Easy Steps to Secure Your Cryptocurrency Wallets
When you don’t have money—you are going insane about how to get it. When you have it—you worry about how to protect it.
In the ancient times, you could dig a vault in stone and lock it up. That’s what Xapo actually did. It’s safe but not that much convenient—every time you want to buy a candy you have to unseal the cave, which takes time.
Protection of cryptocurrency is a much more complicated process. You must use more precise methods to secure a Bitcoin wallet, than laying a USB-flash under the pillow.
Why are wallets so crucial in cryptocurrency?
At the time of the invention of Bitcoin, it was kept, sent and received using the original Bitcoin Core Wallet. At that initial stage, when an only small number of tech-savvy people used Bitcoin, it was enough. Non-tech people joined the boat when Bitcoin became more popular. They immediately faced the problems with inconvenient and non-user-friendly Bitcoin Core wallet:
- it requires not less than 140 GB of storage space on hard drive to download history of all Bitcoin transactions (whole blockchain);
- the download process can take up to a few days;
- you have nobody to ask for a help if you lose access to your wallet;
- the wallet lacks upgrading according to the recent requests from the market. It allows basic functionality for Bitcoin only: store, receive, transfer.
Let me remind you that people are lazy. They are spoiled by smart and convenient apps. If they don’t like the app, they just won’t use it no matter how excellent is the service. Here comes crypto wallet.
A wallet is a software program that stores coins. Bitcoins and altcoins don’t exist in any form, except digital. This means they can’t be “stored” anywhere. Instead, there are the private keys that need to be securely stored.
Nowadays, a wallet is the first thing that everybody thinks about when entering the crypto world. Wallets usually allow people to store funds, but have all the functionality you expect from a bank account: exchange, buy, sell, transfer, and so on.
Besides convenience, wallets must provide the highest level of security. You need to choose cryptocurrency wallet that is secure enough, so you can sleep and be sure that your money is safe.
Secure and convenient wallets are in high demand.
How do wallets work?
Bitcoin wallets don’t store your coins, as they don’t have access to them. Instead, they save your private and public keys, interact with blockchain and enable you to send and receive coins. A public key is the address of your wallet, while a private key is a digital signature to prove that you are the owner of the wallet. There are no actual coins—the balance exists only as records on the blockchain.
Cryptocurrency wallet is a more improved version of a physical wallet. Leather wallets don’t show you how much money is left (you have to count the notes) and the history of your payments—you have to try to remember in how much you have spent in a bar.
Crypto wallets show balance and history of transactions. Most advanced versions even display current crypto rates and allow to store and exchange Bitcoin and altcoins. If your physical wallet is lost or stolen—that’s the end, no way to get it back. If you forget the password or lost two-factor authentication—you can restore access with the support of wallet developers.
There are a few types of Bitcoin wallets: paper, desktop, mobile, hardware, and online. They have different levels of security and convenience. While you can do nothing to make wallet more convenient, there are ways to upgrade protection for each of them.
Description: paper wallet is a print-out of public and private keys in the form of digits or QR code. You can copy-paste your keys in the text document and print them, or use special services that generate printable wallet.
These Bitcoin wallets are offline, which eliminates the possibility of hacking. To check your balance, you have to look up your public address on blockchain explorers like blockchain.info. The primary task is to keep this paper safe.
How to secure paper Bitcoin wallet:
- Create a paper wallet while your computer is offline;
- Use a clean out of the box OS like Ubuntu;
- Use an offline version of BitAddress;
- Make several copies of a printed wallet and store them as safe as you can.
In case you need help in creating a Bitcoin paper wallet, follow these steps.
Description: desktop wallets are wallets that user downloads on the computer and can access only from this device. Desktop wallet work principle resembles original Bitcoin Core wallet, but most of them are “lighter” versions—you don’t have to download the whole blockchain.
Still, desktop wallets are not very popular, as an unfriendly interface makes usage slower and more difficult. Sender determines a transaction fee, but the lower is the fee, the more time it takes to operate. If your computer is connected to the Internet (and most likely it is), it can be hacked or infected with malware, giving attackers the possibility of syphoning off coins. If the computer is damaged, all money held there, are gone forever.
Most popular are Exodus and Armory. Exodus, unlike Bitcoin Core wallet, allows keeping not only Bitcoin but also Ethereum, Dashcoin, Litecoin, and Dogecoin. Armory offers to use the wallet both online and offline, enhancing the security.
How to secure desktop Bitcoin wallet:
- Generate a seed phrase to restore your wallet in case of computer loss. Print it out and take the same safety measures, described above, as for paper wallet. If you lose the seed phrase, there will be no way to restore your wallet.
- Choose a wallet that requires a password every time you open it so nobody will get access to your funds even if they get your computer.
- Get a reliable antivirus (remember that a good antivirus can’t be free) and update it regularly. Security of your wallets depends 100% on the safety of your computer.
- Use a separate computer for your Bitcoin wallet which runs a Linux-based OS like Ubuntu.
Description: Mobile wallets are what it sounds like—mobile apps, where you can manage your crypto. Breadwallet and ArcBit mobile wallets are convenient with an intuitive interface. In modern fast-pacing life, immediate access to your funds is convenient, but also dangerous. According to the 2017th High-Tech Bridge research, 90% of mobile apps have at least two high-risk issues—insecure data storage and insufficient cryptography.
It’s much easier to hack a mobile wallet than any other type of wallets. Also if you lose your phone or get it stolen, there is a risk that your coins will be gone. There is not much point in using mobile wallets if you have a computer for sure. Even if you need a mobile app, there are reliable online wallets with decent mobile apps so you can access your wallet from any device.
How to secure mobile Bitcoin wallet:
- Use a passcode/face ID/fingerprint to unlock your mobile phone. Even if your device gets into the hands of someone, they won’t be able to use it.
- Encrypt your phone. iPhone is encrypted by default when you set up a passcode, Android 5.0 and above phones support full-disk encryption.
- Enable 2-factor authentication on the wallet. It provides an extra layer of security.
- Do not use public Wi-Fi networks, e.g. in cafes. They are easy to hack, and fraudsters may use them to get your personal information, including passwords.
Description: such wallet is a small drive, that stores coins along with public and private keys. Most popular brands are Ledger and Trezor. All transactions are operated on the device. The weak point is user experience—web interface is somewhat clunky, and you can manage your funds using a computer.
Longtime hardware wallets were considered to be impossible to hack because they are not connected to the Internet. The problem is that to manage your funds you must connect to the web. Researchers found Ledger’s vulnerability to the “man in the middle” attack. Malware replaces the code responsible for generating an address for receiving Bitcoin, so attacker gets all future payments.
How to secure hardware Bitcoin wallet:
- Create a seed phrase to restore access to the wallet in case you lose or damage the device.
- Buy a device from trusted sellers—second-hand hardware wallets may have the changed firmware and send your funds to third party’s address.
Description: online wallets run on the web. They are storing all keys, so they are entirely responsible for security. At the same time, they provide an easy-to-use web interface along with many useful features. Registration is easy and doesn’t take more than a few minutes. You can access a wallet from any device connected to the Internet.
How to secure online Bitcoin wallet:
- Set up 2-factor authentication for logging in the wallet.
- Set an IP-whitelist with a list of IPs you own to log in the wallet—it eliminates the possibility of a third party’s access to your wallet.
- Update the internet browser you use to access the wallet. Plus, don’t use any third-party browser plugins.
- Make sure you don’t have any malicious software on your device—use antivirus to check the safety of your system.
Which wallet to choose?
This is the easiest and the most challenging question to answer.
Choose a wallet that meets your needs.
- If you buy cryptocurrency as a long-term investment plan, consider using hardware wallet.
- If you plan to use cryptocurrencies often, then choose an online wallet.
- Dividing funds and storing them in different types of wallets is also a good idea. Keep part of your coins, that you do not plan to spend soon, in a hardware wallet, and a spendable sum for day-to-day needs—in an online wallet.
Remember that in high volatility cryptoworld quick reaction is essential. It would be difficult if you can access your funds only from one computer stored in the apartment in the Himalayas. Choose a wallet that allows you to manage funds anywhere you want, any time you want. It will give you true financial freedom.