In recent years, cryptocurrencies have become increasingly popular. More and more people are investing in various digital assets, including Bitcoin, Ethereum, and Litecoin, to name a few. As the use of cryptocurrencies continues to grow, so does the importance of securing them. One way to do so is by using a crypto wallet. But with the increasing number of scams and hacks, it’s crucial to know how to save funds in crypto wallets. In this article, we’ll discuss the best practices for securing your digital assets and preventing losses.
What are Crypto Wallets?
A crypto wallet is a software program that stores your public and private keys, which are used to access your cryptocurrencies on the blockchain. There are two types of wallets: hot wallets and cold wallets. Hot wallets are those connected to the internet, whereas cold wallets are offline, not connected. Each type has its own pros and cons, so it’s essential to choose the one that suits your needs and preferences. Below are the most popular cryptocurrency wallets in use.
Types Of Crypto Wallets
There have been numerous ways of classifying crypto wallets, Most of which depend if the wallet is connected to the internet or not. Also, crypto wallets can also be classified based on the nature of the software running them. Here are the simplified types of crypto wallets;
Paper Wallets
Paper wallets are physical copies of private keys and public addresses printed on a piece of paper. They are not connected to the internet, making them an excellent option for storing large amounts of cryptocurrencies offline. Paper wallets are created using open-source software that generates a random private key and public address. Users can then print the information and store it in a secure location.
These kinds of wallets are considered to be the most Secured type of cold storage wallet because private keys are stored offline. It is often used for Long term storage of cryptocurrencies. Unfortunately, They are the least convenient as they aren’t user-friendly and not suitable for regular use.
Hardware Wallets
Hardware wallets are physical gadgets used to store cryptocurrencies offline. They are often referred to as cold wallets because they are not connected to the internet, making them less vulnerable to cyber attacks. Hardware wallets use encryption technology to secure private keys, which are necessary for accessing and managing cryptocurrencies. The most commonly used hardware wallets include Ledger, Trezor, and KeepKey.
They are considered a very secure type of wallet as their private keys are stored offline, supports multiple cryptocurrencies and it is easy to use. However, they are expensive and if stolen, hardware wallets can be difficult to recover and the drive could sometimes be physically damaged.
Software Wallets
Software wallets are the most popular type of crypto wallets, and they are available for desktop, mobile, and web-based platforms. They store private keys on a device connected to the internet, and you can access your wallet with a username and password.
Software wallets are further subdivided into Desktop, Mobile, and Online wallets depending on the platform where the hosting server is located.
Desktop Wallets
Desktop wallets are software applications installed on the computer. They offer a high level of security and allow you to store multiple cryptocurrencies in one place. Desktop wallets can be further divided into two types: full-node wallets and light-node wallets.
Full node wallets download the entire blockchain, which makes them the most secure option. However, they require a lot of storage space and can be quite resource-intensive. Examples of full-node wallets include Bitcoin Core and Ethereum Wallet.
Light node wallets, on the other hand, do not download the entire blockchain. They rely on third-party servers to access the blockchain, which makes them less secure but more convenient. Examples of light node wallets include Electrum and Exodus.
Mobile Wallets
Mobile wallets are software applications that you can install on your mobile phone or tablet. They offer a convenient way to access your digital assets on the go. Mobile wallets are usually simpler than desktop wallets and offer fewer features. However, they are still a secure option for storing small amounts of cryptocurrencies. Examples of mobile wallets include Mycelium and Jaxx.
Web Wallets
Web wallets, also known as online wallets, are hosted by a third party on the internet. They allow you to access your digital assets from anywhere, as long as you have an internet connection. Web wallets are easy to use and do not require any downloads or installations. However, they are also the least secure option because your private keys are stored on a server that can be hacked. Coinbase and Blockchain.info are the examples of Web wallets.
Online Wallets
Online wallets, also known as hot wallets, are web-based platforms that store private keys on a server controlled by a third party. They are the most convenient type of crypto wallet, but they are also the least secure. Some popular online wallets include Coinbase, Binance, and MyEtherWallet.
With the increasing pop-ups of crypto wallets it has become pertinent to protect your crypto assets so let us discuss more on securing our wallets, whatever type they might be.
Securing your Crypto wallets
Given that cryptocurrencies are virtual and decentralized, it is critical to take extra precautions to ensure that your funds are secure. Here are some tips for securing your crypto wallets
- Set Up a Strong Password: One of the simplest ways to secure your crypto wallet is by setting up a strong password. The password should be unique, long, and complex, and it should not be used anywhere else. It is best to stay clear from using personal information and words that can be easily guessed. Sometimes it is advisable to use a password manager which generates and stores complex passwords for you.
- Enable Two-Factor Authentication (2FA): Two-factor authentication is a security feature that adds an extra layer of protection to your crypto wallet. With 2FA, you need to provide two forms of identification before you can access your account. This can include a password and a verification code sent to your mobile phone or email. Enabling 2FA significantly reduces the risk of unauthorized access to your wallet.
- Keep Your Seed Phrase Secure: When you set up a crypto wallet, you will be given a seed phrase, also known as a recovery phrase or backup phrase. This phrase is a sequence of words that can be used to restore your wallet if you lose your password or your device. It’s crucial to keep your seed phrase secure and not share it with anyone. You can write it down on a piece of paper and store it in a safe place or use a hardware wallet that encrypts and stores it for you.
- Regularly Update Your Wallet: Crypto wallets are not immune to vulnerabilities, and developers are constantly working to fix bugs and improve security. It’s essential to keep your wallet updated with the latest version, as updates often include security patches and bug fixes. You should also avoid downloading wallets from untrusted sources or clicking on suspicious links.
- Be Aware of Scams and Phishing Attempts: Scams and phishing attempts are prevalent in the crypto world, and they often target inexperienced users. Scammers may try to trick you into revealing your password or seed phrase by posing as a legitimate service or company. Be wary of unsolicited emails, messages, or social media posts, and always verify the authenticity of the sender before providing any sensitive information.
- Diversify Your Investments: Investing in a single cryptocurrency or keeping all your funds in one wallet can be risky. It’s essential to diversify your investments and spread your funds across multiple wallets or assets. This way, if one wallet is compromised or one asset crashes, you won’t lose all your funds.