Are digital wallets secure?
Wallets have different levels of security. It depends on the type of wallet (desktop, mobile, online, paper, hardware) and the service provider. A hot wallet is inherently more risky to preserve your currencies on than an offline one. Online wallets can expose users to platform vulnerabilities that can be exploited by hackers to steal their funds. Offline wallets, on the other hand, cannot be hacked because they are simply not connected to the network and do not rely on third parties for security.
Although online wallets have proven to be the most vulnerable and susceptible to attack, security precautions must be taken and followed when using any type of wallet. Remember that no matter which wallet you use, losing your private keys means losing your money. Likewise, if your wallet is hacked, or you send cryptocurrencies to a scammer, there is no way to recover the lost currency or reverse the transaction.
Some advice to secure your wallet
- Back up your wallet. Keep only small amounts of currency for daily use online, on your computer or on your phone, while keeping most of your balance in a high-security cold wallet. Cold or offline storage options for backup such as Nano Ledger or paper or USB will protect you against computer failures and allow you to recover your wallet in case of loss or theft. It won’t protect you, however, against expert hackers. The reality is that, if you choose to use an online wallet, there are inherent risks that cannot always be avoided.
- Update the software. Keep your software up to date to have the latest security improvements available. You need to regularly update not only your wallet software, but also the software of your computer or mobile phone.
- Add additional security levels. The higher the security levels, the better. Setting long and complex passwords to access the wallet and to make any withdrawal of funds is critical. Use wallets that have a good reputation and provide extra security features such as two-factor authentication (2FA) and additional pin code requirements each time a wallet application is opened. You can also consider a wallet that offers multi-signature transactions such as Armory or Copay. A multisignature (or multisig) wallet requires the permission of another user or other users before a transaction can be made.
Multi-currency or single-currency?
Although Bitcoin is by far the most popular and well-known digital currency, hundreds of new cryptocurrencies (called altcoins) have emerged, each with its own ecosystem and infrastructure. If you are interested in using more than one cryptocurrency, the good news is that you don’t need to set up a separate wallet for each currency. It may be more convenient to set up a multi-currency wallet that allows you to use different currencies in the same wallet.
Are digital wallets anonymous?
Somehow, but not entirely. You could say that wallets are pseudonymous. Indeed, the wallets themselves are not related to the actual identity of a user, however, the transactions associated with it are recorded publicly and permanently on the blockchain. Your name or personal address won’t be visible, but data such as the address of your wallet can be traced back to your identity in several ways. Some companies are trying to make anonymity and privacy easier to achieve, but there are obvious negative aspects of full anonymity, such as encouraging criminal acts.
What’s the best wallet?
There is a growing list of options. Before choosing a wallet, however, we recommend that you consider how you intend to use it.
Do you need a wallet for everyday purchases or just to buy and hold digital currency for investment purposes?
Are you going to use multiple currencies or just one currency?
Do you need to access your digital wallet from anywhere or just from home?
Take some time to assess your needs and then choose the solution that best suits you.