Cryptocurrencies are stored in the blockchain. To access them however, it is essential that a means of ownership is established. This is done using a means of digital identification known as the public and private keys. These keys are stored in a digital software program known as a digital wallet.
Types of Wallets
Wallets are broadly classified into hardware and software wallets. Hardware wallets are of a physical nature. Two brands are easily recognized; those made by Ledger Nano and the Trezor wallet. They are meant for storing the public and private keys of your cryptocurrency holdings offline. As such, they provide better security, as the keys are not vulnerable to being stolen by hackers. Software wallets are not of a physical nature. They are further divided into web-based, mobile or desktop wallets. These are stored on a computer or mobile device. They are more vulnerable to hack attacks because they are online wallets.
The greatest problem facing the cryptocurrency market today is theft. Thefts occur from hacks into exchanges, online wallets, and also during the process of entering wallet details during transactions. Cryptocurrencies are basically stored on the blockchain. It is the keys that provide the identity for each entity’s crypto holdings. This means that anyone who gains access to private keys essentially takes over ownership of the wallet and its contents. That is why wallet security is a very important aspect of the crypto ecosystem.
So what mechanisms can you put in place to protect your wallet? The following tips are useful.
- Get a hardware wallet; either the Ledger Nano S or the Trezor wallet brand will do. These are multi-currency hardware wallets which are portable and can easily be used by anyone. The Ledger Nano S is shaped like a USB device and can attach to a computer enabling the keys to your wallet to be released. Hardware wallets are safer than online wallets, as long as you can keep them safely.
- If you are using an online wallet, see if you can use a browser extension. For instance, you can use Metamask for Ether. This works as a browser extension. You can import your public and private keys into the extension ONCE, and you will never need to enter those details again when sending your Ether to another source.
- As much as possible, use 2-factor authentication (2FA). This is a system of validating that the person transacting with the crypto coins is the actual owner of those coins. So you will need to integrate your exchange to the authenticator app (such as Google Authenticator), so that when prompted by the exchange to provide the authentication code, you can use the app to generate the code. Codes are only valid for about 2minutes, which provides extra security for the account.
- Do not store your private keys and recovery seed phrases online, or on your computer where hackers can easily gain access to them. Do not write your seed phrases and leave it where third parties can gain access to them.
- Do not disclose your private keys to anyone. Do not send them via email and do not click on links in your email requesting you to provide this information.
- If you suspect that your details have been jeopardized, immediately change your account passwords or move your cryptocurrency holdings to another wallet. The good thing here is that you can create multiple wallets; there are no restrictions on the number of wallets you can own. So you can easily move your funds from one wallet to another as a means of protecting them in the manner described.