How to Manage Your Crypto Wallet Keys Safely
Updated: Feb 8, 2021
When owning cryptocurrencies, the most important thing is the private key authorizing access and proper crypto asset management. These are highly sophisticated cryptographic forms allowing you to gain access to the wallet.
Should you by any chance lose possession of your crypto wallet keys, there is no bank to provide a backup of the data and help you restore access. There is no one all-knowing entity gathering information about users in one place. All information is encrypted and in the hands of other users part of the chain.
By the same token, if you — willingly or not — provide private key access to a third-party entity, they would have all they need to manage your crypto assets in your stead.
This is just one of the things that make handling crypto assets different from the way traditional finance works.
For some, handling a crypto wallet private key is the desired — or even, the only — way to manage their financial means, while for others, this type of complete control can be overwhelming at first.
Whoever has the keys has the coins.
Most beginners venture into the crypto space by purchasing coins on an exchange. And they usually choose to keep them there until they find the perfect moment to start trading.
But, what happens to those coins up until then? How secure are they?
Basically, in such situations, you are putting your trust in the platform that is holding your crypto assets. You are also assuming their security measures won’t be breached and they won’t maliciously use the data you have stored with them to access the funds — which is pretty similar to doing business with traditional banks.
Thus, you are not in charge of the crypto assets you keep on exchanges.
Nevertheless, there is a solution. In order to keep control over your assets, you don’t have to relinquish your data. You can safely manage your crypto wallet keys by storing crypto assets in one or several decentralized wallets instead of centralized exchanges.
You’ve probably heard of hot and cold crypto wallets. Hot wallets are directly connected to and accessed via the Internet, while cold crypto wallets are completely offline. However, these categories can be broken down further:
Cold wallets — Paper and hardware crypto wallets
Hot wallets — Software and online (web) crypto wallets.
Let’s dive in a bit further to see what makes each of these different from the others.
Paper Crypto Wallets
Offline mechanisms for storing crypto assets are called paper wallets. As the name says, storing crypto wallet private keys involves generating and printing them out on a piece of paper and keeping them safe in physical form.
While this is a simple way to safeguard your keys and corresponding addresses, it also requires a great deal of responsibility. If lost or destroyed, the user loses all access to the stored funds.
Furthermore, the authentication process itself can be tedious as it requires manual input of the data, and when this is done via an internet browser, safety can also be compromised by means of a cyber attack.
One of the most famous paper wallets is Mycelium.
Hardware Crypto Wallets
Another good way to store blockchain wallet private keys is via hardware wallets. These physical devices store access information offline and can even serve to verify transaction details on the device’s screen.
Any digital attacks on your crypto wallet are fruitless as the attacker cannot get hold of access information. Thus, crypto users largely choose this type of wallet to store their crypto funds.
Software Crypto Wallets
These are computer programs or smartphone applications for managing crypto assets. They require some sort of access data authentication — password, PIN, biometrics, QR code — which keeps you in control over crypto assets as well.
However, crypto wallet keys themselves can be stored either with the user or the platform, which determines the level of security of the assets stored.
While more inexperienced users may want to give access to the keys to the platform while they get their bearings in the crypto space, those with a little bit more experience almost always choose to have sole access to such information.
Online Crypto Wallets
Online crypto wallets are very similar to software wallets because they both require internet access to store and use blockchain wallet private keys. These crypto wallets allow users to handle their funds via any online platform thanks to their preferred internet browser.
Private keys or seed phrases necessary to gain access, though, can be kept by the user alone or by the service provider. In the first case, users have sole and complete control over their assets, as they are using non-custodial wallets. In the other, they are trusting their money to someone else.
The most famous online crypto wallet is Metamask, but most software wallets also have the browser version too.
The Eidoo crypto wallet is an example of hot wallets, as it requires internet access to be accessed.
As a non-custodial wallet, Eidoo is a DeFi trading platform that never has access to users’ crypto assets and credentials. That way, you can spend, save, earn Bitcoin, Ethereum, Litecoin, and other ERC-20 tokens, and even use them to stake in the pNetwork DAO.
Having that scope of possibilities and still be sure in your crypto asset security should go a long way when it comes to choosing the right method of managing your crypto wallet keys in the long run.
With this information at hand, your decision should be easy.