With the rising popularity of digital assets such as crypto and decentralized identity, users take advantage of digital wallets to store their identity data and digital assets, however, there are some crypto wallet security risks that we need to address.
In a blockchain based digital age, individuals no longer need to rely on traditional ways to identify themselves, access their accounts, or store digital assets. Instead, personal identifiers and digital assets like crypto and NFTs can be stored in crypto wallets.
What Exactly is a Crypto Wallet?
In the simplest terms, a crypto wallet is where an individual stores digital assets and private keys or passwords used to access cryptocurrency. These wallets are designed to protect, store, send, and receive digital assets and currency like Ethereum or Bitcoin. They come in different forms, from mobile applications to physical hardware that resembles a USB flash drive which are used for authentication or shopping online using cryptocurrency, which is as straightforward as a traditional credit card.
It’s important to remember that these crypto wallets don’t store actual crypto currency. The cryptocurrency is instead on the blockchain or digital ledger. The crypto wallet holds the private keys to access the digital currency on the blockchain and is an important security consideration. So essentially, a crypto wallet is the key to the vault and critical to accessing crypto assets.
What are Crypto Wallet Security Risks?
There are always savvy thieves working to find ways around security measures. Therefore, it’s essential to consider the various crypto wallet security risks. Wallet applications that are available on mobile devices and personal desktop computers connected to the internet are always accessible which are also called hot wallets. While convenient, some apps include functionality that may increase the risks of theft. For example, some wallet apps feature the ability to export keys. Remember, those are the same keys that grant access to digital assets on the blockchain.
Another issue with a mobile wallet is that private keys are stored within the application. So, software bugs or vulnerabilities within the app itself can become problematic. In fact, this isn’t just a hypothetical situation, as thieves have exploited or hacked into mobile wallet applications in the past.
Another form of the crypto wallet is web-based. Coinbase is a popular choice for this type of wallet, where you must navigate a secure login process to access private keys. However, the account can be tied to a mobile phone number, leaving users vulnerable if they misplace or lose their smartphone. Unfortunately, it would only take a skilled thief a few moments to transfer all crypto assets to another wallet.
Desktop wallets allow users to access their private keys right from the desktop. The thinking behind this crypto wallet is that the information remains on a personal computer. However, the data remains unsecured and susceptible to knowledgeable hackers unless the PC is encrypted.
How to Counteract the Risks
With all these risks, how do digital wallet users keep their digital assets safe? Fortunately, several ways exist to mitigate the risks and help ensure private keys remain private.
First, before choosing a crypto wallet, it’s crucial to verify whether or not it stores private keys in an encrypted form. This encryption is an extra layer of security that prevents private keys from falling into the wrong hands.
Secondly, users should add extra security measures to their smartphones. While a PIN seems like a solid security measure, someone could still lean over and view the code being entered. Instead, utilize a fingerprint authenticator that’s much more difficult to circumnavigate.
Another great theft deterrent is a strong password for web-based wallets. Resist the urge to reuse passwords or make them too simple for convenience sake. While it may be cumbersome to enter, a complex and strong password will protect users from hackers looking for easy targets.
Many crypto wallet options offer more robust security features like 2-factor authentication. It may be tempting to turn the feature off for easier login, but it adds another layer of security. Every hurdle put in front of a hacker makes you the least desirable target.
It’s also vital that should an individual’s account get compromised, a plan is in place to respond. Any unusual crypto wallet activity discovered should be immediately taken seriously a robust response. Once an account is breached, it could be minutes before a robust account balance is reduced to zero.
Lastly, another type of crypto wallet avoids many of the security concerns outlined above, and that’s a hardware wallet. These small physical devices look similar to USB memory drives and allow users to log in once plugged into a PC. A small screen also confirms transactions and requires a PIN to access hardware wallets. These wallets when not connected to the internet are called cold wallets.
Security Measure Considerations
- Private key encryption
- Smartphone fingerprint authentication
- Two-factor authentication
- Response plan in case of data breach
Keeping Private Keys Secure
While there are many options for crypto wallets to consider, it’s important to take extra security steps. The risks associated with digital wallets aren’t too significant to overcome with a bit of planning. Consider crypto wallets such as mobile, desktop, web-based, and hardware to determine the right option. Add extra layers of security where possible, and hackers will move on to easier prey. Mitigating the risks of using crypto wallets is simple but shouldn’t be taken lightly.