The last year has seen tremendous growth of interest in cryptocurrencies by investors, the banking industry, the media, and the general public. This interest has led to a merciless bullish run in the cryptocurrency market, with all popular cryptocurrencies seeing a significant increase in value. The value of one Bitcoin rose from below $10000 in January 2020 to almost $55000 towards May 2021, while the value of Ethereum rose from below $200 to over $4000 in the same period. With most other popular cryptocurrencies seeing similar surges in value, it comes as no surprise that cryptocurrency is attracting unsolicited interest from hackers. Now, we will look at how you can keep your cryptocurrency wallet safe from prying hackers.
What is a Cryptocurrency Wallet?
In real life, you normally keep your paper money in a wallet. Similarly, before you buy a cryptocurrency, you need to have a wallet to keep your coins. Unlike a normal wallet, a cryptocurrency wallet is not a physical object. It is basically a software program that allows you to receive, send and monitor the balance of your crypto coins. The wallet consists of two ‘keys’, a public key and a private key. The public key is your wallet address. This is what other people use to send you coins. The private key is what allows you to send your coins to others. To send your coins, you are actually signing off ownership of the coins using your private key.
To make it easier to understand the concept of public and private keys, let’s take an example. Your public address is like a vending machine. Anyone can put money into a vending machine. Similarly, anyone with your wallet’s public key can send you money. However, to get money from the vending machine, the owner needs an actual key to the machine. Without the key, no one can remove the money from the machine. This is represented by your private key.
To access and use the money in your cryptocurrency wallet, you need a private key. Anyone with your private key can access and spend your coins. Hackers steal your coins by stealing your private key. It’s important to note that the cryptocurrency wallet does not actually store your coins, it only stores the keys that you need to send and receive the coins. When you send or receive coins, no coins are actually exchanged. Instead, the transaction is simply a record on the blockchain that changes the balance in your cryptocurrency wallet.
Choosing A Cryptocurrency Wallet
Today, there is a wide variety of cryptocurrency wallets to choose from, which makes choosing the right one a challenge, especially if you are just getting started with cryptocurrency. Making the right choice boils down to striking a balance between the security of your coins and convenience. To make the choice easier, you need to consider the following two variables: transaction value and transaction volume. Transaction value is the number of coins you need to transact at a time, while the transaction volume refers to how frequently you will need to send or receive coins in a given period of time. There is no absolute figure for these two variables. They are relative and will vary for different people.
Let’s take a look at the different types of wallets and how the above variables influence which wallet you should use.
Online Wallets
Also known as cloud wallets, these are the simplest to use and are also very convenient. Online wallets store their keys online. If you intend to have low transaction volume and value, an online wallet is an excellent choice. This means that you should opt for an online wallet if you intend to store fairly small amounts of coins and make relatively few transactions. While the term ‘low transaction value’ is relative, you should only store your coins on an online wallet if you would be comfortable walking around with a similar amount of money in your pockets on the street.
Access to an online wallet only requires an email address and password, which makes them quite easy to use. Since they can be accessed from any location with an internet connection, they are also very convenient. However, since they store their keys on the internet, online wallets are the most vulnerable to hacking attacks. You should ensure your online wallet has a very strong password to keep your coins secure.
Mobile Wallets
Mobile wallets are also very user-friendly and are the most convenient to use. These are a good choice for someone who intends to frequently send or receive low amounts of cryptocurrency. For example, someone who frequently makes cryptocurrency payments to gain access to online gaming platforms should consider using a mobile wallet. The convenience of mobile wallets stems from the fact that most people always carry their smartphones with them. This allows them to make on-the-spot cryptocurrency payments. Mobile wallets offer better security in comparison to online wallets. To avoid losing access to your coins in case you lose your phone, you should note down your seed phrase on a piece of paper and keep it safe.
Paper Wallets
Paper wallets have a fairly good amount of security. However, they are the least convenient to use. As such, you should only consider a paper wallet if you intend to store huge amounts of cryptocurrency while making relatively few transactions. To ensure maximum security for your coins, you should set up your paper wallet yourself instead of relying on an online service. One thing you should note about paper wallets is that you cannot spend your coins directly from the paper wallet. To spend the coins, you need to import your private key into another wallet. If you are not careful during this process, you might negate all the precautions you took while setting up the paper wallet.
Hardware Wallets
Hardware wallets offer the highest level of security. They are also quite convenient. This makes them a great choice if you intend to make high-value transactions every now and then. Most hardware wallets look like USB flash drives. However, unlike flash drives, they do not have any storage space for your media and other files. Instead, they are fitted with a specialized chip that stores your wallet’s private key. This allows them to keep your coins safe even in the event that a malicious person gains access to your computer.
Hardware wallets require a password for access to the wallet’s private key, which keeps your coins secure even in the event that someone manages to steal your hardware wallet. As is the case with mobile wallets, you should jot down your seed phrase on a piece of paper and keep it safe. This allows you to retrieve your coins if your hardware wallet gets lost or damaged. Unlike the other kinds of wallets which are free, you have to pay for a hardware wallet.
Desired Traits of a Cryptocurrency Wallet
Apart from considering the transaction value and transaction volume when choosing the type of wallet you require, there are other factors that you should keep in mind when it comes to choosing the actual wallet. These are:
Cost: Some wallets are free while you have to pay for others. Are you willing to spend money to keep your coins safe?
Security: Does the company that provides the wallet have a good record of excellent security? Have there ever been any security breaches within the company?
Mobility: Can you access your wallet any place, any time?
User-friendliness: Does the wallet have an intuitive design? Does it support different kinds of cryptocurrency?
Convenience: Can you easily make a fast transaction when you need to?
Style: This is mostly for people who are looking for cool tech gadgets.
Ideally, a great cryptocurrency wallet should have a combination of the above traits, based on your personal needs and preferences. Below are some popular wallets that you can consider:
Bread Wallet: This is a simple mobile wallet that can be downloaded from the App Store. Bread Wallet makes the process of sending Bitcoins as simple as sending an email. This wallet is a standalone client, which means that it stores your keys on your phone and not on any server. Bread Wallet offers good privacy and security, has a clean, intuitive, and lightweight design, and is free to use. However, Bread Wallet only supports Bitcoin.
Mycelium: This is a strong and secure Bitcoin mobile wallet that is better suited for advanced users. The wallet is available for both Android and iOs devices and gives users total control over their Bitcoins. Mycelium comes with enterprise-level security and offers advanced features like encrypted PDF backups, cold storage, secure chat, a local trading marketplace, an integrated QR code scanner, and many more. This is one of the best free Bitcoin mobile wallets available.
Exodus: This is a relatively new digital wallet that currently works on PCs only. Exodus has an intuitive and beautiful interface that is very easy to use. It allows you to store and trade Bitcoins, Litecoins, Dash, Ether, Dogecoins, and several other altcoins. One of Exodus’s key features is that it has an integrated Shapeshift exchange which allows you to trade altcoins within the app. Exodus is free to use.
Jaxx: This is another popular wallet that supports multiple cryptocurrencies, including Bitcoin, Ether, Ether Classic, Zcash, REP, Rootstock, DAO, Dash, and Litecoin. Jaxx supports a number of platforms, including Windows, OSX, Linux, Android, and iOS. It is also available online through Chrome and Firefox extensions. Just like Exodus, it also has an integrated Shapeshift exchange.
Armory: This is an open-source desktop wallet that is solely focused on security. It has an awesome set of security features that advanced users will love, including cold storage, one-time printable backups, support for multisig transactions, GPU-resistant wallet transactions, multiple wallets interface, Key importing and sweeping, and many more. However, this wallet is not very suitable for beginners. Armory supports Bitcoin only.
Trezor: This is one of the best hardware Bitcoin wallets. Trezor is built to be malware-resistant. It comes with an intuitive interface that is supported on Windows, Linux, and OSX. Trezor offers great security, but you have to part with $99 for the wallet.
Ledger Nano: This is another multisig hardware wallet that uses a second layer of security to eliminate various attack vectors. Ledger Nano supports multiple cryptocurrencies and allows users to run 3rd party apps from the device. It also comes with a screen that allows you to perform some operations without connecting the device to a computer. The Ledger Nano costs about $65.
Green Address: This is a simplistic, user-friendly Bitcoin wallet that is an excellent choice for those who are just getting started with cryptocurrency. Green Address has desktop and mobile apps and is also available online. This wallet has many security features, including multisig addresses, paper wallet backups, 2-Factor authentication, and instant transaction confirmation. However, you do not have total control over your coins since payments have to be approved by Green Address.
Blockchain.com: This is a very popular online Bitcoin wallet. For better security, Blockchain.info uses 2-factor authentication for browsers while the mobile application requests a password every time it is opened. While your wallet is stored online, Blockchain.com is not privy to your private keys. Overall, this is a good online wallet that has earned trust in the Bitcoin community.
Other Important Things to Keep in Mind When Securing Your Coins
Never Leave Your Coins On Exchanges
This is one rule every cryptocurrency user should abide by. Once you buy your crypto coins, immediately transfer them to your wallet. By leaving them on the exchange, you put yourself at risk of losing your coins in case the exchange shuts down or gets hacked (as happened with MtGox and Cryptsy).
Keep Your Assets in A Wallet Where You Have Control Over the Keys
Whoever is in control of the keys to your wallet has control over your funds. Therefore, you should only store your coins in a wallet that gives you total control over your keys. When you leave your coins on the exchange or store them in online wallets that have access to your keys, you are basically handing over the responsibility of keeping your coins safe to these third parties. You should also consider using a unique passphrase to encrypt your wallet for extra security.
Use 2-Factor Authentication On Exchanges
Always secure your exchange accounts with 2-factor authentication. Sometimes, it is necessary to transfer your assets to exchanges when you need to trade. In such instances, a hacker who has compromised your password can easily steal your crypto coins. However, with 2-factor authentication, they would need also need your 2FA code before logging into your account. Since these codes are usually sent to your phone via text message, it would be impossible for an attacker to log into your account unless they had access to your phone.
Take Care When Sending Coins to Others
When sending coins to another user, it is quite easy to erroneously send them to the wrong address. Since cryptocurrency transactions are irreversible, this means that your coins will be gone for good. To avoid such occurrences, you should first send a small amount of cryptocurrency to the address you intend to send to. If that transaction goes on correctly, you can then move large amounts of cryptocurrency with the assurance that you are sending them to the correct address.
Always Backup Your Wallets
Always keep several online and offline backups of your cryptocurrency wallets. For instance, Exodus offers online backups that allow you to restore your wallet via email. You can also use a USB flash drive or write down your private keys on a piece of paper and keep them in a safe place.
With everything you have learned, you should be able to keep your coins safe from loss and theft by malicious hackers. You should also always remember the golden rule of cryptocurrency: Whoever controls the keys controls the assets.
