In 2023, the value of stolen and hacked cryptocurrencies significantly decreased when compared to data from past years, a report by Chainalysis concluded.

Illicit revenue for crypto scamming fell by 29.2% and by 54.3% for hacking, aided by a sharp dropoff in decentralized finance (DeFi) hacking, which could signify that DeFi systems are improving their security practices.

However, cryptocurrency holders must also remain vigilant and proactive in securing their assets.

Here are some of the best ways how to protect your crypto wallet in 2024.

How to Secure Your Crypto Wallet: Experts Define 5 Crucial Steps

Despite an overall decline in cryptocurrency criminal activities, the ever-evolving nature of scams and hacking techniques means that the cryptocurrency wallets of individual users may still be at risk.

Adopting strong security measures, staying informed about the latest trends, and continuously monitoring wallets for any suspicious activity are some of the most crucial steps that digital asset holders must take to secure their cryptocurrency.

1. Choose a Cryptocurrency Wallet Wisely

Selecting the right cryptocurrency wallet is one of the most crucial steps to keep owned digital assets safe, Jeff Owens, the CEO and co-founder of Haven1, a Layer 1 blockchain engineered to address Web3 security and liquidity challenges, told Techopedia.

According to Owens, a cold/hardware wallet, similar to Ledger, is one of the most secure options users can opt for due to its feature of storing private keys offline. Additionally, such wallet types feature PIN protection and recovery seed phrases but could be a little more challenging for beginner investors to navigate.

However, other experts note that each wallet type tends to balance convenience and security differently, allowing users to choose the best wallet for them based on their security needs and abilities.

Anndy Lian, an inter-governmental blockchain expert, explained:

“Hardware wallets are generally considered more secure but less convenient, while software wallets offer ease of use but are more vulnerable to online threats. Paper wallets, while not susceptible to cyber-attacks, carry the risk of being physically damaged or lost.”

Lian added that users holding large sums of cryptocurrencies could consider cold storage wallets as they are not connected to the internet and are less susceptible to hacking.

2. Pay Extra Attention to Your Passwords and Private Keys

Experts note that setting up a strong password is perhaps the first step in securing users’ cryptocurrency wallets.

According to Haven1’s Owens, some of the biggest mistakes crypto holders make when securing their wallets are weak passwords and the lack of two-factor authentication (2FA).

Additionally, users must also pay extra attention to where they store their private keys.

According to Alvin Kan, the COO of Bitget Wallet, keeping private keys offline as much as possible through hardware or paper wallets prevents hackers from gaining access to them via the internet.

Kan added:

“Pay attention to password security by creating complex and unique passwords, avoiding easily guessed combinations (e.g., birthdays, sequential numbers). Regularly change your passwords and avoid using the same password across multiple platforms. Consider enabling two-factor authentication (2FA) for an added layer of security.”

3. Store Passwords Offline

The more information users store online, the easier it is for hackers to get ahold of it, which is why going back to the old-fashioned pen-and-paper days could keep digital assets held in cryptocurrency wallets safe.

Haven1’s Ownes noted:

“In general, the more information you keep offline, the more secure it will be. If you don’t like the idea of paper, encrypted digital backup held on a physical device, like a USB, is also an option.”

Bitget Wallet’s Kan added that the backup process for hardware wallets often includes managing a recovery seed phase. For heightened security measures, it is recommended that users write the recovery seed phrase on paper and store it offline.

4. Regularly Update Software

Failing to update the firmware of hardware wallets is another issue that may leave certain users more susceptible to hacking attacks.

Updates often include bug fixes and stricter security measures, making them an integral part of securing your cryptocurrency wallet.

5. Be Wary of All Transactions

According to Chainalysis’ report, while scam revenue in 2023 was down, approval phishing scams became more prominent last year. In approval phishing, scammers trick users into signing a malicious blockchain transaction that gives the scammer access to the victim’s wallet.

The report highlighted that in 2023, approval phishing scammers stole $374.6 million from cryptocurrency wallets.

Value in $ stolen through approval phishing scams May 2021 – November 2023. Source: Chainalysis 

Haven1’s Ownes noted that it is important for users to double the destinations of transactions several times before approval.

“For example, even if the first and last digits of an address look right, it could be subject to a mirroring (or “address poisoning”) scam, where scammers trick users into sending funds to a fake address that closely resembles the real one. Last month, a crypto user lost $69 million worth of wrapped Bitcoin to such a scam.”

Additionally, Bitget Wallet’s Kan said users should handle links and file downloads with extra caution and always double-check website domains to avoid phishing sites disguised as official websites.

Future of Crypto Wallet Security

Advanced encryption, biometric authentication, and smart contract integration are some of the first steps in emerging trends that aim to protect digital assets stored in wallets.

Lian noted that integrating biometric data for user authentication provides a more secure and personalized way for users to access their wallets. Meanwhile, using smart contracts to automate security protocols reduces the risk of human error, thus further boosting security measures.

Kan explained that Bitget Wallet is already implementing some new security measures, such as MPC and AA wallets that divide private keys into multiple parts or execute transactions automatically through smart contracts in order to offer users an extra degree of security.

He added that secure multiparty computation (SMPC) is another emerging trend that works to boost the security of cryptocurrency wallets by enabling multiple parties to jointly compute a function while keeping their own inputs private.

“Within the context of encrypted wallets, SMPC can facilitate secure distributed key generation and management functions without exposing individual keys to risks,” he explained.

The development of decentralized identity solutions (DID) also strives to make the authentication process more secure by letting users verify their identity without having to expose their personal information. Integrating DID into encrypted wallets can help prevent identity theft and fraud.

The Bottom Line

Despite a recent decline in crypto crimes, securing your cryptocurrency wallet remains crucial in ensuring your digital assets’ safety. New scams and hacking techniques continuously threaten individual users.

Key steps to enhance security include choosing the right wallet type, using strong passwords, enabling two-factor authentication, keeping private keys offline, and regularly updating software.

Additionally, as the industry evolves, new advancements in crypto wallet security offer more robust ways to safeguard investments, including the emergence of biometric authentication, secure multiparty computation (SMPC), and decentralized identity solutions.

Source: https://www.techopedia.com/how-to-secure-your-crypto-wallet