What is a Crypto Vanity Address? Is it a security risk?

To trade or hold crypto, you need a cryptocurrency wallet. Crypto wallets are identified via addresses, which can come in a variety of forms. One such form, a vanity address, offers some interesting features but can pose a security risk.

So, what is a crypto vanity address and is it insecure?

What is a Crypto Vanity Address?

Before going into crypto vanity addresses, it is best that the crypto wallet addresses themselves be understood. A crypto wallet address is a string of letters and numbers used to identify a specific cryptocurrency wallet. All crypto wallets have addresses, with some blockchains displaying them publicly and others keeping them private (like privacy-focused Monero).

Crypto vanity addresses go a step beyond typical addresses because they allow the user to customize their wallet address. In other words, it allows users to create their own address that stands out from typical addresses. More specifically, vanity addresses allow you to customize the first part of your address, say with your name, a funny phrase, or something similar.

Vanity addresses share many similarities with regular addresses. Most importantly, the wallets of both address types have both a public and private key, two key elements in holding and trading crypto. How these wallet addresses work is the same, i.e. they can send and receive money in the same way. It is purely the address itself that separates the two.

The most famous example of a crypto vanity address at the time of writing is the one offered for Bitcoin. If you want a Bitcoin vanity address, there are many generators out there that you can use. These generators often come in the form of websites and allow you to create your own Bitcoin vanity address, which you then need to import into your BTC wallet of choice.

But if you want to generate a vanity address in a safer way, you can do it without using an online generator. But this process can be challenging and requires some technical knowledge.

Various wallet providers, such as Electrum, Blockchain.com and BTC.com’s wallet support vanity addresses.

The 3 Risks of Crypto Vanity Addresses

While crypto vanity addresses offer users convenience and personalization, there are also some security considerations to be made here. After all, your addresses highlight the wallet where your crypto is kept, so it’s important that you know it’s safe. So, what risks are posed here?

1. Identity Exposure

A key risk associated with crypto vanity addresses is their potential to highlight your true identity. On a typical blockchain, senders and receivers within transactions appear only via their wallet addresses. Wallet addresses themselves are just lines of random characters, so it is impossible to determine the identity of the wallet owner just by looking at this.

While there are ways one’s identity can be found through their wallet address, this is not a quick and easy process. But including a personal word or phrase at the start of your address increases the chance of a malicious actor finding out who you are.

In general, using a vanity address can make it much easier for a cybercriminal to find and target your wallet, especially if you have a large amount of crypto. So if you are a high-profile crypto trader, using a vanity address can lead to huge financial losses if your wallet becomes the target of a hack.

2. Misdirected Transactions

Also, generating a unique address similar to someone else’s can lead to a mix-up, where a person accidentally sends money to the wrong wallet. Because crypto transactions are irreversible, this can pose a major problem, especially when large sums of crypto are being sent.

A cybercriminal may even try to make their vanity address look like a well-known wallet to confuse people, increasing the chance of a misdirected transaction. In such a scenario, an unknowing merchant may send money to the wrong address, possibly several times, before realizing that something is wrong.

3. Shady generators

You should also note that if you use an automatic generator to create a vanity address, there is always a chance that the generator website has some sensitive data associated with your address, such as your wallet’s private key.

Only you should have your private key, as this bit of data is the gateway to your wallet and the funds in it. Private keys are used to authorize transactions, meaning that someone can withdraw money from your wallet if they have your private key. Of course, this can lead to serious consequences, as you can lose all your crypto in a matter of minutes.

Has Vanity Addresses Been Hacked?

So, has a vanity address ever been targeted in a hack? Unfortunately yes.

In September 2022, a crypto user lost almost one million dollars when their vanity address was hacked. The hack, reported by PeckShield alert, resulted in the loss of 732 ETH (worth $950,000 at the time).

The hacked vanity address was created by Profanity, an address generator. This massive hack led to concerns about vanity addresses and how they put users at risk.

When Should You Use a Crypto Vanity Address?

You may not like the sound of crypto vanity addresses, but are there any scenarios where you need to use one?

In short, not really. Crypto vanity addresses are more of a fun option than anything else and offer no additional functionality over regular wallet addresses. The extra personalization is really all you get here.

However, if you run a business that uses cryptocurrency and have funds sent to your wallet on a regular basis, it may be useful to put your company name at the beginning of your address to make it easily recognizable.

However, if you are a casual crypto trader and want to keep your privacy and security at a maximum, it is best to use a regular wallet address. Or, if you want to take things further, a private wallet address (such as a stealth address). If you don’t need a vanity address, you may be unnecessarily exposing yourself to hacks and theft.

Crypto Vanity addresses can expose you to hacks

While vanity addresses have not been confirmed as a major risk, there does seem to be a security and anonymity issue when it comes to customizing your crypto address in this way. So, unless you have a very good reason to use a personal wallet address, you should think twice before switching to a vanity address, as it could land you in hot water.