Cryptocurrency wallets had been designed as a place to keep digital coins. However, since this kind of wallet is different from a conventional one and it can be accessed via the internet, one key aspect which must be discussed is related to security. The internet is full of dangers and once you connect a device to the internet, the level of security drops significantly, even though you take a few precautions. That is why we would like to offer you some key useful pieces of advice that could help you enhance the level of security for your cryptocurrency wallet in order to not be trapped in some nasty situations.
What should you look for?
Multiple layers of security – search for wallet providers that offer second-level authentication or even more. A second-level verification that usually consists of you receiving a code via SMS could be important in case someone manages to find your password. By keeping this second level of security you can find out easily if someone logs into your account.
Source: http://www.businessinsider.com
Cold storage – This term refers to a situation when private or public keys are stored offline. Most of the wallets offer this feature, but you can also use hardware wallets, that have a much higher level of security, as compared to the e-wallets. Keep a small portion of your cryptocurrency online and the rest offline. By doing that you are placing most of your funds is a very safe place.
Encryption – since you will be exchanging information like public or private keys, especially when you are making transactions with other users, you want the data to be encrypted, so no third party can have access to it. There had been many thefts of cryptocurrencies, even though people assumed the security was strong enough. Any system could be breached by a person who understands it, so you need to ensure that valuable data is encrypted.
These are three of the most important security features you need to take into account if you want to place your crypto coins in a safe wallet. By taking this information into account, you can be sure the chances of you being robbed are very close if not even zero.
Key tips to secure your cryptocurrency wallet
Even though the cryptocurrency industry claims that the level of security is very high, you need to adopt good practices in order to protect your digital money.
Encryption for your wallet – this feature allows you to set a password which is required each time a withdrawal is made. This helps you be protected against thieves. However, it is not useful in the case of keylogging hardware or software. Anyways, keep your wallet encrypted as it will surely add safety.
We’ve mentioned about the password, but another key issue which happens many times is people forget the password they have originally set. There are limited ways to recover your password when it comes to cryptocurrencies. Write down your password in a confidential place, so you could remember it easily when you forget it.
How you design the password is also critical. Use uppercase letters, lowercase letters, numbers, and symbols. Most of the people use easy to type the password, but they do not realize how exposed they are. Keep your funds safe with a strong password. You can use a program for password generation as well.
Backup for your wallet – this is another interesting feature each one of you could use in order to avoid losing your funds. By backing up your wallet you are the comfort of knowing that even though you lose your phone and your wallet app was installed, you can recover your wallet and avoid being robbed by someone. Failures and human mistakes can happen, that is why you need this extra measures in order to be protected when they happen. The backup needs to be done regularly in order to ensure that all recent addresses and all new changes are included in your backup.
Offline wallets – a good idea?
Surely, it is! By using cold storage, or offline wallets, you can be sure you have the highest level of security. It means you have your wallet stored in a secure place that is not connected to the internet. If cold storage is done properly you can avoid being robbed due to computer vulnerabilities.
Another good feature that we can mention here is the offline transaction signing. This technique involves having two computers that share some parts of the same wallet. One of the computers needs to be disconnected from the internet. That computer is the only one that holds the entire wallet and is the only one able to sign transactions. The second computer is connected to the internet and can only create unsigned transactions. In order to issue new transactions securely with this method, you need to follow the next three steps:
- You first need to create a new transaction on the second computer that is connected to the internet and save it on a USB key.
- You then need to use the offline computer in order to sign the transaction.
- The third and final step is to send the signed transaction to the online computer.
Since the computer that is only cannot sign transactions, your funds are secured, even though someone manages to break it.
Using hardware wallets
Hardware wallets are secure offline devices that have been designed specifically to store cryptocurrency. They can store your private keys offline and you could use them even on an infected computer. No software can be installed on a hardware wallet that is why they have such a high level of security. Hardware wallets also allow backup, so your funds will be secured, even if you lose the device.
Hardware wallets are suitable especially if you own a significant amount of cryptocurrency. They are not free but are definitely worth the price. In the following sentences, we will briefly describe the most important hardware wallets, from our point of view. We can’t include all of their features in this material, but if you want to find out more about them, we have dedicated a section to hardware wallets and you’ll find more details about them there.
Before deciding to invest in a hardware wallet, you need to carefully consider what type of cryptocurrency you have. If you own bitcoin, then this is your lucky day. Almost all the hardware wallets have support for bitcoin. If you own any other cryptocurrency, you can simply exchange that amount for bitcoin on a bitcoin exchange.
Digital Bitbox – is the less expensive hardware wallet that we’ve managed to find. It is available for 54 euros + shipping and even though it does not have a display, it incorporates all the important features a hardware wallet should have. It can be connected to your computer via a USB port and the company that developed it designed a mobile application as well. It can be used for smart verification and second-factor authenticator.
Ledger Nano S – the second less expensive hardware wallet from our list is the Ledger Nano S. It comes at a price of 69,60 euros, including taxes. The price is a little bit bigger, but it also has some additional features. First, it has a display incorporated. Secondly, you have support for 13 different cryptocurrencies, if you use a third-party application. It looks pretty much like your USB key, is small and it helps you keep your cryptocurrency safe.
Trezor – a more premium wallet is this one, although the price jumps little over 100 euros. The single weak point is that it has support just for bitcoin. On the other hand, it has an OLED display, good specifications, and nice design. You can connect it to your PC via a USB cable.
Second-factor authenticator
One key feature we would like to discuss in particular is the second-factor authenticator. Because for some of you buying a hardware wallet could be expensive, or you do not own too many digital coins, this is a free security feature that you could use in order to ensure a high level of security.
This basically means you need to set up your login procedure so before each login it will be required for checking two pieces of identity, instead of just one.
There are three ways you can authenticate to your account: with something you know, or have memorized (in this case it is about the password or PIN code), with something you have or possess, like a card or USB key, or the third option is something you are, like fingerprint, signature etc.
When you are using just a password for the login procedure, which means you are using just one proof that testifies you are the owner of the account. When we talk about the 2nd-level authentication or multi-level authentication, two or more proofs are requires to demonstrate that you are the owner.
Multi-level authentication could be frustrating sometimes and it will take you more time to log in. The second level of authentication could solve the problem and your funds will be safe.
Most of the wallet providers have included this feature, so make sure you use it.
Pay attention to online services
We’ve talked at the beginning of the article about online wallets and we’ve mentioned there as well how they lack security. If you are constantly monitoring the cryptocurrency industry and you are familiar with all the news, you have probably heard of exchanges or wallet providers that had their systems hacked. Our advice is to use other types of wallets, in order to avoid such situations.
Using a combination of cold storage – hot storage
This method can apply for those of you who have a larger amount but can be effective for those of you that want to keep a good portion of your digital money safe. You could use cold storage in the form of a hardware wallet or offline wallet where you will keep a good portion of your funds. In addition to that, you can keep an electronic wallet as well (hot storage), where a quarter of your funds or even less should be kept. With an electronic wallet, you can do payments more easily. Even though they are more vulnerable than a hardware wallet, the risk of losing all money is zero. Also, as we’ve mentioned above, the second level authentication could be used for the electronic wallet in order to ensure a high level of security for hot storage as well.
Update software regularly for wallet and devices
This is true especially for electronic wallets, which most of the time require you to have an app installed on your phone or PC. The app gets updates regularly and you should keep it updated with the latest packs. Also, your operating system, whether is Windows, Android, Linux, or iOS, should also be up to date. This is a smaller detail, but older operating systems are more vulnerable than the new ones.
Summary for wallets safety
As it is true for the bank account, you should treat your cryptocurrency wallet with caution. Even though the wallet providers ensure that you have a certain degree of security, it is up to you to take care of certain aspects in order to foster that level of security. Make sure to take into account the mentions written above, so that you won’t find yourself in a situation where you could lose your hard-earned money.
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