EXPLAINED: How to store your cryptographer safely and avoid hacks

In light of the various hacks and liquidations of crypto exchanges and Decentralize Finance (DeFi) platforms, experts advise crypto-investors not to store their cryptocurrencies in such places. But what other options do investors have?

Well, investors have not just one, but several other options, based on their requirements. But first let’s understand why it’s not safe to store your cryptographer in the places mentioned.

Why should you not store crypto on a stock exchange or on any DeFi platform?

It is advisable not to store one’s crypto inventory on any centralized platform such as exchanges or DeFi platforms. This is because the custody of the funds is with the platform itself and not the investor. In addition, these platforms are subject to hacks.

In recent times, DeFi platforms, such as Celsius Network, 3 Arrows Capital, Voyager Digital, Vauld and others, have been exposed to financial strains due to investors’ funds becoming unavailable. And therefore, investors are advised to store their cryptos in different types of crypto wallets.

But what are crypto wallets?

Crypto wallets are pieces of hardware or software used to store crypto assets. Each crypto wallet has an identity, which consists of a pair of private keys and public keys.

What are public and private keys and what do they do?

Public and private keys provide an alphanumeric identifier for your crypto wallet, called your wallet address.

What does a crypto wallet address do?

The crypto wallet address specifies where the crypto tokens can be sent on the blockchain network. The private keys of a crypto wallet are never meant to be revealed. The public key is revealed to the sender of cryptocurrencies to identify the address.

Crypto wallets can be divided into groups

a) Based on how often they are connected to the internet and

b) Based on their technology.

Based on internet connection, they are divided into two categories

1. Hot Wallets

Hot wallets are regularly connected to the internet. They are more user-friendly but less secure since they are often connected to the Internet. Hot wallets are commonly used for daily transactions. They provide immediate access to the funds and are easy to set up.

2. Cold wallets

Cold wallets are not connected to the internet often. As a result, they are very safe. HODLers benefit most from cold wallets.

Crypto wallets are divided into two broad categories based on the underlying technology they are built with

1. Hardware wallets

2. Software wallets

Hardware wallets are further divided into:

I. USB flash drives

These devices use USB ports to connect to your computer or laptop. Cold wallets are often used for long-term storage.

ii. bluetooth

These gadgets use Bluetooth to communicate with your PC, laptop or mobile phone. Cold wallets are also often used for long-term storage.

iii. Paper wallets

The recipient’s QR codes are printed on paper in paper wallets. These are no longer relevant. Their main disadvantage is that they do not allow partial transfers.

Software wallets are further classified as follows:

(a) Desk wallets

These are software packages that can be installed on a variety of operating systems and become more popular over time. Antivirus protection is necessary since any computer connected to the internet poses significant security risks. Desktop crypto wallets are preferable to keeping cryptocurrency on a stock exchange due to incessant hacks on stock exchanges.

b) Mobile applications

Mobile apps are similar to desktop wallets. These wallets are designed to be used on mobile phones. They are especially convenient because they perform transactions using QR codes. They are suitable for frequent daily use. However, they are vulnerable to malware attacks. Encryption is required for mobile wallets. They are portable and practical, but they are vulnerable to viruses. Two popular mobile wallets are Coinomi and Mycelium.

(c) Browser-based wallets

These wallets can be added as browser extensions to your browser. It is worth noting that in the case of browser extension wallets, private keys are susceptible to DDOS attacks. They may be hosted by themselves or by a third party. Being a self-host is preferred since money is always in the investor’s control. Two examples of browser extension wallets are MetaMask and Coinbase.

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