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9 Crypto Wallet Security Tips To Safeguard Your Assets

16 mins
Updated by Artyom Gladkov
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Whether you are a trader, long-term investor, or developer, crypto wallet security is of the utmost importance. It can be tempting to jump head-first into trading before learning how to secure your crypto. Despite the risks, it is easy to assume that hacks could never happen to you. However, they can and they almost certainly will unless you follow these essential crypto security wallet tips.

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Importance of crypto wallet security

Importance of crypto wallet security

The year 2022 saw the largest extraction of value from crypto users from security hacks. According to blockchain security firm Chainalysis, hackers stole approximately $3.8 billion in crypto, mostly from DeFi protocols and centralized businesses. The most important thing to remember is that no one is immune from hacks, even businesses, and legacy protocol developers.

Earlier this year, Bitcoin developer Luke Dahsjr made headlines when he lost $3.6 million in bitcoin to a hacker. Similarly, renowned market maker, Wintermute, lost $160 million due to a DeFi exploit.

crypto wallet security chainalysis
Crypto hacks 2022: chainalysis.com

Whether you are an average Joe, a multi-billion dollar business, or a super programmer, you can not “afford” to skip on crypto wallet security — literally.

Potential threats to digital assets

Cryptocurrency is still a nascent industry; therefore, it is a honeypot for hackers. Multiple code audits give customers assurance that their funds are “safu” (safe). Although, this does not always guarantee that you will not lose your funds to an exploit. Even professionals can miss bugs hiding in a code.

At any rate, the biggest threat to your cryptocurrency is you. Crypto wallet security does not fall on the code alone. Ask yourself, should I use this website that does not have an SSL/ TSL certificate? Should I download this file? Is it safe to leave my laptop open, on, or connected to WiFi when I am not using it? In this situation, common sense is your friend.

Next, focus on potential threats. For example, Solana’s Slope wallet suffered a major hack. Though the wallet worked properly, the security risk was a result of bad security practices, on the part of the company, rather than code risk.

The wallet provider saved their user’s seed phrases in plain text (a huge no-no) on a centralized server — from a third-party provider! In this situation, the risk was counterparty risk. In summary, some of the biggest threats to crypto wallet security are:

  • Yourself
  • Code risk
  • Counterparty risk

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9 essential crypto wallet security tips

1. Choose a reputable wallet

Types of wallets

You are probably already familiar with the different types of wallets, but let’s recap just for kicks-and-giggles. You can break down crypto wallets in multiple ways. There are hot and cold wallets, software and hardware wallets, and custodial and non-custodial wallets.

  • Hot wallets — maintain a constant connection with the internet
  • Cold wallets — do not maintain a connection with the internet and store your private keys offline
  • Software wallets — are applications that run on a phone, tablet, or computer
  • Hardware wallets — are devices specifically built to hodl crypto
  • Custodial wallets — are maintained by centralized companies
  • Non-custodial wallets — the user has sole custody of their private keys

As you can imagine, some hot wallets are also software wallets and custodial or non-custodial wallets. Likewise, cold wallets are typically non-custodial and hardware wallets. Regardless, these are all features that help the user evaluate their specific security needs. As a rule of thumb, cold, hardware, and non-custodial wallets are the safest.

Wallet reputation and reviews

Naturally, if a wallet receives consistently bad reviews, it is a tell-tale sign to stay away. However, you must evaluate the weight of the reviews. If most of them revolve around a wallet’s user interface, it’s probably not the biggest security risk. On the other hand, if the reviews cite a bad random number generator (RNG), this is a huge red flag.

Desktop Wallets

Nexo Wallet

Desktop Wallet
Nexo
Nexo
Availability
100+ countries
Cryptos
30+
Transfer Fee
Zero deposit fees, 5 free withdrawals per month
Interest
Up to 20%

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StormGain Wallet

Desktop Wallet
Availability
100+
Cryptos
10
Transfer Fee
Zero deposit fees, Fixed withdrawal fee + 0.1%
Interest
Zero interest

Mobile Wallets

ZenGo

Mobile Wallet
ZenGo
Availability
US, EU, and 180+ countires
Cryptos
70+
Transfer fee
Network gas fees for sending and receiving
Interest
5.16% on Tezos

Exchange Wallets

Bybit Wallet

Exchange Wallet
Bybit
Bybit
Availability
100+ countries
Cryptos
10+
Transfer fee
Network gas fees
Interest
No interest

Binance Chain Wallet

Exchange Wallet
Binance
Binance
Availability
Global
Cryptos
100+
Transfer Fee
Network gas fees
Interest
Up to 30% BNB

Coinbase Wallet

Exchange Wallet
Coinbase
Coinbase
Availability
Global
Cryptos
100+
Transfer Fee
Network gas fees
Interest
Zero Interest

Kucoin Wallet

Exchange Wallet
Availability
Global
Cryptos
100+
Transfer fee
Kucoin and network gas fees
Interest
Zero fees

Hardware Wallets

Ledger

Hardware Wallet
Ledger
Ledger
Availability
100+
Cryptos
5,000+
Transfer fee
Network gas fees
Interest
Zero interest

Trezor

Hardware Wallet
Trezor
Trezor
Availability
200+ countries
Cryptos
5,000+
Transfer fee
Network gas fees
Interest
Zero interest

Safepal

Hardware Wallet
Availability
100+ countires
Cryptos
30K +
Transfer fee
Network gas fees
Interest
Zero interestt

2. Use strong and unique passwords

crypto wallet security passwords
The time it takes a hacker to brute force password: hivesystems.io

Password best practices

You should use a good password in all areas of activity but especially regarding crypto wallet security. The image above shows how long it takes to brute force a password. The longer the password and the more variation in letter case, symbol, and numbers, the longer it takes to crack your password.

As a rule of thumb, it is best to rotate passwords regularly. Malicious actors on the dark web often sell personal information, including passwords. Additionally, centralized companies incur data breaches regularly, so your passwords could be floating around on the internet, waiting for someone to use them.

Centralized companies should SALT your passwords before placing them in storage. Password salting is a way to protect passwords in storage by hashing them with random bits of data. A company should never store your password in plaintext.

Password managers

A password manager is a great way to keep track of what passwords you use and where you use them. With one, you do not have to remember every password. This allows you to use strong and unique passwords without reusing the same ones — which is not a good idea.

What’s more, some password managers come with password generators. Password generators are excellent for creating strong passwords, especially when used in tandem with a password manager.

Google accounts come with password managers, but it is using a dedicated password manager is better. Google is a centralized company, making it a failure point. On top of the conglomerate maintaining a vast amount of users’ data, most internet services are Google-dependent, and the organization often suffers data breaches.

3. Use two-factor authentication (2FA)

2FA methods

Two-factor authentication (a.k.a. 2FA) or multi-factor authentication (MFA) provides an extra layer of security to your crypto wallet. But what is it? MFA or 2FA is an authentication method that requires multiple steps for a user to prove knowledge or possession to gain access to an account. You likely use 2FA daily when logging into an account with a pin and password.

Most crypto wallets that use 2FA are custodial. The Exodus and crypto.com wallets are examples of wallets that use 2FA in some form or another.

Authenticator apps

An authenticator app is a supplementary app that allows you to prove your identity to an application or service. They generate unique one-time passwords (OTP) or pins. Many authenticator apps are time sensitive, meaning you have limited time to use the OTP before it expires. The app will typically send a code directly to your phone so that you can log in.

At the moment, there are not many MFA crypto wallets, as they require centralized services. According to imToken’s 2023 Crypto Wallet Report, more users would be willing to use custodial wallets if they enabled MFA.

4. Keep your wallet software updated

Regular updates

Always keep your wallet software updated. You should do this as a best practice but also be aware of fake updates. This has happened to both Bitcoin wallet Electrum and Solana’s Phantom wallet. Fortunately, fake wallet updates are not typically how funds are stolen from wallets.

Security patches

Crypto wallets may undergo regular updates to fix security patches. As stated before, code audits help discover critical vulnerabilities in wallets, but this is sometimes not enough. Bugs can pop up later on. Most projects will not divulge the bugs immediately but will offer a patch without exposing the nature of the vulnerability.

Updates solve security vulnerabilities and bugs, but they also may improve performance.

5. Use secure internet connections

Avoid public Wi-Fi

Most operational security (opsec) experts will tell you never to use public WiFi. Public WiFi networks may expose users to potential security risks as hackers can insert themselves between you and the connection point. Thereby allowing your device to communicate with a potential exploiter.

In the same sense, it isn’t the best security practice to transact with your crypto wallet publicly — at least for now. When crypto adoption becomes more mainstream, this may be subject to change. Regardless, making crypto transactions while connected to public WiFi is not a good idea.

VPN usage

A virtual private network (VPN) can assist you in circumventing geographical restrictions for online services. It can also anonymize your online activity and prevent hackers and marketers from tracking you or gaining access to your personal information.

6. Store private keys offline

Store private keys offlin

Cold storage methods

Cold wallets are synonymous with cold storage. When you use cold storage, it means that your private keys are stored offline. Hot wallets like Metamask store your (encrypted) private keys in the browser. Contrary to popular belief, your wallet does not actually hold your crypto. They generate and hold your private keys.

Using cold storage is much safer than using hot wallets. Hot wallets are vulnerable to online attacks because they are connected to the internet. They are more convenient for using decentralized applications (DApps), while cold wallets are less convenient for such activities.

Hardware wallets

When it comes to crypto wallet security, hardware wallets are top-of-the-line. Hardware wallets are made specifically for cold storage solutions. They typically look like a USB drive, are lightweight, and connect to a pc. The most popular hardware wallets on the market are the Ledger Nano and Trezor brands.

However, hardware wallets also come with a caveat. If the computer you connect your hardware wallet to is compromised, it presents a vulnerability to the hardware wallet.

7. Regularly back up your wallet

Back up options

Another crypto wallet security practice is backing up your wallet. There are multiple ways to back up your crypto wallet. You are likely most familiar with the method popularized by Bitcoin Improvement Proposal 39 (BIP-39), or seed phrases. But there are other unique ways to back up your wallet.

You can always physically write down your private keys (a.k.a. paper storage), although this is not recommended for beginners. These are the two oldest methods to back up your wallet in crypto. Due to the prevalence of crypto exploits today, developers are experimenting with more features.

Back up storage options

An increasingly popular method to back up your wallet is recovery files. In this method, you create a crypto wallet recovery file to restore your wallet. The file is encrypted and stored, typically on a cloud service provider like Google, Dropbox, or iCloud, then used to recover your wallet. However, you should be aware that storing sensitive data in the cloud is considered risky.

If you are interested in a wallet that uses recovery files, then why not try ZenGo!

Another method that is gaining popularity is MPC or multi-party computation. With MPC, your private key is split, a portion stored locally and a portion stored remotely. Recovery kits and MPC may be more convenient for new users; however, they do introduce counterparty risk to storage providers.

There are multiple ways to back up crypto wallets with unique methods like NFTs or QR codes. We are even witnessing the advent of social recovery, where you can designate family or friends as trusted parties to restore your wallet. But these methods are not as popular as the aforementioned, and may not always be as safe, either.

8. Be cautious of phishing scams

Recognizing phishing attempts

Phishing is a form of social engineering. When used, the attackers present themselves as legitimate services, businesses, institutions, or applications. They sometimes email, message, call, or create fake websites to lure victims into downloading malware or sending sensitive information. The example below is a tweet of a fake Arbitrum airdrop.

Protecting against scams

If you want to avoid these types of scams, you should only download or use services from official websites. Google Play, App Store, or Microsoft Store are examples of platforms that vet applications. If you can, you should stick to vetted apps to download.

Another way to avoid phishing scams is to avoid giving sensitive information or a significant amount of capital. You should also stay vigilant of fake technical support messages and DMs out of the blue for trading bots and investment opportunities.

9. Limit your exposure by using multiple wallets

Diversifying risk

Another method of crypto wallet security that is often overlooked is risk diversification. You should have multiple wallets for different uses. For example, if you like to test new technology and are constantly connecting to new decentralized applications, you should have a burner wallet.

With this wallet, there is no real capital at stake. You can have another wallet for liquidity mining and yield farming. It’s all about your personal needs. With wallets like MetaMask or Brave, you can create as many wallets or browser instances as you need within minutes. They are completely separate from each other and minimize risk.

Practice crypto security to keep your funds safe

If you practice these nine crypto wallet security tips, your funds are much safer than if you did not. Although, you should remember that every user is their own biggest risk. The more you educate yourself on crypto, the smaller that risk is.

Frequently asked questions

How safe are crypto wallets?

Which crypto wallet has the best security?

How can I protect my crypto wallet?

Are crypto wallets monitored?

Can someone steal your crypto wallet?

Can a crypto wallet crash?

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Ryan Glenn
Ryan Glenn is a journalist, writer, and author. Ryan is motivated to educate as many people as possible on the benefits of web3 and cryptocurrency. He has authored “The Best Book for Learning Cryptocurrency,” and runs an educational platform, web3school.us, dedicated to demystifying the crypto space. Ryan built the platform to transition tech-savvy and non-tech individuals into crypto and give everyone a baseline understanding of the different fields in the cryptosphere. Ryan is also an...
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