You’ve got your hands on your first cryptocurrency wallet. Congratulations! It’s important to protect your digital assets when you become a cryptocurrency trader. Here are a few tips you can follow to enhance the security of your wallets.
Perhaps one of the most daunting comes towards the end of the journey: where do you store your newly bought cryptocurrency and what’s the difference between a hot wallet and a cold wallet?
Understanding Your Wallets
Cryptocurrency wallets are used to store the public and private keys of your account, keep track of the balance, conduct transactions in sending and receiving the currencies, as well as other functions with the blockchain. Wallets are divided into two types: hot wallets and cold wallets. Hot wallets are accounts on cryptocurrency exchanges, or accounts based on online websites. Cold wallets are accounts stored on an offline means: software, hardware, or paper. Therefore, in order to protect confidential data from becoming exposed in public and vulnerable to hackers, traders are advised to use cold wallets. For cold wallets, account keys required to access the cryptocurrencies are only used when trading takes place and disconnected afterwards. Having and keeping a physical cold wallet in a safe place ensures that only you have access to your account and all your funds.
When you are evaluating hot wallet vs cold wallet, you need to consider the balance of accessibility and security that you require. It’s worth keeping in mind that you don’t have to definitively choose either a hot wallet or a cold wallet solution, you can store a percentage of your funds in each to mitigate risk while maintaining accessibility as required.
Cold wallet explained
For any cryptocurrency assets that you don’t need instant access to, it’s best to store them offline in a cold wallet. Maintaining high levels of security is key in crypto.
There are different choices of cold wallet, such as a hardware wallet or a paper wallet. A hardware wallet is an external device like a Ledger Nano S or Trezor that stores your private keys. You must push a button to complete a transaction, so hackers cannot take control. Hardware wallet access is locked behind a password or pin. In general, the funds stored on a hardware wallet are fairly accessible, as long as you have access to the wallet.
A paper wallet is a print out of the private key and pubic address on a sheet of paper or another material. This is generally regarded as a risky form of cold storage, because you can lose the paper or someone could easily find it and access your funds.
Another cold storage option is to utilize a secure crypto exchange like Liquid, where all customer funds are stored in cold storage, so if you don’t want to manage the cold storage process for your funds, you can look to Liquid to ensure your funds are completely safe, kind of like a custody solution.
Hot wallet explained
Hot wallets are more common, but they are higher risk. There are a number of popular hot wallets for the Ethereum network which work on your web browser, such as MyEtherWallet. If you download a wallet to your desktop or your phone, that is also a hot wallet because it is connected to the internet.
Most exchanges utilize hot wallets at least to some degree. This allows for fast access to user funds. However, it also means if you are storing your funds on an exchange with these practices, those funds could be at risk. The wallets are connected to the Internet, so they are always being targeted by malicious individuals and hackers.
Choosing between hot or cold wallet
There’s no simple answer to this question. Every cryptocurrency user needs to evaluate their requirements. If you are going to only hold, cold storage is the way to go. If you are planning to execute big trades in the near future, consider a hot wallet. If you are going to do a bit of both, or if you want to trade but mitigate risk, store funds in both hot and cold storage.
Storing crypto in a hot wallet doesn’t necessarily mean it’s unsafe, it just means your funds are more at risk to hacking. Utilize the different kinds of wallets to mitigate risk as much as you can, while maintaining the access you need. If need any help storing you funds securely, look to Liquid. We’ve got you covered.
Tips for Keeping Your Wallets Secure
Once you have your funds stored in your private wallet(s), you are self-responsible for keeping your private keys securely to protect your cryptocurrency funds. Read on to learn how you can keep your funds safe.
Enabling two-factor authentication (2FA) on your wallet is a simple yet effective method to protect your sensitive information as you sign into your account. You can choose to use the Google Authentication mobile app with a six-digit code that refreshes every minute, or a biometric identification, such as touch ID from your fingerprint.
It’s advisable to place your funds in several wallets instead of one place. You should keep your funds separately in a hot wallet for short-term use in trading and exchanging, and on at least one cold wallet to securely store your funds in the long run. Once you finish your transactions, you should not keep your funds in the exchange in a prolonged amount of time.
Beware of Phishing Websites and Emails
A myriad of phishing Google Ads and emails are becoming increasingly elaborate and convincing. You should always double-check the address of the websites and emails of the exchanges before you enter your information to log into your account. Pay attention to whether websites have proper HTTPS certificates, instead of only HTTP, and a lock symbol next to the address.
Only Use a Secure Wifi Connection
Public WiFi connections might make you exposed to malicious actors. Make sure that you are using a safe and reliable WiFi connection with a strong encryption like WPA-2 protocol when you make transactions on exchanges or use devices with data from your wallets.
Check the Address
Before you make any payment transaction, double-check the crypto address to make sure you are sending funds to the correct place. This is to prevent the situation where malicious programs edit and paste a hacker’s address as the recipient of your transaction.
Use a Separate Non-Public Email Address for Your Accounts
Even when you keep your funds in cold storage, some hackers can still manage to break your wallets. You should use an email address separate from your normal personal or work usage, set a strong password and enable 2FA for your email address log-in.
Regularly Update Your Device Software
In order to prevent your devices from potential malware attacks, installing anti-virus software is a good move to take. Having frequent software updates and virus scans can make your devices less vulnerable to such attacks.
It’s crucial for you to know how to manage your cryptocurrencies safely and securely. These are some of the tips will help you become more savvy in improving your online security and protecting your wallets.