We have already written about different types of crypto wallets and their features. Let's continue this topic, but take a closer look at the security of crypto wallets and how to avoid losing coins.
How does the blockchain security system work?
Cryptocurrencies are not stored in wallets but on the blockchain - a decentralized distributed ledger. And wallets make it possible to access the blockchain, get information about your coins, and carry out transactions.
Each wallet has two keys:
- The public key is used as the wallet address for receiving transactions.
- The private key is used to sign and send transactions.
Access to the wallet can be protected with a password, secret phrase, and two-factor authentication.
Blockchain is not possible to hack and tamper with transaction records. In theory, this is possible, but it will require so much processing power that no one will even try. Therefore, hackers direct all their efforts to get access to users' wallets and steal coins. They create phishing sites, hack online wallets and crypto exchanges to get passwords and keys.
Security of crypto wallets.
The most reliable are so-called "cold" wallets - Hardware wallets (Trezor) and paper wallets. Hardware wallets are flash drive-sized devices that are hack-proof. Paper wallets are literally paper carriers on which QR codes of public and private keys are printed. To make transactions, the user must scan these codes. Cold wallets do not have constant access to the Internet, so there is no need to be afraid of hacker attacks.
The only threat is physical loss or theft of a hardware or paper wallet. We also note that if you need to make transactions often, it is inconvenient to use these wallets.
Less reliable, but more convenient for frequent use "hot" wallets:
- Online wallets (MyEtherWallet, Blockchain)
- Crypto exchanges (Coinbase, Binance)
These wallets are always connected to the internet, and this makes them vulnerable to hacking. But to use them, you do not need special devices or programs. All functions are available in the Internet browser.
The public and private keys of hot wallets can be stored on remote servers or the owner's computer. If the computer hard drive, where the wallet keys are stored in a single copy, breaks down, access to the crypto wallet will be lost forever. If the keys are stored on a remote server, it is possible to restore access.
The security of online wallets and crypto exchanges is constantly improving. They offer two-factor authentication, regularly audit and update security systems. But hackers continue to evolve and find new weaknesses. Therefore, no one is safe from hacking.
There are also software wallets. These are special programs that must be installed on a computer or smartphone. They can work with the blockchain via the Internet or download the entire chain (up to 300GB) to a computer hard drive and work with it locally. This method is much safer. Keys in such wallets can also be stored both on a remote server and a local computer.
Whichever wallet you choose, keep keys, passphrases, logins, and passwords in safe places, use complex passwords, be sure to activate two-factor authentication. Check the addresses of the sites you visit so as not to get to a phishing site.
The main recommendation is to store cryptocurrencies in different wallets: small amounts for frequent use, investing and trading on the exchange - on hot wallets, and most of the coins that you do not plan to use soon - on more reliable hardware or paper wallets. Large companies adhere to this strategy.
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