Wallets and Encryption: What You Need to Know About Digital Assets Storage
The popularity of digital assets in recent years has not escaped the attention of cybercriminals and the industry has consistently been plagued by cases of cyber theft. Meanwhile, the falling prices of cryptocurrencies since the half of the year has caused many investors to deem it prudent to hold on to their digital assets as they await the dawn of a crypto spring.
Further fuelling the case for the secure storage of digital assets would be recent large-scale incidents that have occurred in the digital assets space, such as the liquidity crisis that has hit major institutions such as Three Arrows Capital and Celsius Network.
Such challenging scenarios beg the question: are encrypted digital assets safer on an exchange or a wallet? This article seeks to clarify the relationship between digital exchanges, wallets and encrypted assets.
Cryptocurrency systems represented by Bitcoin are maintained through a distributed consensus mechanism, in which distrusting participants (called miners) maintain the security, integrity, and balance of the ledger: miners use computers to help validate transactions, timestamp transactions and add transactions to the ledger according to a specific timestamp mechanism.
Cryptocurrencies are extremely private in nature because their holders can only prove ownership of their assets through cryptographic methods. There are more than 1,800 cryptocurrency standards and nearly 10,000 cryptocurrencies that have been issued in the market.
The volatile nature of digital currency prices has led to strong trading demand, and such characteristics have intensified the need for resilient storage for digital currency that is also capable of supporting intense transactional demands.
Digital asset exchanges and wallets were invented with the aim to meet these storage and transactional needs. A commonly-held belief states wallets operate with higher security standards than digital asset exchanges. But is this completely true?
Wallets available on the market today can be categorized using two main methods.
If categorized by the maintenance method of blockchain data and degree of decentralization, wallets can be divided into full-node wallets, light wallets, and centralized wallets.
If evaluated using the storage method of a wallet’s private key, wallets can be classified under the cold wallet and hard wallet categories.
Wallets can also be further sorted according to how they can be accessed: online wallets, mobile wallets, PC wallets, hardware wallets and paper wallets (where the private key is written on a slip of paper).
While online wallets, mobile wallets, and PC wallets provide convenient storage channels, they are subject to the risk of asset loss arising from hardware damage or loss, and malicious viruses.
Hardware wallets, meanwhile, are lauded for their security and suitability for storing seldom-used digital assets. However, they have been known to rank low on the user-friendliness scale, deeming them unsuitable for novice users. Such wallets are also not appropriate for the storage of frequently-used cryptocurrencies.
Paper wallets are often viewed as the best method for avoiding hackers, due to their offline nature, but face drawbacks as they are susceptible to loss and physical damage. In addition, the tediousness associated with manually entering the private key each time would rate such wallets unsuitable for daily transactions.
On a user level, the protection of digital assets is paramount, and best practices for wallet security include staying vigilant, in order to prevent asset loss arising from phishing and data leakages. Users who are not well-versed in wallet security best practices would do better to entrust the storage of their digital assets to an established exchange or institution.
A digital asset’s security track record should always be considered during the selection process.
One digital assets exchange that has not suffered any security incidents since its establishment is Huobi Global. Huobi Global has an independent and professional security team with rich experience in blockchain security and wallet security, APT intrusion countermeasures, user asset protection and application security. The team has been deeply involved in the digital assets industry for many years, and possesses an in-depth understanding of security incidents that can plague the blockchain industry. A series of detection and response measures has been put in place at Huobi Global, and its platform is capable of identifying and mitigating possible threats to users and platform assets.
Commonly employed attack methods against digital asset exchanges include on-chain attacks (double-spending, fake recharge, etc.), intrusions (APT attacks, supply chain attacks, attacks on service continuity, etc.) and phishing attacks targeted at users. Therefore, digital asset exchanges need to construct a complete security protection system in terms of blockchain security, wallet management, professional hacker organization intrusion resistance, user asset protection, application security, and other aspects to ensure user assets are secure.
Industry-leading wallet security management practices have been put in place at Huobi Global. The exchange adopts hot and cold separation, multi-signature, and threshold signature technologies to ensure the security of the private key signature process. The platform has in place multiple backups to ensure the availability of private keys and utilizes self-developed security hardware to ensure the robustness of storage.
Furthermore, strict specifications have been set to ensure processes can be carried out only with the authority of multiple trusted parties, to avoid vulnerabilities arising from a single point of failure. Huobi Global currently has a total of 15 private key controllers and multi-signature mechanisms in place to ensure the security of assets of its platform.
The current crypto bear market has intensified the need for safe and reliable storage of digital assets. Many storage options are available on the market today, and users should first conduct due research before deciding on the option that best meets their needs.
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