Welcome to the final installment of our
Intro to Wallets series. This article will delve into the essential security features to consider when choosing your cryptocurrency wallet. Let's embark on this journey!
Unlike traditional banking systems with advanced security, insurance, and redundancy systems, cryptocurrency relies on network security and individual responsibility for safeguarding private keys. This approach can be highly secure, but it requires a shift in how we view security. Remember, losing or exposing your backup phrase can lead to a total loss of funds. Let's explore how to enhance the security of your private key or seed phrase.
Your private key, often represented as a 12 or 24-word phrase (seed phrase or mnemonic), is crucial. When creating a new wallet, back up these words in a secure, offline location. Consider writing the seed words on durable paper or engraving them into fire-resistant material. For small amounts, a secure password manager could be acceptable. For example, if you're using a wallet like Metamask, it will prompt you to write down your seed phrase when you first set it up.
Treat your mobile wallet like a physical one - only carry what you need for daily spending. We recommend storing $100-$1,000 USD on phone wallets, with the remainder stored securely in a hardware wallet like Ledger or Trezor. This way, you always have some available to spend, while also not risking too much in case of a stolen, lost, hacked, or broken phone.
Online wallets and exchanges can be vulnerable to hacks or insolvency. Minimize risk by storing your funds in a wallet that only you control, and only store funds on exchanges when actively trading. For instance, if you're using an exchange like Binance, only keep the funds you're actively trading with on the exchange, and transfer the rest to your secure wallet.
When storing money with an exchange wallet, enable 2-Factor Authentication (2FA). This adds an extra layer of security, protecting your funds from potential attacks. For example, Google Authenticator is a popular 2FA app that you can use.
Regularly check which wallets are backed up and how. We recommend a self-audit of wallet backups 1-2 times each year. This ensures that even if you lose access to your wallet, you can recover your funds using the backup.
Avoid disclosing what cryptos you own, especially online. This can make you a target for theft. Privacy is crucial in the crypto world. For instance, if you're participating in a crypto forum, avoid mentioning the amount of crypto you own.
Always create your own wallets. Accepting a wallet from someone else can be risky, as they might retain access to the seed phrase and steal your funds. Wallets like MyEtherWallet make it easy to create a new wallet.
Before installing any desktop wallet, verify the website and the checksums of the wallet download. This can help avoid fake wallets with malicious code. For example, if you're downloading the Electrum wallet, make sure to verify the checksum.
Consider sharing recovery instructions with a trusted person for the unfortunate event of your demise. Otherwise, your funds could be lost forever. For example, you could write down your recovery instructions and store them in a secure location that your trusted person can access.
That concludes our introduction-to-wallets series. We hope you now have a better understanding of wallet types, features, and how to keep your crypto safe and secure.