are Crypto Wallets Safe – Desktop wallet vs Hardware wallet vs Paper Wallet Comparison
|Desktop Wallet||Hardware Wallet||Paper Wallet|
|Backup||Backing up and updating desktop wallet is easy||Backups are simple in Hardware wallet||Since private key is printed on paper, it can not be backed up or updated regularly|
|Damage probability||Very low or no risk of damage||Low risk of damage||Very high damage risk|
|Cost||If you don’t already own a laptop or computer, the cost of having a desktop wallet can be high||You will have to purchase hardware device, so it is not free||Free of cost|
|Security Against Viruses and Malwares||Can get under malware or virus attack||Completely immune to virus and malware attack||Immune to virus and malware attack|
|Wallet Type||Software wallet||Hardware wallet||None of them|
|Ease of use||Newbie friendly||Only for advanced users||Intermediate users|
|Crypto Investment Level||Go for desktop wallet if you are only planning to invest low amount in crypto||Opt for hardware wallet if you are only planning to invest high amount in crypto||Medium Crypto investment|
Establish Secure Connection To Internet Through VPN When Making Crypto Transactions
Are crypto wallets safe without VPN? The whole internet system runs on data packets that are traceable. Technically, a potential hacker can intercept these data packets and steal all your crypto information including wallet usernames, passwords, and private keys when you are making a transaction online.
A virtual private network (VPN) adds up another layer of security to your internet connection. Why it is important to use a VPN when making crypto transactions?
- When you make daily transactions online without any secured internet connection through VPN, you leave your IP address as your footprint to your wallet address.
- VPN hides your IP address making it impossible for hackers to track your original IP address
- It will encrypt your information making it impossible for a hacker to decrypt at the time of transaction
Maintain Multiple Wallets To Diversify Risk
Are crypto wallets safe when you have multiple wallets? Keeping all types of cryptocurrency in the same wallet is quite risky. So, maintaining multiple wallets is an option to diversify risk. How keeping multiple wallets helps and make it less risky?
Let me illustrate this concept with an example.
Alex invested in crypto and is a daily user of blockchain technology. He keeps his Bitcoin, Litecoin, Ethereum, and Ripple all in one same wallet. Unfortunately, his wallet address is exposed or his private key gets stolen and he lost all his crypto money. So he lost all of his crypto money just because of one wallet.
Now imagine if Alex had multiple wallets with different wallet addresses and private keys. If his one key was stolen, he could have saved and protected other wallets hence diversifying risk.
Secure Your PC or Laptop With Top Notch Antivirus Softwares
Securing your PC or laptop with updated antivirus software is very important for cryptocurrency transactions. Why it is considered to be a good practice to have an antivirus installed on your desktop, PC, or laptop? Here are some advantages of Antivirus software.
- Antivirus software will look out for virus programs that are set to steal your crypto wallet information. Antivirus will scan for such programs or files and will remove any detected malware, spyware, or virus programs
- It will protect your system against any phishing attacks. A phishing attack is an attack by an unauthorized party trying to get access to your PC or laptop
- Consequently, it will detect any external device attached to the PC. It will not let any external device access your system until you will give permission
- Antivirus and firewall protection are related. An antivirus will detect incoming and outgoing network data packets. So, it will stop any malicious data from breaching into your PC and stealing your wallet and private keys. It will protect your information from going out
Choose Complex Unique Passwords With 2FA To Access Each Wallet
Hackers use various tricks or techniques to crack your wallet passwords or keys. So, you have to make sure that you use a very complex and unique password for your wallet login credentials.
Here are some tips for choosing the right password for each wallet.
- Never use your personal or general information in a password such as your name, area name, your school name, your college name, etc. Because people sometimes use the basic trick of guessing passwords and believe me sometimes it works. Say bye to typical passwords
- Your password should be between 15-30 characters
- Password must include a mixture of alphanumeric (both uppercase and lowercase) and special characters (*/@)
2FA simply means two factors authentication. It means you will have to authenticate your identity twice so it would be difficult for a hacker to penetrate your wallet. 2 factors authentication (2FA) adds identity verification process. For example, you have a set password and an additional security question. So when you will log in next time, it won’t let you access your wallet by just the password rather it will let you access once you answer the security question as well.
Backup Wallet Regularly
No matter which wallet you are using, make sure that you do wallet backup on daily basis. This will help you in recovering your cryptocurrency in case if your system crashes.
You will have to backup all the wallet files and save them at different secure locations, for example, DVD, CD, USB, SSD, HDD or Cloud.
I personally prefer backing up my wallets every week and change addresses for security purposes. But, you may want to back up at faster pace, if you feel paranoid.
- Your Bitcoin or crypto wallet should be backed up and updated
- Subsequently, an outdated crypto wallet software will expose you to potential hackers
- Updated crypto wallet will have its latest security checks, patches for vulnerabilities in place and will monitor for any breach.
Conclusion – Are Crypto Wallets Safe?
Hot wallets are more vulnerable as compared to cold wallets. Storing your private keys offline is a way to make your wallet even safer. Using a VPN with a secure internet connection is very good when making crypto transactions. Having multiple wallets will diversify the risk of theft.
Please invest in a quality Anti-virus software if you are planning to use Desktop wallets extensively. Always use multiple-factor authentication when setting up your wallet credentials. Keep your wallet up to date and backed up.
Paper wallets are still safe if you are going to invest a medium investment into crypto and you will not touch them to trade. Paper wallets only help if you have HODL mentality.
If you are planning to invest a large amount in crypto, then go for a hardware wallet without any doubt. They have the best in class security protection and most safe wallets to store crypto safely. However, just make sure to have your seed phrase backed up in multiple places.
Moreover, I personally have a Ledger Nano and a Trezor myself to mitigate risk and store half of my crypto holdings in each.
Finally, follow all the above best practices shared freely to you by me. Then, your crypto wallets will be safe forever.
I am a data analyst by profession who loves to crunch numbers at daytime and come home wondering how my passive income numbers for the day look like. I believe in being rich rather than looking rich. Follow me for Cryptocurrency, FIRE, Personal Finance, Credit Cards and Digital Nomad updates