Are Cryptocurrency wallets secure?
Linda Chua last edited by Linda Chua
Wallets are secure to varying degrees. The level of security depends on the type of wallet you use (desktop, mobile, online, paper, hardware) and the service provider. A web server is an intrinsically riskier environment to keep your currency compared to offline. Online wallets can expose users to possible vulnerabilities in the wallet platform which can be exploited by hackers to steal your funds. Offline wallets, on the other hand, cannot be hacked because they simply aren’t connected to an online network and don’t rely on a third party for security.
Although online wallets have proven the most vulnerable and prone to hacking attacks, diligent security precautions need to be implemented and followed when using any wallet. Remember that no matter which wallet you use, losing your private keys will lead you to lose your money. Similarly, if your wallet gets hacked, or you send money to a scammer, there is no way to reclaim lost currency or reverse the transaction. You must take precautions and be very careful!
Backup your wallet. Store only small amounts of currency for everyday use online, on your computer or mobile, keeping the vast majority of your funds in a high security environment. Cold or offline storage options for backup like Ledger Nano or paper or USB will protect you against computer failures and allow you to recover your wallet should it be lost or stolen. It will not, however, protect you against eager hackers. The reality is, if you choose to use an online wallet there are inherent risks that can’t always be protected against.
Update software. Keep your software up to date so that you have the latest security enhancements available. You should regularly update not only your wallet software but also the software on your computer or mobile.
Add extra security layers. The more layers of security, the better. Setting long and complex passwords and ensuring any withdrawal of funds requires a password is a start. Use wallets that have a good reputation and provide extra security layers like two-factor authentication and additional pin code requirements every time a wallet application gets opened. You may also want to consider a wallet that offers multisig transactions like Armory or Copay. A multisig or multi-signature wallet requires the permission of another user or users before a transaction can be made.
Multi-currency or single use?
Although Bitcoin is by far the most well-known and popular digital currency, hundreds of new cryptocurrencies (referred to as altcoins) have emerged, each with distinctive ecosystems and infrastructure. If you’re interested in using a variety of cryptocurrencies, the good news is, you don’t need set up a separate wallet for each currency. Instead of using a cryptocurrency wallet that supports a single currency, it may be more convenient to set up a multi-currency wallet which enables you to use several currencies from the same wallet.
Are there any transaction fees?
There is no straightforward answer here.
In general, transaction fees are a tiny fraction of traditional bank fees. Sometimes fees need to be paid for certain types of transactions to network miners as a processing fee, while some transactions don’t have any fee at all. It’s also possible to set your own fee. As a guide, the median transaction size of 226 bytes would result in a fee of 18,080 satoshis or $0.12. In some cases, if you choose to set a low fee, your transaction may get low priority, and you might have to wait hours or even days for the transaction to get confirmed. If you need your transaction completed and confirmed promptly, then you might need to increase the amount you’re willing to pay. Whatever wallet you end up using, transaction fees are not something you should worry about. You will either pay minuscule transaction fees, choose your own fees or pay no fees at all. A definite improvement from the past!
Are cryptocurrency wallets anonymous?
Kind of, but not really. Wallets are pseudonymous. While wallets aren’t tied to the actual identity of a user, all transactions are stored publicly and permanently on the blockchain. Your name or personal street address won’t be there, but data like your wallet address could be traced to your identity in a number of ways. While there are efforts underway to make anonymity and privacy easier to achieve, there are obvious downsides to full anonymity. Check out the DarkWallet project that is looking to beef up privacy and anonymity through stealth addresses and coin mixing.