Crypto Wallets Security: Explained

Hackers use simple human weaknesses

The most popular type of fraud is phishing. Hackers may sent you a fake email from behalf of your wallet service, containing a fake URL, which may differ by one or several letters from the real URL of your wallet service. Or hackers even may redirect the right URL to fake URL when you’re entering the online wallet. The latest huge phishing scam occured on April 24 2018 to My Ether Wallet users, who lost in total $150,000 worth of Ethereum in a DNS hack.

Besides of phishing, hackers use simple human mistakes, such as keeping private keys in mail, exposing the keys at public, using public unprotected networks that allows hackers to sniff all the information and find the password. Big amounts of tokens and large transactions may attract hackers to hack exactly your wallet.

The shortest answer here is that offline is better than online.

A popular mistake is to keep crypto wallet keys in email, Google Drive or Dropbox, or any notes app in your smartphone. These are the first places hackers usually try to get in. In order to save your coins, you can relocate keys to any less obvious storage. You may record it to an USB stick, or just write it down and keep it in your drawer – you obviously shouldn’t expose it to anyone else.

It depends on the type of wallet you use.

For most popular software wallets, it’s ok to know only your backup phrase, a mnemonic phrase, consisting of 12 words. In case you forget your pin, you should just delete the app, install it again using the backup phrase, and create a new pin.

There are wallets that provide access via Touch/Face ID instead of pin-codes. For example, in the Lumi app, you should just switch on Touch/Face ID in the app settings. The good thing about apps like Lumi is that the only thing you need to know is a backup phrase. The bad thing is that once you’ve lost the backup phrase, you’ve lost an access to your wallet. In this case, technology is helpless. The last hope for such luckless crypto owners is hypnosis.

Yes, it’s for your wallet safety.

This method is called HD-safe, or “hierarchical deterministic”, and means that every time you send or receive funds, a new address will be generated for your wallet. That’s a useful option, because it makes your transactions harder to track, and impossible for hackers to calculate the actual amount of money you keep at your wallet. If you need to transfer a big amount of coins you better split it to several transactions.

No. All wallets differ by online and offline types, and the security mechanisms differ respectively.

The majority of existing online cloud wallets, or so called ‘hot’ wallets, use two-factor authentication, in case hackers try to enter your email. ‘Warm’ wallets, the ones that you install as a software to your computer, or as an app to you smartphone, use 12-word backup phrase and pin-codes. ‘Cold’ wallets are hardware ones, that are located at a USB stick or a special gadget — it seems like the most secure way so far, but, according to a recent report, even hardware wallets are not foolproof. Regular updates and careful key management are still vitally important. Whatever kind of wallet you use, you should make sure that your laptop or smartphone doesn’t contain malware.