Your Cryptocurrency Cold Wallets Can Be Compromised if You Don't Follow These Vital Steps

As people increasingly invest in cryptocurrencies, it becomes crucial to ensure the safe storage of holdings amid rising cybercrimes.

Cryptocurrency wallets for asset storage can be classified as hot and cold wallets. Note that the wallets don't store the crypto assets but the private key that the owner requires to record a new transaction in the blockchain. Hot wallets involve private keys stored in online or custodial wallets offered by crypto exchanges, while cold wallets are separate offline devices.

While private keys in hot wallets are always online, cold wallets can be stand-alone key-storage devices that must be connected to a computer before any crypto transaction can be executed. Cold wallets could be as simple as writing private keys on paper, which can be input manually when required for transactions.

Cold wallets are considered much safer than hot crypto wallets, but improper wallet setup, hardware tampering, and limited support features are among the factors leading to lost coins and passphrases.

Be Careful When Buying Cold Wallets From Third-Party Sellers

You might come across countless cold wallet devices on e-commerce platforms like Amazon or eBay at lucrative prices, which could be hard to beat. However, there is a chance that the device you bought has been tampered with, even if the packaging looks fine. People with knowledge of how the internal components of a hardware crypto wallet work can swap out components or install malicious firmware.

Furthermore, the hardware device manufacturer might refuse to help in case of an issue, arguing that you didn't purchase the product from their original store. Hence, it is advisable to purchase hardware wallets straight from the source, even if it means paying more for better support and less exposure to storage risks.

It is vital that you don't skip authenticity checks even when buying wallets from an authentic store to rule out any scope of tampering in transit. Brands have different authenticity checks. For instance, wallets from Ledger verify authenticity via Ledger Live, while Trezor conducts a firmware check during initial setup. However, if your wallet doesn't prompt any initial validation checks during setups, it could be a red flag.

Ignoring Device Compatibility, Coin Support

Although basic, people often end up ignoring aspects like device compatibility because some wallets work with Android devices only while others are iOS-based. Several require a USB-C port or QR-code pairing.

If you use a laptop to manage funds, ensure the wallet has desktop support. Those using their phone can check if the wallet works with their mobile operating systems.

Moreover, crypto wallets might not support all coins. Hence, it helps to check supported assets before purchasing a wallet. For example, some wallets support Bitcoin but not Ordinals, while those supporting Ethereum might not show ERC-20 balances.

Seed Phrases, Setup Test Demo, and Firmware Updates

Some crypto investors write their seed phrases on paper for safety, but paper is fragile, and any damage to it could cost you your entire holdings, which can be unrecoverable. Metal seed backups, like laser-etched stainless sheets, could be costlier than paper but more durable.

Once you have your authentic cold wallet hardware set up, you can test its functionality by making a small crypto transaction to your wallet. During the test, check for the correct address display and the transaction flow to ensure no incorrect seed storage or issues with third-party wallet connections.

A successful wallet setup isn't enough because security challenges are evolving faster than expected. Hence, firmware updates are essential to minimise your exposure to cybersecurity threats. Firmware updates fix bugs and software vulnerabilities and add security features. Top players like Ledger, Trezor, and Keystone roll out firmware updates frequently and usually detail the bug fixes and security updates.

While crypto investments are volatile in nature, keeping your profits safe is another challenge. Many people lose their holdings because their coins were stolen in a wallet breach, they misplace the seed phrases, skip firmware updates, or fail to understand complex processes. Hence, the right wallet for you depends on whether you are looking for portability, diverse coin support, a user-friendly interface, or high security.

Disclaimer: Our digital media content is for informational purposes only and not investment advice. Please conduct your own analysis or seek professional advice before investing. Remember, investments are subject to market risks and past performance doesn't indicate future returns.