Guide to protecting assets with electronic wallets

Protecting electronic wallets safely and effectively

1. What is a crypto wallet?

Decentralized wallet, or decentralized electronic wallet, is a type of cryptocurrency wallet that is not controlled by any organization or third party. It is used to store and manage digital assets such as tokens or NFTs. Additionally, users can use the wallet to interact with decentralized applications (Dapps) on the blockchain.

Because it is not managed by any organization, users have full control and management of their assets. Typically, these electronic wallets are controlled by seed phrases and private keys.

2. Types of crypto wallets

Currently, the two most widely used types of crypto wallets are hot wallets and cold wallets.

2.1. Hot wallet

A hot wallet is an electronic wallet that can connect to the internet and is typically used to store cryptocurrencies for trading on centralized exchanges or interacting with decentralized applications.

These wallets are usually managed by a seed phrase consisting of different random words and a private key that is specifically tied to that wallet.

Because of this, when using a hot wallet, users are at risk of losing their assets if they accidentally lose the seed phrase, expose the private key, or encounter risks associated with internet connectivity such as network attacks, falling victim to phishing websites, or encountering malware-infected links.

Some popular hot wallets include Metamask, C98 Wallet, Trust Wallet, among others. These wallets provide convenience for frequent transactions but require users to remain vigilant about security practices to protect their funds.

2.2. Cold wallet

A cold wallet is a type of physical electronic wallet that is stored offline and does not connect to the internet. These wallets are often produced in the form of hardware devices such as USB drives or CD disks.

Cold wallets allow users to securely store and protect their private keys using secure chip designs. Most cold wallets are secured with a PIN code to protect the device. However, there is a risk of losing assets if the PIN code is forgotten.

When using a cold wallet, users benefit from maximum security against risks associated with internet connectivity. However, it is less convenient for users who need frequent access or use of their assets.

Some popular types of cold wallets include Ledger Nano S, Trezor, Safepal, among others. These wallets are favored for their high level of security, making them suitable for long-term storage of cryptocurrencies or large amounts of funds.

3. How to avoid risks and keep your e-wallet safest?

3.1. Store seed phrases and private keys securely

Seed phrase is a randomly generated secret phrase used to recover a wallet in case the password is forgotten. It is the sole tool to access the wallet, so users must store their seed phrase in an absolutely secure place. Losing the seed phrase means losing access to the wallet, which also means the assets stored in the wallet are at risk of being lost permanently.

In addition, the private key is considered the key that allows users to access the wallet. Therefore, anyone with the private key has the ability to access your account.

Because of this, users need to securely store their seed phrase and private key to prevent their assets from falling into the hands of malicious actors. This includes using secure physical storage solutions and avoiding digital storage on devices that are connected to the internet or susceptible to hacking. Proper security measures ensure that users retain full control over their cryptocurrency assets.

3.2. Use strong and difficult to guess passwords

Users should use random combinations of letters, numbers, and special characters that are not too personal or easily guessable when setting passwords. Additionally, it's advisable to avoid using the same password across multiple services or wallets. If a password is compromised and falls into the wrong hands, it could potentially grant access to all personal wallets and critical information.

Every few months, users should consider changing their passwords to ensure the utmost security for their wallets. However, this practice may lead to users forgetting their new passwords or confusing them with older ones. Therefore, it's prudent to store passwords in secure, separate locations.

3.3.Restrict access and wallet connection to unsafe websites

As mentioned above, most of the primary risks associated with electronic wallets stem from their ability to interact and connect with the internet, leading to potential intrusions or dangerous cyber attacks.

Therefore, before accessing or connecting your wallet to any website or application, users need to thoroughly check if the website is reputable and secure, whether the domain of the website is suspicious, and so forth. Once accessed on unsafe websites, user data can be compromised and stolen, resulting in financial losses and asset theft.

3.4. Use the multi-signature feature

If a wallet is holding a substantial amount of assets, users can enhance security by utilizing the multisig (multisignature) feature. Sometimes, users may act too quickly without paying attention. With this feature, every transaction requires validation from authorized parties. Without permission and confirmation from all authorized individuals, the transaction cannot proceed.

This feature is highly useful because it mandates multiple approvals and thorough scrutiny from several parties before any interaction or transaction can be executed. Even in cases where hackers or fraudsters attempt to exploit and gain control over assets, they would encounter significantly more obstacles.

3.5. Store assets on cold wallets

Although cold wallets have their own disadvantages, such as not always being readily available for immediate access or direct interaction with blockchain applications, they effectively shield users from internet-related risks like network attacks, phishing websites, and malicious links. Therefore, if users intend to hold assets for the long term, storing them in a cold wallet remains one of the optimal choices to ensure the safety and security of their assets.

3.6. Divide assets into multiple wallets

When participating in decentralized financial markets, user demand for usage is typically high. Therefore, users should divide their assets into multiple wallets for different purposes to mitigate risks and potential losses in case any of those wallets are compromised.

For example, users can use a separate wallet exclusively for asset storage. This type of wallet would never access any websites or connect to any applications. When users want to engage with DeFi applications or blockchains, they can use another dedicated wallet, maintaining only a small amount of funds necessary to cover transaction fees for those interactions. In the event that these platforms are compromised or infected with malware, affecting the wallet used for such interactions, the amount of assets at risk would be limited, minimizing potential losses or risks significantly.

4. Conclusion

Crypto wallets are among the most critical applications in the cryptocurrency ecosystem, serving as the gateway connecting users to the web3 world. Anyone looking to enter the decentralized financial markets needs to set up their first wallet to begin participating. However, not everyone is aware of the dangers and risks that can occur during the use and storage of assets within these wallets.

The methods outlined above represent the fundamental and most optimal ways to ensure the safety of cryptocurrency wallets and users' assets. It is hoped that this article provides useful information to users, and they can stay updated with the Bigcoin team for further insights into the crypto market.