There is a saying that goes: never leave all your eggs in one basket. Therefore, there are multiple resources that provide security to the funds of crypto holders.
In everyday life people may have a wad of bills in their pocket. However, in the field of cryptocurrencies there is a different perception, having cryptocurrencies actually means: having the title of right over a certain portion of assets that exist on the network. It's like when you have land, you don't actually walk around with your piece of land in your pocket, instead, you have the title of ownership, which contains all the data necessary to identify your portion of land. That's how the world of cryptocurrencies works.
This principle allows for new and very interesting security guarantees, since special safeguard measures can be applied.
Among them, crypto wallets.
When someone says they own a fund in cryptocurrencies, they have it in a crypto wallet. Conventional wallets are used to safeguard documents and money. In the case of those that concern us, crypto wallets contain detailed information of the ownership rights of their owner(s).
If we wanted to check the balance of a bank client, we would have to go to the owner or the bank. Under their authorization it can be consulted. In the crypto field, for the most part, all wallets are public domain, that is, they can be consulted online.
For example: Binance maintains a fund for contingencies (SAFU) of one billion USDC that can be consulted by anyone without inconvenience.
Now, in terms of security, said funds can only be mobilized by the owners of the credentials thereof.
This is why in the world of cryptocurrencies, the important thing is to adequately protect the information that allows access to a wallet from the point of view of the mobilization of funds, and not the consultation. Let's go back to an example, anyone can admire a person's home, either by standing in front of it looking at how beautiful it looks, or by photos, if they are in an album or online. But access to the property is only available to those who have the key, or duplicates of the key.
There are several types of crypto wallets, but they all have something in common: the key.
Keeping that key (access credentials) safe is essential to keep funds safe.
Let's talk a little about the types of crypto wallets:
- Hot wallet:
A hot wallet is a cryptocurrency wallet that is always connected to the Internet and the cryptocurrency network.
There are custodial ones, which are the wallets managed by third parties. Such as Exchanges, their users have access credentials to the system, which are the means to access their funds, but the key to the wallets is held by the Exchange.
And the non-custodial hot wallets, which are also always online, but whose access credentials are in the control of the user. An example of this are the wallets that we can generate with resources such as Metamask or similar. The correct securing of these resides exclusively in the person who creates them.
- Cold wallet:
These work offline and are more secure.
There are hardware ones, which only work when connected to a computational device. Like a Pendrive.
And the paper ones. This is the safest, since the information is not available in digital mode but printed. Less susceptible to cyberattacks. Its disadvantage is that it is less practical for cases of constant transactions. But it works very well for long-term storage.
- The key
The credentials of any crypto wallet essentially consist of a key that is generated when it is created, and which must be well protected. A phrase of 12 or 24 words can also be generated that provides access to the wallet as well. Whether it is the key, the phrase or both, this is what must be zealously guarded, as it is the means of access to the contents of the wallet.
Now, when we create a hot wallet, after all the processes, we will have also created a password for quick access. Do not confuse this password with what was previously described. Example: something happened to our computer, everything has to be programmed again, when configuring our wallet, we will have to use the key or the phrase that we saved, but the application password can be the one we want, a new one or the same one we had before our computer was damaged.
- Good security practices
Having several crypto wallets contributes to better security.
Use contact wallets for frequent operations, where prudent sums of funds for regular transactions are stored. And have others for safeguarding more substantial funds in the long term, these are the ones that are touched very sporadically.
With these practices, if an unforeseen event occurs, it could probably occur in a more frequently used wallet, which in turn would manage less funds.
Regarding safeguarding access credentials, imagination is the limit. Using ingenious ways to secure this information is the responsibility of each individual. The important thing is to store them in a way that is as inaccessible as possible to third parties.
