Cryptocurrency is nothing new to investors, as the market became one of the most profitable in a few years. In 2009, Satoshi Nakamoto delivered Bitcoin, the first decentralized and peer-to-peer cryptocurrency that acts as a store of value. Fast-forward to today, Bitcoin’s market capitalization is close to that of the entire cryptocurrency sector, and it’s slowly moving closer to gold.
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With time, Bitcoin has become more reliable and secure, as worldwide nodes, miners, and validators have contributed to its value and security. Considering this, the cryptocurrency expanded worldwide, so now Bitcoin ATMs are found in almost every big city globally. People can track the BTC price and easily buy Bitcoin with a credit card or debit card, making it quite accessible.
However, keeping Bitcoin safe can be challenging, mainly due to new cybersecurity risks and data breach attacks on individual wallets. So, how should you ensure your cryptocurrency is safe?
Understand the types of wallets
Since the crypto ecosystem has evolved so much, there are a variety of digital wallets, so investors can choose between numerous types of solutions to manage their assets. Every wallet contains a public address and a private key, so your responsibility is to safeguard them, regardless of the solution chosen.
There are mainly two types of digital wallets:
- Cold wallets are not connected to the internet;
- Hot wallets require an internet connection;
Cold wallets can comprise hardware and paper wallets. Usually, hardware wallets are similar to a USB, and you only plug them in when you need to make a transaction. In addition, using paper wallets only requires you to print the QR code of your wallet and use it whenever necessary. These are the safest wallets because they don’t expose your assets to cyber threats.
On the other hand, hot wallets are connected to the internet, as they are either desktop, mobile, or web applications. They’re much more convenient than cold wallets, which is why most people prefer them. However, they expose investors to great cybersecurity risks.
What’s the best option for you?
When choosing a crypto wallet, consider a few factors. First is your risk assessment. Since they’re not accustomed to market fluctuations, beginners usually have a higher risk level and are prone to making FOMO-driven mistakes. In addition, their lack of cybersecurity awareness can expose them to losing their funds, which is why a cold wallet is best for them. Although it might require a bit more knowledge, it’s worth the shot.
Crypto experts can use whatever wallet they consider best, as their experience in the field can protect them from human mistakes. However, it might be a good idea to have more hot or cold wallets so they can safely and securely spread their investments.
What about self-custodial wallets?
Considering the massive attacks of cryptocurrency, such as the FTX collapse, some investors prefer to control their assets using a self-custodial wallet. This technology allows them to manage their own security while using regular wallet functions without needing third parties.
Indeed, using a self-custodial wallet requires extensive knowledge of blockchain and network technology. The lack of involvement from exchanges and other companies means owning the responsibility to ensure your wallet’s security.
There are other benefits to a self-custodial wallet, including the ease of setting it up. At the same time, you have lower fees compared to custodial wallets, as there are no costs involved from third-party maintenance. Unfortunately, a self-custody wallet includes non-recovery risk, so you can permanently lose your assets if you’re not careful.
How can you protect your wallet?
Regardless of the type of wallet you use for transactions and portfolio maintenance, protecting it is vital for ensuring its integrity. For example, always enable multi-factor authentication and include a mobile-generated code when logging in. A multi-signature wallet is ideal for multiple accounts as it reduces single points of failure.
It’s a no-brainer that you should make your passwords as strong and complicated as possible (in a way that allows you to remember them by heart), but you should still store the seed phrase for backup. Additionally, make sure to keep your devices malware-free through reliable cybersecurity solutions.
What are you protecting your wallet from?
Learning about the latest and most prominent attacks is recommended to know what you’re protecting yourself from. For example, read about the LastPass incident, in which a hacker’s heist led to $4.4 million being drained from people’s LastPass wallets. This happened due to exploiting a vulnerability in the system, affecting the ones with the lowest security measures.
There’s also the BitForge attack in which major wallet providers experienced issues due to cryptographic protocol flaws that gave hackers access to people’s private keys. Popular wallet businesses can also experience phishing attacks, in which hackers pretend to be trusted entities, making users give away their information through email or text.
Therefore, you should always be careful who is behind an email or message because hackers can craft it to become trustworthy. Check for grammatical errors or unusual language forms, and check the email’s source thoroughly before clicking on any links attached.
Finally, always diversify your investments
One of the best ways to protect your funds is to diversify them. This means your portfolio should be as diverse as possible and spread across multiple wallets. In case of an attack on a centralized exchange or company, you can at least have the other investments to cover the losses.
That‘s why choosing both hot and cold wallets is best because they offer you the option. In addition, multiple wallets and portfolios help gather experience in crypto investing and asset safety, but you have to manage them thoroughly.
What type of digital wallet do you use?
Digital wallets help maintain and manage cryptocurrency security because they ensure easy access. However, some are safer than others. While hot wallets are easy to use and have a friendly interface, they expose users to cyberattacks. On the other hand, cold wallets might require a bit more knowledge of blockchain, but since they don’t need an internet connection, they provide enhanced security.
