How to Keep Your Crypto Safe?
|— Self-custody is a defining feature of crypto ownership, and requires owners to manage their assets by keeping them in a wallet|
— A crypto wallet is an interface that allows you to interact with the blockchain network and the assets you hold on it
— A number of crypto wallet options exist, each with pros and cons in terms of security, ownership and convenience
— Here, we discuss the pro’s and cons of different wallets, so you can decide which one is best for you.
Congrats! If you’ve made it this far, it means you’ve got to grips with blockchain and crypto, and you’ll understand that private keys are the most important element of managing coins and tokens. So let’s deal with the next question: how to keep your private keys safe.
You can’t own crypto without having a private key, and your private key is what contols your crypto. So it stands to reason that you’ll need to protect your private key, and for that you’ll need a crypto wallet.
First things first: the term crypto wallet is a bit confusing, because the wallet doesn’t contain your coins and tokens. Rather, it contains your private keys, which you use to manage your coins. Let’s take a closer look at how it all works.
How do crypto wallets work?
Think about our previous mailbox analogy: we could say that the crypto wallet is actually the mailbox itself, since it allows you to “interact” with the Postal Service. Without it, you could not receive any letters. Besides, when you install a mailbox in front of your house, you automatically create an active postal address and letter slot, as well as a private key to unlock the box. The same goes with crypto wallets: when you create a crypto wallet, you automatically generate a set of public and private keys.
It’s important to understand that there are different kinds of crypto wallet on the market, with different strengths and weaknesses. They can take several forms: physical device, software program or digital platform, but all of them can be stratified by two different vectors: who controls the private keys generated by the wallet, and whether the wallet is connected to the internet, both of which are key questions when it comes to assessing the protection the wallet offers. Let’s explore both of these vectors below.
Custodial v Non-Custodial Wallets
The first thing to consider is whether your wallet is custodial or non-custdial – in laymans terms, who has the keys for the blockchain address?
As you’ll know from the last section, “not your keys, not your coins” is the mantra of crypto, but surprisingly, some wallets (exchange wallets, for example) don’t give you control of the private keys for the blockchain address where your assets are; instead, they control the keys themselves, giving you a “login” for their platform instead.
The risk? You’re entrusting your assets to their security infrastructure. If the exchange is hacked, throttled or shut down, your coins and tokens go with it; with only a login and no private keys, you’re relying on the platform for your access, and can’t simply retrieve your assets yourself. This is not true ownership, something that needs to be taken into account when you’re considering how to secure your coins.
With that said, let’s look now at the other main vector for wallet security: its exposure to the internet.
Hot wallets vs. Cold wallets
When we talk about a “hot” wallet, what we’re really referring to is a wallet that is connected the internet. This could mean software wallets that exist on a mobile device, laptop or desktop computer, or even wallets on exchange platforms which, again, are always online.
There are good reasons why you might use a hot wallet: user-friendly interfaces mean you can easily transfer and manage your crypto assets, and since you’re always online, the process is instant, which makes them very attractive for beginners. But there are also drawbacks, which we’ll discuss below.
A cold wallet, on the other hand, refers to physical (usually small) objects, such as a hardware device, in which you can store your private key. Contrary to hot wallets, they operate in an offline environment while guaranteeing access to your funds at any time.
As they are completely offline, cold wallets provide a greater level of security. However, they remain less convenient in terms of accessibility as you have to connect them before being able to manage your assets.
You might be wondering why you’d use a cold wallet, given the convenience of using an interface that’s always online – that’s a good question.
The vast majority of threats to your crypto exist online. This can range from hackers sending spyware to your computer to find your private data, to a malicious wallet app being set up to look real to gain access to your data. So although hot wallets are the most convenient means of securing your private keys, they are subject to some critical vulnerabilities that could leave your crypto at risk. Let’s look at that now.
Focus: the pros and cons
Beyond the hot/cold dichotomy, you have subcategories of wallets. Each of them having pros and cons. In order to guide you in your crypto security journey, let’s quickly review them all.
Exchange and online wallets
They are hot wallets accessible through websites. Both are easy for beginners as they offer convenience. However, as previously discussed, they do not allow you to own your private keys, i.e. your crypto assets. And they are prone to hacks, online threats and virus attacks. Therefore, they have a lower level of security and limit your freedom.
They are hot wallets accessible through a dedicated desktop or mobile app. While being safer than web wallets, they are under the threat of malwares and hacks.
Hot wallets are highly popular for mobile users and conveniently transfer small amounts of cryptocurrencies. However, users should never store vast sums in hot wallets. Treat hot wallets as you would treat a physical wallet, where you only keep small sums of cash at a time.
They are cold wallets and the most secure alternative so far. Hardware wallets are physical devices used for storing your private key in an encrypted, offline environment. Put simply, hardware wallets allow you to perform all your operations when connected to your computer or phone, without ever letting your private key “out”, on the Internet or on your device.
Therefore, your private keys remain safe from online hacks or virus threats while managing or transferring your crypto assets. That’s why hardware wallets are not vulnerable to such cyberattacks, unlike exchanges and other hot wallets.
By using a hardware wallet, you ensure ownership and full control over your assets as you are the only one in charge of your money and own your private keys. There is no third party involved.
Hardware wallets, like Ledger, are the flagship standard for security. Users, exchanges, and projects all favor hardware wallets as their long-term storage solutions for cryptocurrency assets.
We could say that this is the old-school method: a piece of paper on which you write your private keys. Being totally offline, they are also very safe. But as you might guess, they are easy to lose and easy to damage. Thus, not convenient at all.
When it comes to comparing the different crypto wallets, there is an ongoing debate. However, among all the possible criterias to judge and start the discussion, the only valid one should be security, way beyond price, looks or convenience. This is not only our view as a crypto security company, but also a vision shared by the community.
How will you secure your crypto?
So to answer the question “how to keep my crypto assets safe”, the only true answer should be by using hardware wallets. While they are not as easily accessible as the hot ones, since they are not directly connected to your internet or desktop, they are vastly more secure than their hot wallet counterparts since they’re not subject to online threats, and have interfaces that are constantly evolving to improve the user experience.
Alright – so now we’ve introduced the idea of wallets, let’s keep reading to find out which one is best for you.
Knowledge is Power.
Just getting into crypto? Congratulations! You made a great choice. As you now know, crypto is decentralized – so what happens to it when you die?? Here’s your answer – thanks School of Block.