Making a solid decision about what cryptocurrency to buy, or where to buy with a low fee may be very important…but to no avail, if you cannot keep your coins and tokens secure. On the blockchain, keeping your coins and tokens secure is the most important decision you will ever make. The security of your holdings is the same as having them in the first place.
Blockchain technology is built with security at its core. It was so designed that it is resistance against the hack. This is what makes it better than banks. The developers of the blockchain have done a very good job, but there is a loose end to it, being that the security of each wallet on the blockchain is left to its user. In other words, a blockchain cannot be hacked unless the hacker has access to the wallet’s private key which is in total custody of the wallet owner. When wallets are created on a blockchain, their private keys are not backed up anywhere else by the system generating it. It is left for the owner to keep them safe. If lost, those cannot be recovered by any third party or the system that generated it.
Private keys are a series of characters which are used to sign transactions on the blockchain. They are proof that a user truly owns an account balance on the blockchain. Private keys are also proof of ownership of a public key (wallet address). On the blockchain, coins are not transferred as in physical money transfer. Instead, account balances change state when signed by private keys. In other words, someone uses a private key to change the ownership of a certain amount of account balance attached to his public key (wallet address).
Therefore, anyone who has access to a private key has the unreserved access to the coins stored in it. This is why hackers most of the times find ways to know or get access to crypto wallet’s private keys.
At Wunbit, we have identified some of the most secure methods of keeping your coins and tokens safe.
Generally, there are three distinct ways to store your cryptocurrencies:
- Hot wallets
- Cold or Hardware wallets
- Paper wallets
Hot wallets are generated online by third party services. These wallets come as online, desktop or mobile applications. Private keys are stored in the local files on the devices running the application. They are easily accessible for trading operations like buying and selling. Some examples are Electrum, Imtoken, Metamask, etc.
It is always advised that private keys generated by these applications are copied into offline storage (paper). Even with this, when the device storing the private key gets hacked or infected with a virus, the wallet and its contents will be lost. We advise that you shouldn’t keep a huge amount of cryptos in your hot wallet. And backing up your private key or your wallet’s mnemonic words on physical paper may be the lifeguard in times of virus attacks.
Cold or Hardware Wallets
Cold wallets are relatively the most secure way to store cryptocurrencies. They are majorly offline storage systems like USB that keep your private keys away from any online contact. They are like secret vaults which are inaccessible to viruses or hackers. Even if they are stolen, they come with pin locks and recovery phrases which can be used to recover the wallets untampered.
There are two most popular hardware wallets:
- Ledger Nano S and the most recent Ledger Nano X
- Trezor T
Latest Ledger Nano wallets come with a screen which shows pin locks. The Ledger Nano X has Bluetooth inbuilt that allows it to be connected to iPhones. This is remarkable as other hardware or cold wallets only work with computers. Ledger Nano wallets can store up to 100 types of cryptocurrencies.
Trezor T One comes with a touch screen that you can use to set and enter your pin code to unlock the wallet.
Do not buy these hardware wallets from any shopping website, only buy directly from the official websites.
Storing your coins on hardware or cold wallets will ensure their safekeeping. The cons are that these wallets cost $50-$169 depending on the model and they may not be easily accessible as most hardware wallets require a personal computer. Although, recent developments like Ledger Nano X have made it easier for iPhones to access wallets.
No amount is too great to be paid as a price to secure your financesWunbit
Just as the name sounds, paper wallets are wallets printed on paper. Private and public keys are generated and printed on paper. Coins can be sent to these wallets by sending to the address specified on the printout. To spend the coins in paper wallets, coins are sent out (sweep) of the wallet to a hot wallet via QR code on the wallet. Paper wallets are quite secure as private keys are saved offline and except the paper is destroyed it remains secure and out of reach for hackers or viruses. On the downside, papers can be destroyed by water or fire, posing a threat to their lasting usefulness.
It is clear that the best way to secure your crypto funds is to safeguard your private keys.
At Wunbit, our advice is that you should not keep them in any online storage or centralized platforms, else you may face the risk of losing all your funds.