The popularity and surge in prices of digital or cryptocurrencies in the last decade have made it more susceptible to malicious attacks and hacks. The economics of hacking suggests that cybercriminals would gravitate towards cryptos since they are increasing in value and becoming more relevant.
When your cryptocurrency account is hacked, it becomes a big challenge for you since these coins are not regulated by the government or central bank, leaving the investor’s discourse legally unviable. According to ‘Anti-Money Laundering (AML)’ reports from the blockchain security firm CipherTrace, cryptocurrency crimes hit over $4.5 billion worldwide in 2019. The numbers have only exaggerated since.
Most of these threats come through cryptocurrency wallets or digital wallets, but let us first understand what these wallets exactly are.
No, the crypto wallets do not store your digital coins; instead, they store your private keys and allow you to send, receive, and spend cryptocurrencies like Bitcoin and Ethereum. Crypto wallets keep your private keys – the passwords that give you access to your digital currencies.
Unlike a regular wallet that holds cash, a crypto wallet does not hold cryptocurrencies. The cryptos live on the blockchain and can be accessed only by the key present in the wallet. If you lose your private keys, you lose access to your money. Yes, there you have your answers; this is why securing your wallet is so important.
How do you use a crypto wallet?
Crypto wallets can range from just a simple-to-use app to a complex security solution. There are two types of blockchain wallets based on private keys- hot wallet and cold wallet. Hot wallets are user-friendly wallets that we carry for day-to-day transactions, whereas cold wallets are like vaults that store cryptocurrencies with a high level of security. These can be further broken down into paper wallets, software wallets, and hardware wallets.
Let’s understand how crypto wallets work with a simple example. For Mark’s 23rd birthday, Frado wants to send him some money. Mark has a cryptocurrency wallet app on his phone, and he gives Fardo his public address. Following that, Frado sends one Bitcoin to the public address. Once the transaction is authenticated on the blockchain, Mark becomes the owner of the Bitcoin. Later, Mark wants to book a flight, and fortunately, his travel agent accepts the payment in bitcoin. He directs the precise amount from his crypto wallet to the travel agent and receives the ticket in return.
How to secure your cryptocurrency?
Cybercriminals use sophisticated techniques to compromise digital wallets and steal assets without the user’s knowledge. Here are some of the ways to secure your cryptocurrency.
Take a Hybrid Approach
More physical or offline wallets should be used for storing the majority of the cryptocurrency, and only a bit should be stored in the online wallet. The physical wallets should be stored securely, such as in a deposit box. The private and the public keys should be separated and secured with strong passwords and multiple authentications.
Work with Reputable Wallets, Brokerages, and Apps
Before selecting the investment platform, investors should clearly and carefully understand the platform’s security features and how their data will be protected. The platform you choose should incorporate best security practices such as requiring multifactor authentication, SSL/TLS encryption, and air-gapped devices. Whether you use one or more than one platforms, it is important to maintain a secure password manager to ensure that the password is not lost.
The cybersecurity provided to your wallet is only as good as your understanding of it. A crypto wallet is a piece of data and code that holds a great value for you and others. Cyberattacks are staged to establish a foothold first and expand before attacking your wallet. You need to be aware of the processes of how it is used in transactions so your networks are not compromised.
Avoid Sharing the Key
The secret key is used to validate whether the person sending or receiving the digital coins is the owner of the wallet being used. The secret or private key should never be shared and should be stored using cold storage. You should physically print out your key and remove all digital traces of it. The reason is, that attackers can hack into your devices or digital storage applications, so it is unsafe to keep a digital copy of your key.
Say No To Providers
Different providers host wallets on their servers. This is the worst choice you can make because you allow them to store your private key on their servers, which they can access anytime. This is common since it requires the least technical knowledge and effort. Instead, you can use a hardware wallet, which is a USB-based device that encrypts and stores your private key and other information.