Wallet safety

The purpose of this article is to give a brief overview of how to safely store your crypto currency.

A wallet is used to store your crypto currency and each blockchain/token has its own wallets to support this. Different blockchains are not compatible with each other, so sending a token to a wrong type of wallet can result in losing it.

Wallet flavours

There are many different types of wallets out there which can be used including: -

• Lightweight wallets
• Full node wallet
• Web wallets
• Hardware wallets

Lightweight wallets are quick and easy to install and give you access to the blockchain whilst you still have access to your own private key without having to download a whole copy of the blockchain. Think as your private key as the password which gives you access to your segment of the blockchain. Your wallet should always be encrypted and secured with a passphrase. In the event of somebody gaining access to your wallet they would still require the passphrase to decrypt and be able to make a transaction. Every passphrase you create should be different so in the event of this becoming compromised you are not running the risk of having all your wallets emptied.

Full node wallets are easy to install but need a lot more disk space as you are required to download a copy of the whole blockchain. The blockchain is a public ledger of all transactions so this grows over time with every single transaction that takes place. At the time of writing this article the Bitcoin blockchain is 150GB. Not exactly small, so would take a while to synchronise. Running a full node is not required but its a way of showing support for said blockchain. Again you have access to your private key and wallet should be encrypted with a passphrase.

A web wallet uses a web browser as the user interface (instead of a downloaded wallet application) to give you access to the blockchain. You have to input your private key via the browser to gain access and in my opinion this is the most insecure way to store your tokens. This is because of the number of phishing sites on the internet which pop up pretending to be the like of Myetherwallet etc. Input your private key into one of these and your tokens will be gone before you realise. DNS hacks can also be used to point what is a legitimate web address to a different IP of a malicious web server where someone is waiting to take your private key.

A hardware wallet is the most secure way to store your crypto tokens. The tokens are stored offline in a hardware wallet. This means that hackers cannot gain access to it. I personally use the Ledger Nano S. Access to the device is controlled via a PIN and it supports up to five different wallets at a time. To send a transaction you need to confirm via the buttons on the device. Recovery of the device is via the seed / 24 word recovery phrase. If you lose / damage your device this seed can be used on a new device to restore access. The first thing I did when setting up my Ledger was to send one ERC-20 token to my Ethereum address, wipe the device and restore using my seed. This then gave me the confidence to send over my other tokens. This can also be used on Myetherwallet to get access to send and receive your ERC-20 tokens without having to type in your private key.

Backing up private keys and recovery phrase

Backing up your private keys and recovery phrase in a secure way is very important. If anyone has access to these they can have full access to your wallets and empty them. Giving your private key away is like somebody having your bank card and PIN.

The keys and recovery phrase should be stored offline somewhere secure like written down on a piece of paper and in a fireproof / waterproof safe. Another option I prefer is storing on a memory stick in an encrypted file. It is then offline, encrypted and in safe. This is easily done by using 7Zip. You can right click a text file, add to archive and secure using AES-256 encryption. Copy to your memory stick and you now have a secure offline backup. Having multiple copies of your secure backups is also recommended in the event of losing the original. This should be stored offsite in another location which is also secure.

Recovering private keys and recovery phrase

To restore from backup you can import your private key into your wallet. With the Ledger Nano S its a case of inputting your 24 word seed.

Something which is possibly overlooked is how could your loved ones access your crypto assets in any unfortunate event. Talk about a recovery plan with your nearest and dearest so they know how to recover your keys from backup, recommend a close friend you could turn to if they need help get access.

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