How Secure Are Crypto Wallets? 

If you use cryptocurrency, you almost certainly use crypto wallets in some way. Crypto wallets are how these digital assets can be stored and retrieved with ease. Naturally, the crypto wallet sector brings in hundreds of millions of dollars a year and it’s one of the focal touch points of the industry. This is even more relevant as an increasing number of tokens are being funneled into the industry. Investors are trying their hands on a plethora of new cryptos (source: newcryptocurrency.com) both for everyday use and speculative trading, with these tokens being stored in wallets.

One of the core issues relating to crypto wallets is security. After all, the point of crypto wallets is to keep assets safe. But just how safe are these wallets and how can users potentially make them safer? We explore these in this article. 

How Do Crypto Wallets Work?

One thing to note is that a crypto wallet is not necessarily the place where the tokens themselves are stored. All crypto tokens are stored on specific points within their blockchain network. Moving them from one point to another or gaining access to them requires a key. A crypto wallet essentially is a mechanism that grants access to specific tokens on the blockchain. A crypto wallet is guarded by a password as well as a recovery phrase.

Largely speaking, there are three types of crypto wallets. The first is the paper wallet where the password and recovery phrase are simply generated and written down. Then there are hot wallets that are connected to the internet and can be accessed via browsers, apps, and so on. Then there are cold wallets which are not connected to the internet in majority of the time. 

How Secure Are Crypto Wallets?

To understand how secure crypto wallets are, it is important to understand the biggest threats to them. Generally speaking, the biggest risks that crypto wallet users face are theft and loss. 

Theft

Theft, in this case, refers to unauthorized parties gaining access to your crypto wallet and this varies from one type of wallet to the other.  If you use a paper wallet, the risk of theft is fairly high. All it would take is someone gaining access to the piece of paper your wallet details are written on and they have access to your assets.  

The same applies to cold wallets as someone needs only to get their hands on your physical wallet to take control of all of your assets. With hot wallets, this is a bit more complicated. If the details are written or typed down somewhere, someone could log into your hot wallet and steal your assets. 

Similarly, anyone who has access to your phone or computer with the wallet installed could potentially log in and transfer your assets to themselves. But one of the most common ways that theft takes place is through phishing schemes and other such scams. A phishing scheme, in this case, essentially involves getting the hot wallet user to click a link or otherwise take action that grants a third party access to their wallet. We’ve seen examples of criminals impersonating crypto exchanges, popular brands like Amazon, and so on. In these messages, the user is told to click a link to secure an asset or claim a prize and once they do, the third party can log into their crypto hot wallets and steal their tokens. These sorts of links have also been shared across social media, with even major personalities like Elon Musk being impersonated. So, when it comes to theft, all crypto wallets have some level of risk attached. 

Loss

Another security risk with crypto wallets is not necessarily the tokens being stolen but the tokens simply being lost. One thing to note about cryptocurrency generally is that it is based on decentralized blockchain technology. This means that while it offers more freedom than fiat currency, it has fewer centralized protections. If you were to lose your bank card and details, your bank could restore your access to your funds once you prove your identity. With a crypto wallet, there are fewer protections. If you were to lose your password and recovery phrase, not even the wallet manufacturer could help return your funds and the chances of this happening vary according to the wallet types. 

A paper wallet could very easily be lost as any piece of paper could be. Whether this is from misplacement, water damage, fire, or any other hazard, your access to your crypto assets could be lost along with the paper where the details are written. A hot wallet has less of a chance of loss than a paper wallet but still has its issues. If you lost access to the application and didn’t have your password and recovery phrase backed up, you could permanently lose access to your crypto assets. 

A cold wallet is also at risk of loss because it is based on a physical item. There have been cases of people accidentally throwing away their cold wallets, losing millions of dollars in the process. In all of these, there is always the risk of losing your access details. As much as crypto wallets are designed to keep assets safe, they can work against the owner. 

How to Better Secure Your Crypto Wallet

As we’ve established, crypto wallets are quite secure but not infallible. Plus, their high-level security can work against users in some cases. At the same time, there are several ways to secure your crypto wallet, some of which are as follows:

1.  Keep Your Password And Recovery Phrase Safe: The easiest way to lose your crypto tokens is to lose access to your password and recovery phrase. So, as a rule, make sure these are stored securely. If you write them down on a piece of paper, make sure the paper is kept in a secure password-protected vault or a digital copy is made and stored. If you choose to store your password and recovery phrase on a device, make sure it is also password-protected and no one else can gain access to it.
2.  Keep Your Crypto Wallet Safe:  If you opt for a cold wallet, make sure it’s kept as safe as a bank card or any other valuable. Some investors keep them in bank deposit boxes, so consider this as well. Also, check your cold wallet periodically to make sure it hasn’t gone missing or been misplaced. 
3. Avoid Phishing Schemes:  There are so many scams floating about the internet that try to get you to click on dodgy links that grant criminals access to your assets. To avoid this, read up about the different phishing schemes and learn how to spot them. If you’re going to click on any unverified links, disconnect your hot wallet from the internet and make sure your tokens are not at risk of theft.

Conclusion 

Crypto wallets can be very secure, keeping precious digital assets safe for years on end. At the same time, they have their own security issues. Poor wallet management could see criminals gaining access to them and even the owner being locked out of their own account. But as we’ve noted in this article, proper crypto wallet practices can make sure that no one else gains access to your funds and you do not inadvertently lose them. Apply these tips and you should be on the right path.