Everyone who buys or mines cryptocurrencies for the first time and even those who have been doing it for long may ask where to store the received coins without any risks. There are two ways to store cryptocurrencies: hot and cold.
It is called so because the coins are always available online, and you can spend them at any time. These wallets require Internet access as they maintain an active connection to the blockchain. The essence of hot storage methods is that the private keys of your wallet are placed on the servers of the used service, after which, you can access the wallet at any time, sometimes knowing only your username and password. When using this method, it is recommended to connect additional security measures, for example, two-step authentication.
This way, in turn, is created for offline storage without Internet access. To access such a wallet, you must know the private key. In this case, the private keys of the wallet are stored on your personal device and are not accessible from the outside.
In addition, all wallets are divided into regular and multicurrency wallets. The latter ones allow you to store several different cryptocurrencies in one place.
Choosing a wallet is an important and responsible step. You should understand that the safety of your cryptocurrency assets depends on your choice. The most reliable storage method is traditionally considered to be cold. In this case, coins are stored on your personal device and are not available to anyone except you.
Some crypto enthusiasts prefer to store their coins on exchanges. This is very convenient since modern trading platforms support dozens and even hundreds of different altcoins. However, this approach has many disadvantages because the user has to trust the funds to a third party.
Most cryptocurrency exchanges are centralized, not immune to hacking, and regularly exposed to various attacks. All this jeopardizes the safety of funds, and sometimes, you can temporarily lose access to funds due to technical work or service interruptions. Therefore, users who do not trade large volumes on exchanges should consider other options for long-term storage.
The two main components of any crypto wallet are public and private keys. A key is a unique set of letters and numbers. A public key can be compared to an account in a regular bank, to which anyone can send money. The public key is visible to everyone. If the public key is known, it can be used to view all the operations performed. Since any number of public keys can be generated to one wallet, it is considered good practice in the crypto world to give a new public key for each operation. It's easier to hide how much cryptocurrency you have on your crypto account.
A private key is both a password and a login to access your cryptocurrency. It is important to keep the private key secret. Only with its help you can do something in your wallet and manage your money. It is difficult for an average person to remember the contents of a private key. Therefore, when registering a crypto wallet, the user is given a seed phrase.
A seed phrase is a set of 12-24 words in a specific order, required to open your crypto wallet on any device. It is generated randomly when you first set up a crypto wallet.
This phrase can be converted back to a private key if necessary to regain access to the wallet. It is important to remember the phrase, and it is better to write it down but not tell anyone and keep it in a safe place. The seed is very important; so, it needs to be stored very carefully, possibly on multiple paper copies offline.
Seed words generated by your wallet are not random words. These words are taken from a specific set of 2048 words known as the BIP39 word list. It is currently available in English, French, Italian, Japanese, Chinese, Korean, Spanish, and Czech. Note, however, that most wallets only support English word lists.
There are various types of seeds that comply with this standard, allowing users to get their funds back on different wallets.
BIP39 is a tool that is used to generate mnemonic phrases. In addition to Bitcoin wallets, it is also the most common standard used by many deterministic wallets. BIP39 has also come to be used in many other cryptocurrency projects.
This mnemonic generator is a group of words that serves as a backup of your wallet. In case your wallet is lost or destroyed, you can use the seed phrase to access the coins associated with that wallet.
BIP39 describes the implementation of a mnemonic sentence. It consists of two parts: generating the mnemonic and converting it into a binary seed.
BIP39 is the industry standard for many hierarchically determined wallets. Hardware wallets like Ledger, Trezor, and Keepkey use it to generate a master key. By default, these wallets generate 24-word mnemonics.
On the other hand, there are wallets like Electrum that use seed words like BIP32, which are only 12 words long.
Even though the BIP32 method is used, you can still import the BIP39 mnemonic phrase generator into your Electrum wallet. Also, in addition to BIP32, there is a version of BIP44, which is used by some wallets to generate seed phrases.
From the standard list of words, you can choose your own combination. However, to make it work properly, a certain structure is necessary.
You can pick any words and experiment with the last one. But since it is the checksum, not every word will work. Even if you generated the correct seed phrase manually, it is not the best idea. Why is it so? The human brain is not very good at randomness. Thus, almost any user-generated seed phrase will be less secure than an automatically generated one.
By creating your own seed phrase, you make it easier for someone: a person can understand your logic behind its compilation. Also, remember that there are bots that can search for seed phrases that follow a certain pattern and are not randomly generated. Therefore, if you want to generate your own seed phrase, auto-generation is the only way to secure your funds. You should know that more coins are lost as a result of users' actions, constantly blocking their own coins and overly complicating security, than by theft. So, try to find a balance between your security needs and your ability to remember to back up and use a passphrase rather than choosing something as complicated as generating your own seed phrase.
Protecting your wallet should be your personal responsibility. Here are main 4 safety tips that you should never forget:
Attackers exploit common user habits, including reusing weak passwords or clicking on suspicious links. Let's consider the most popular threats for crypto wallet owners.
Cybercriminals use them to covertly replace the contents of the clipboard using a common copy and paste action.
Cybercriminals often distribute fake versions of popular crypto wallets for mobile devices or well-known cryptocurrency exchanges. The idea behind such malicious campaigns is to fill the niche left by well-known brands and reach more potential victims. After downloading one of the fake cryptocurrency wallets, users get access to a login page. Such pages are often fishing pages used to steal the user's private keys, which are necessary to gain control over the wallet. Some cybercriminals use wallets that allow you to manage multiple cryptocurrencies to trade on an exchange - a perfect way to gain access to your wallets.
Most of these links are fishing. Attacks that involve the creation of domains similar to well-known sites have become common among cybercriminals. Another way to carry out fishing is by sending spam messages with malicious links. Using torrent sites to download software and games can also be dangerous.
To reduce the risk of theft of your precious coins and help ensure the protection of your crypto wallets, experts recommend adhering to the following rules: Keep your devices up to date and use a reliable security solution both for your PC and mobile device.
Before downloading the crypto wallet, visit the official website of the service and find out about the availability of the mobile app.
When downloading a crypto wallet, check the number of downloads, as well as its ratings and reviews.