Wallet security #2

Wallet security should be a priority for anyone engaged in crypto. This article explains why the age-old expression of not putting all of your eggs in the same basket also applies to crypto wallets.

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A common question in the crypto space is whether you should have one wallet address or keep multiple. The answer is always to diversify and make sure that you don’t have just one large lump sum. You will likely need multiple wallets if you interact with different blockchains, as some wallets may only support a given set of networks. With the increasing interest in the overall crypto community also comes bad-faith actors. As mentioned in Part one of the series, you should always put up as many roadblocks as possible for those who want to access your cryptocurrency.

What is a wallet?

First, we should understand what a wallet is, the different types, and the benefits and detractors of each type. A wallet doesn’t store your crypto like a normal real-life wallet. Crypto wallets hold your private keys and prove that you own said currency. Remember that your crypto is live on the blockchain at all times. Protect your keys at all times.  

The three main types of wallets are Paper, Online, and Hardware wallets. 

Paper wallets are exactly what they sound like, a piece of paper that you have written or printed your private keys on. 

Online wallets are probably the most common and most used wallet type. MetaMask, TrustWallet, and Binance Smart Wallets are the wallets I would recommend for any user whether you are just getting into the crypto space or have been here for years. The ease of access is probably the biggest benefit but be aware that these wallets are compromised more often than the other two types. 

Hardware wallets are external devices that store your private keys, most often resembling a thumb drive. These should only be connected to your computer when you are ready to make a transaction. 

Hardware wallets and paper wallets are called “cold” storage, while online wallets are called “hot” storage. Cold wallets essentially are the safest, but still have a few vulnerabilities, the biggest one being you not keeping your private keys private. Hot wallets tend to be vulnerable to phishing attacks because they’re generally only protected by a passphrase or not at all. 

Keep at least two

My recommendation to those just getting into the crypto space is to keep at the very minimum two wallets. You should remember that all transactions and wallet holders are public on the blockchain. This “trustless” system isn’t quite perfect and there are people who are much smarter than me trying to create new and divisive ways to part you from your hard-earned funds. Yes, you may remain anonymous, but at the same time, wallets with large balances can attract some undue attention from unscrupulous characters. Plus, there are so many sites like whale-alert.io that keep tabs on large wallets across almost every platform/token/coin, which can be pretty concerning if you are the holder of one of them. 

Personally, common sense would dictate that you do not stash all of your coins in a single wallet, as it would be pretty horrifying to wake up and find everything you worked for gone. Even when not considering the bad faith actors, there is the possibility that you lose a passphrase or even a computer/device holding your crypto wallets. The adage of “Never keep all your eggs in one basket” directly applies to this line of thinking. Strategic investors in the regular financial sector don’t ever keep all their assets in a single account, their diversification is key to their success and protection of assets. 

Mitigation of risk should always be at the forefront of your brain, especially when protecting financial assets. No one ever wants to think about losing a wallet due to scams, dustings, bad-faith actors, or even just losing a key. However, taking the steps to protect yourself by splitting your wallets and being cognizant of how much you keep in each one will pay off leaps and bounds if something happens to you. I’ve learned this personally and more than once.  

Sidebar: Always write down your passphrases and keep them in a safe place. Never store them on a digital device connected to the internet.

Some final thoughts

My perspective on this is, we are eliminating the banks from how we transact, so we must treat ourselves and our wallets like banks in terms of keeping our funds safe, anonymous, and secure. This comes down to being knowledgeable about our space and making sure that we are up to date with any new attacks or devices that bad-faith actors may use. Putting up as many walls between your main wallet and the wallet you interact with will keep you as safe as possible. To be absolutely honest, wallets are free, and it seems disingenuous to yourself to not take advantage of them. 

When choosing wallet providers, get to know how they work intimately. Knowing the ins and outs of how they function and what extra features they have to keep you safe, such as layers of protection like 2FA, may save you a headache and quite a bit of money in the future. Hardware wallets like Trezor or Ledger come with a plethora of features and the ability to store your private keys, which is the ultimate form of protection in the wild west of crypto. 

Closing up, it's always good to do your due diligence and research the wallets you want to use and if they will interact with the blockchain you are invested in. Knowledge is power, and in this space, most of the knowledge will have to come from you doing your homework and verifying and testing things. This may sound like a step in the wrong direction in terms of the evolution of FinTech, but we should all realize we are still so early to the crypto game; we are revolutionizing the way that we will be doing business in the future. To those reading this, welcome to the Evolution of money. 

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