You’ve learnt what an NFT is and have been dabbling in the world of cryptocurrency for awhile now. In fact, you’ve actually had a few successful transactions…but how do you ensure your cryptocurrency remains secure online? Even as more people tune into the benefits of cryptocurrency, even more thieves, scammers and hackers are learning how to access your digital assets online. You don’t want to be caught out, especially when you’ve accumulated a large sum of money. This is why it’s important to be aware of your cyber security options and keep your digital assets safe. One of the best ways to ensure you remain secure online is with a crypto wallet.
Let’s take a look at the pros and cons of a crypto wallet and how to keep yourself safe online with crypto security options.
What are crypto wallets?
Crypto wallets (https://learn.swyftx.com/security/how-to-secure-your-cryptocurrency/) are a new way of “storing” digital assets online. They are very similar to your regular bank account as it enables you to send and receive money, pay for goods and services, and save it online. Where it exceeds your regular bank account is that you can also use it to trade and store additional assets, including NFTs.
Crypto wallets are available in the following 3 formats:
- Software wallet
- Hardware wallet
- Paper wallet
There are benefits and downsides to each of these crypto security options. A software wallet, also known as a hot wallet, tends to be preferable as it provides more convenience and quick access to your digital assets. Software wallets are usually found on cryptocurrency exchanges. However, some people opt for hardware or paper solutions, also known as a cold wallet, as they can provide more security. This is because they are disconnected from the internet, which means your assets are protected from cyber thieves, but it is more difficult to access your funds quickly.
How do crypto wallets work?
Similar to locking your physical assets in a safe or behind your doors, you also use keys in crypto security to keep your assets safe. Crypto wallets provide the ability to keep track of private and public keys in addition to your digital assets. Each wallet has a unique address that is a long string of alphanumeric characters.
A crypto wallet is comprised of 3 elements:
- Public key: similar to your bank account number, public keys allow you to receive cryptocurrency assets.
- Private key: allows you to “lock” or “unlock” your crypto wallet, move your assets or purchase goods and services. You should never share private keys.
- Wallet address: this is the actual number you should be sharing to receive or exchange assets.
When you first create a crypto wallet, you will be issued a “seed phrase”. This is a sequence of 12 random words which you need to input in the correct order to access your wallet. It’s very helpful to have the seed phrase for when you forget your password or your private keys. It provides you with an extra layer of protection and crypto security and gives you the opportunity to still access your funds if you ever happen to lose access to your wallet. But always keep these seed phrases private, to ensure you aren’t giving access to anyone else.
Software wallets are also known as “hot” wallets because they are connected to the internet. While they may not be the most secure option, they provide you with a lot of convenience and remain the preferred choice for many cryptocurrency exchanges. but are more accessible in that they are all connected to the internet in some way. This is considered less secure but is preferred by some users for the sake of convenience.
There are a number of options when it comes to choosing a software wallet. This includes:
- Desktop wallets: this option used software installed on the computer, providing more control over funds.
- Hosted web wallets: this option is used to interact with blockchains through a browser. Keys and assets are stored by a third party.
- Non-custodial web wallet: This option can be used to interact with blockchains through a browser or plugin. It gives users full control of their assets. The most popular version is MetaMask (https://metamask.io/).
- Mobile wallets: this option was specifically created for smartphones. It uses QR codes and similar technology to make sending and receiving crypto a lot more convenient.
Hardware wallets are also known as cold wallets because they are stored away from the internet. Using a hard wallet will prevent private keys from being exposed online as they cannot be easily access by thieves or hackers. There are several popular companies which provide hardware wallets such as Ledger (https://www.ledger.com/) and Trezor (https://trezor.io/).
These wallets most resemble a USB flash drive and are the most convenient form of cold storage. In order to access your funds you need to connect the device to a computer with internet access. The wallet then acts as a “bridge” and signs off on the transactions before accessing the blockchain.
Hardware can be a great option if you need to balance security and convenience, however this does mean that they are usually the most expensive option.
A paper wallet, another form of cold wallet, is a very basic option that could provide the most security. A paper wallet means storing your private keys and seed phrases, or a suitable QR code, on a physical piece of paper or similar item. This is the cheapest option as it doesn’t require any expensive technology or gadgets. There are no concerns over cyber security because there is no connection with the internet. However, using this as your only option does leave you vulnerable to other issues such as misplacement or destruction, or even a more catastrophic event like a house fire.
Regardless of which option you choose, you can rest assured your assets will remain safe. All 3 forms of crypto wallet provide secure and effective ways of storing your digital assets. Ultimately, you should choose which option is best for you based on how often you interact with cryptocurrency exchanges and blockchain. Software and hardware wallets are the best option for anyone who regularly trades, such as an NFT collector or crypto trader. However, if you are merely looking for the most secure storage option for a long period of time, a paper wallet is your best bet for crypto security.