One of the main ideas behind cryptocurrencies is self-sovereignty: the notion that users can act as their own banks. But while you’re managing your wallet and your funds, it’s also important to take precautions. And learning to protect your digital currency wallet is a crucial step in the cryptocurrency world.
A cryptocurrency wallet is a tool you can use to interact with the blockchain network. Different types of wallets can be divided into three groups: software, hardware and paper wallets. Depending on the working mechanism, they can be called “hot” or “cold” wallets (hot/cold wallets). And they offer different security requirements.
Most cryptocurrency wallets are software-based, which makes their use more convenient than hardware wallets. However, hardware wallets are usually a more secure alternative. On the other hand, the so-called paper wallet consists of a “wallet” printed on a piece of paper, but its use is now considered outdated and unreliable.
Hot wallets are connected to the Internet, for example through applications for smartphones and computers, and their use is generally simpler and more intuitive, as well as more convenient for sending, receiving and trading cryptocurrencies and tokens. But they are also a little less secure, precisely because of the Internet connection.
Cold wallets offer a significantly lower risk of online attacks because they are disconnected from the internet. In the past, paper wallets were the safest option, but cold wallets have become a more modern and less risky alternative.
There are also hardware wallets that store security keys offline and are cheaper than full computers. They are physical tools manufactured specifically for storing cryptocurrencies.
No matter what type of wallet a user chooses, other layers of security need to be taken care of, which include passwords and passphrases.
Security of your private key: Like a real physical key, it unlocks your cryptocurrencies for use. The most important thing is that your private key and access to it are secure. Your coins are safe because they are “hidden” behind a very complicated key. The key is a huge number – big enough that no one will be able to guess it. If you flip a coin 256 times and write a “1” for heads and a “0” for each tail, you have a private key.
Seed Expressions: Current wallets very rarely have only one private key, they are Hierarchical Deterministic (HD) type wallets. That is, they are capable of storing billions of different keys. You only need a seed phrase, which is a set of random words used to generate keys. It is not recommended to save the initial phrase on a device connected to the Internet, which can be hacked and controlled remotely. So, it’s best to adopt offline storage, in the material you have full control over so you don’t lose it.
Wallet permissions: It’s important to regularly check what permissions you’ve given to your wallet. If you use Binance Smart Chain (BSC), for example, BscScan is a token verification tool that allows you to view and remove all permissions.
The revised designs offer more security: revised projects are safer options to invest your tokens and coins. Whether you’re working with smart contracts, stake pools, or providing liquidity, it’s always a good idea to look for audited projects. The audit process is analyzed by the smart contract code of the DApp. Auditors check for system flaws (backdoors), vulnerable scripts and security issues. Issues are reported to the project founders, who then make changes to the code. All changes are added to the final report to show users a complete and transparent process. Finally, the final report can be published.
From trading to storing and using your cryptocurrencies, simple tips are effective in keeping your funds safe. When it comes to storage, each alternative has its advantages and disadvantages. That is why it is important to understand the advantages and disadvantages of each of them. To learn more about cryptocurrency and blockchain security, visit the full article on Binance Academy, which also offers hundreds of other articles in multiple languages to educate crypto users.
Unfortunately, cryptocurrencies attract many scammers. Some people try to take advantage of other users and steal their cryptocurrencies. Once funds are stolen, they often cannot be recovered. Fraudsters exploit the anonymous nature of cryptocurrencies and the fact that many users directly control large amounts of funds.
Always be aware and never send money to users you don’t know. It is important to always carefully check the identity of anyone you send money to. Beware of phishing attacks that send you emails with fake links, fake brokers and exchanges, fake identities, blackmail and pyramid schemes. None of this is unique to the crypto market and has existed for a long time in the traditional financial system. Care has always been and will be needed.