Hi students! Welcome to Course #2 of Walbi Academy. In this first lesson, we’ll introduce you to cryptocurrency security and wallets.
Suggested reading: If you missed it, CLICK HERE to check out Walbi Academy: Course 1
With cryptocurrency’s price on the rise, people are looking into starting their crypto journey. Digital currency offers new, exciting investment opportunities - and the potential for financial freedom. However, keeping the crypto you’ve bought safe and secure is paramount.
In this tech-based world, it’s easier than ever to hack into a system or platform. However, there are ways to defend against such actions, and you will learn about them all in this lesson. Let’s begin!
Section I: Types of Cryptocurrency Wallets
When you open an account with a bank, there are multiple account options you can choose from. The same is true for cryptocurrency wallets! These different types of wallets serve different purposes. They allow you to use your crypto more practically, according to your financial goals.
Here are the types of cryptocurrency wallets:
A hot wallet has an active connection to the internet. This makes exchanging or moving funds in and out of the wallet much faster and more convenient. They’re accessible through web browsers or mobile applications. Some examples of a hot wallet include MetaMask or TrustWallet.
While a hot wallet makes everyday use more seamless, it also comes with potential risks. Since it’s always connected to the internet, there’s a higher risk your hot wallet is hacked. If it is hacked, the thieves might transfer your funds out before you even notice. Once transferred out of the wallet, your crypto is almost impossible to track. This means it’s incredibly unlikely that you’ll receive reimbursement. To keep the wallet ‘locked’ and secure, users are given public and private keys.
What are public and private keys?
Public keys are identifiable information that others can use to conduct transactions with you. Private keys are like your password; a unique number that accesses the funds inside. To reduce risk, you should make sure that you keep your private keys safe. Keep it away from prying eyes - both online and offline.
Unlike hot wallets, cold wallets are stored offline. Cold wallets are hardware devices that store your crypto, such as a USB stick or hard drive. This keeps it inaccessible to online users, and the wallet owner can even store the cold wallet in a hidden location. Cold wallets are equipped with software so that they can still make transactions when connected to an online device.
To conduct transactions or access your funds, you have to connect your cold wallet to the internet through another device. It’s best to use only one device, for example, a separate laptop, to do this. They also have a private key - making them doubly secure. There are two main types of cold wallets.
One is custodial cold wallets. This is when a user gives their keys to another person or entity, and entrusts them to manage their funds. The other is non-custodial when you hold your wallet’s keys. Cold wallets have the benefit of extra security and the drawback of more tedious transactions. There are several specialized cold wallet hardware and software users can choose from. Some examples include the Ledger Nano X and the Trezor Model T.
Paper wallets are a type of cold storage option. A paper wallet is a printed (or written) document containing your wallet information, including private and public keys. Some paper wallets also have a QR code that users can scan to open their wallets or make transactions.
The paper wallet is best printed using an offline printer, for improved security. Having a paper wallet allows the owner to carry it on their person, similar to a credit card. The owner can also keep the paper wallet safe by storing it in a safe or lockbox. It offers maximum security.
However, a paper wallet is also susceptible to theft or damage. If you lose access to your paper wallet, you could lose all your cryptocurrency. Paper wallets require extremely careful management to prevent these risks.
Sound wallets are another unique medium for storing your wallet’s public and private keys. This involves recording a voice note, where you describe your wallet’s information. You can also record the digits through a code, such as Morse code, or using a spectroscope. Some users go so far as to encrypt these recordings or save them on hardware like CDs or USB sticks. This method’s obscurity makes it more difficult for bad actors to find and access your wallet’s data.
How to secure your crypto
There are multiple security measures that crypto users can employ to make sure their assets are safe. These extend past keeping a safe crypto wallet. Learn more about these and other crypto security considerations by enrolling in our comprehensive e-course.
- Strong passwords and encryption: All your accounts with sensitive information, such as your account on a crypto exchange, should have strong passwords. Ensure that they’re unique from your other passwords, use specialized characters, and are stored safely. You can use encryption to conceal your passwords and other sensitive data, such as your public and private keys.
- Two-factor authentication (2FA): Two-factor authentication is a standard in account protection. Make sure that it’s enabled on all your crypto-related accounts. You’ll go through two steps to prove your identity when logging in.
- Avoid phishing scams and malware: Hackers are getting more creative and persistent. Conduct thorough research on the latest phishing scams and malware that crypto hackers use, and always validate that you’re interacting with a reputable authority. One popular phishing scam example is an email asking you to reset a password. Another is sending you an innocuous-looking link that will install spyware or a virus on your device. Remember that hackers can use any platform to reach you - from Outlook to Discord.
- Conduct regular backups: Your wallet data is incredibly important. Keep it safe by regularly backing it up and manually storing copies on a USB stick or hard drive. You can also back up data onto a cloud service.
- Choose wisely: Choose a crypto wallet with a strong reputation, proven customers, and a long history of trustworthiness. When shopping for crypto wallets, take extra caution by asking others about their experience in using the wallet.
Crypto wallets are a fantastic way to keep your crypto secure, while still making fast and protected transactions or exchanges. With multiple types of crypto wallets to choose from, crypto enthusiasts can find one that most suits their goals. For example, someone who uses cryptocurrency daily may find a hot wallet more convenient than a cold wallet. Before you make a final decision on your crypto wallet, make sure to conduct thorough research into how it works.