Crypto Wallet Security: 7 Dos and Don'ts Every Investor Must Follow

The crypto revolution is in full swing. No longer confined to sketchy forums and developer chatrooms, the Web3 world has hit the mainstream, capturing the attention of a wide range of demographics and age groups. However, despite the industry's significant progress, a glaring problem persists that casts a dark shadow over it: wallet security.

Each year, billions of dollars in digital assets are lost due to simple mistakes that could have been easily avoided. Usually, the difference between the investor who secures their holdings and the investor who loses every cent comes down to following some basic rules and security fundamentals.

With this in mind, here are seven essential dos and don'ts that every investor needs to follow to protect their crypto wallet and keep their funds safe.

DO: Enable 2FA On Everything

Two-Factor Authentication (2FA) is one of the quickest and easiest ways to improve your wallet security against unauthorized access in a matter of minutes. Once set up, it means that even if someone steals a password, they still won’t be able to access the wallet without that second verification action.

The problem is that not all 2FAs are as effective as others. Authenticator applications, such as Google Authenticator or Authy, are far more secure than simple text message codes. SMS verification can be hijacked through SIM swapping, where hackers trick cellphone carriers into transferring a phone number to their device. This is more common than most people realize, so be sure to opt for the app version where possible (but remember to back them up!). 

DON'T: Store Recovery Phrases Digitally

Recovery phrases are the keys to your crypto kingdom. They are typically made up of 12 to 24 random words that can restore complete access to your wallet. This means they are incredibly valuable and extremely hazardous when stored improperly. 

Screenshots, cloud storage, email drafts, password managers, and notes apps are all digital weak points that could easily expose your seed phrase to bad actors. If malware infects your device, it can search for recovery phrases and steal them in seconds. And the first place they go looking is in cloud storage, screenshots, and note-taking apps. 

Good old-fashioned physical storage is still the best. Write those phrases on paper or engrave them onto metal plates, and then store them in a safe or safety deposit box.

DO: Verify Addresses Character by Character

Address poisoning is an extremely sneaky and increasingly common attack vector. Here, scammers send a small amount of cryptocurrency from an address remarkably similar to a legitimate one. When a victim quickly copies an address from their transaction history that looks familiar, they are actually copying the attacker’s address.

The cure for this is patience and diligence. Check every character every time you want to make an outbound transaction, especially if it’s for a considerable amount of money. Most people only check the first and last couple of characters, but more sophisticated scams specifically match those parts while swapping out the middle.

DON'T: Connect to Public Wi-Fi Without Precautions

If you're accessing your crypto wallet while using a coffee shop, airport, hotel, or any other public WiFi, you are creating a dream scenario for hackers. Using a man-in-the-middle attack, anyone on the same network can intercept data being transmitted between devices, and that means your passwords and private keys could be at risk.

The answer is not to stay away from public Wi-Fi altogether (that's just not realistic). The answer is never to use crypto wallets on public networks without connecting first to a quality virtual private network (VPN). A virtual private network encrypts everything, making it exponentially more difficult for anyone to snoop on what you’re doing. 

DO: Keep All Significant Holdings in Cold Storage

While hot wallets are convenient for regular traders, they expose users to a significantly higher level of risk compared to cold storage. Your funds are accessible and can be reached via the internet. This is why serious investors use a strategic combination of both hot and cold storage. 

The easiest way to do cold storage is through the use of hardware wallets. They keep private keys completely offline and sign transactions internally. The hardware wallet remains safe from infection even if a computer is riddled with malware. 

A smart rule of thumb is to keep the vast majority (approximately 80-90%) of holdings in cold storage, with just enough in hot storage to facilitate active trading. This keeps exposure at a minimum.

DON'T: Ignore Software Updates

When wallet providers push out software updates, they’re not just adding fancy new features. They fix vulnerabilities that fraudsters try to exploit every minute of every day. The crypto security landscape can and does change overnight, with much of this ongoing “battle” happening behind the scenes outside of most people’s knowledge. 

New attack methods are created, and developers scurry to patch those holes. But patches are worthless if the user does not install them. If you don’t update your devices/apps and continue to use outdated software for a few weeks (or a few months), it's the equivalent of leaving the front door unlocked.

DO: Test Recovery Processes Before Emergencies

Many crypto investors carefully write down their recovery phrases when they first get their wallet, but they never check to see if they actually work. Years later, they need to recover a wallet and discover that the written phrase was incorrect or the backup failed, and then they quickly fall into panic mode. 

Testing does not mean risking money. Create a new wallet with a small amount of funds and attempt to recover it using the backup phrase. Do this as soon as you set it up, while everything is still fresh and new.  For peace of mind, some people even check this each year simply to see if their recovery methods are still in order and they have not forgotten how it is done.

Final Word

You don't need a PhD in computer science to secure a crypto wallet. Proper security involves taking consistent yet straightforward steps against real threats that drain people’s accounts every day. 

The seven dos and don'ts cover most of the vulnerabilities that matter. If you follow them religiously, you will have a much safer wallet than the vast majority of crypto users out there.