In 2020 and 2021, nearly $82 million was lost to crypto scams, according to the Federal Trade Commission. The FTC has recently released data that shows 10 times increase in complaints from the previous year.
To keep your crypto safe from any potential threats, it’s important to be aware of the different types of wallets available and how to protect your private keys.
What is Private Key?
A private key is a unique set of letters and numbers that is used to unlock access to a holder’s cryptocurrency. It’s important to keep your private key confidential and out of the public eye.
“Anybody, anytime, that gets a private key can move funds,” Parker Lewis, head of business development at bitcoin custody and loan firm Unchained Capital, tells CNBC Make It.
“You can only move funds if you have the private key, and that’s why it’s so important to keep your private keys safe.” And there are two types of wallet available in keeping your crypto balance safe.
Non-custodial vs Custodial Wallets
First, There are different types of wallets to choose from, so it’s important to understand what each one offers.
When it comes to cryptocurrency, you have two primary options for storage: a custodial wallet or a non-custodial wallet. Each has its own advantages and disadvantages, so it ultimately comes down to what you are most comfortable with.
What’s a non-custodial wallet?
With a non-custodial, or self-custody wallets give you control of your private keys and holdings, letting you be in charge of your own finances.
When using a non-custodial wallet service, you’re in charge of your own security. This means remembering your private keys and taking measures to protect your funds. “Losing your private keys can be a common occurrence, so make sure to store them in a safe place!”
“It is your responsibility to make sure you don’t lose your keys. After all, you are the only one who can ensure their safety,” says Nick Neuman, CEO of bitcoin security and self-custody company Casa.
There are many benefits to using hardware wallets to store your private keys, but it’s important to be aware of the risks involved.
To ensure the security of your cryptocurrency, it is important to use a trusted hardware provider and to keep your hardware wallet in a safe place. Since a physical device can still be damaged or destroyed and can be stolen.
“If my bitcoin keys are somehow connected to the internet, then, as I’m sleeping, there could be a hacker that’s trying to get access to my keys,” Lewis says. That’s why hot wallets, or those connected to the internet, are considered to be much more risky than cold wallets.
To physically secure their keys, some investors use a hardware wallet, while others write their private keys on paper and lock it in a vault. Some also prefer non-custodial wallets that offer multisig, or multi-signature, protection.
What is Multisig Protection?
Most bitcoin wallets require one private key to gain access and move cryptocurrency, but with multisig, multiple keys are required. Each key is held on different device, typically a mix of your phone and offline hardware wallets, that are stored in different locations.