Software wallets enable crypto users to access digital assets at any time and from any location. However, the same connectivity also makes these wallets vulnerable to hacks and thefts. The security of software wallets is dependent on the user’s compliance with advised digital safety procedures and the wallet’s built-in security measures.
Digital assets such as cryptocurrencies and nonfungible tokens (NFTs) face a plethora of security issues, such as malware designed to steal money and phishing schemes that try to obtain critical data. One needs to cultivate an adequate understanding of security standards to use software wallets safely.
This article describes what software wallets are and how to choose the right software wallet. It discusses the process of installing a software wallet and how to manage it securely.
Choosing the right software wallet
One needs to be aware of the software wallets available and how they function to make an informed decision.
Software wallets use private and public keys to facilitate the transmission, storage and management of digital assets. Public keys enable users to receive cryptocurrencies as wallet addresses, whereas private keys authorize transactions. While hardware wallets store funds physically, software wallets offer a digital interface to digital assets stored on the blockchain.
Software wallets are broadly categorized into three types: desktop, mobile and web wallets.
Desktop wallets
A desktop wallet — e.g., Exodus — is basically an application that enables the user to securely store and manage private keys on a computer. If one sends or receives crypto payments frequently, a desktop wallet is a convenient option.
Users connect desktop wallets to the internet when they need to make a transaction. They are usually noncustodial, which means that although the funds are fully in the control of the user, the onus to keep private keys secure is also on them.
Mobile wallets
A mobile wallet — e.g., Trust Wallet — is an application designed to be installed on a smartphone to access and operate digital assets. Such a wallet is convenient for on-the-go use and supports QR code scanning.
Mobile wallets developed by a crypto exchange have the additional functionality of integration with the exchange.
Web wallets
Web wallets — e.g., MetaMask — which are accessible via browsers, store private keys on a server. These wallets allow one to access their funds on the go, which makes them very convenient; however, there is an inherent security risk, as the keys are always online and the control is with a third party (a crypto exchange or enterprise).
One needs to get a software wallet that facilitates ease of transactions while also adequately protecting their crypto holdings. The characteristics of various kinds of wallets need to be taken into account when choosing a crypto wallet.
What to consider when selecting a software wallet
One needs to factor in several aspects when choosing a software wallet:
Security features
To deal with threat vectors, one needs to consider security features such as support for multiple signatures and two-factor authentication (2FA). As bad actors keep coming up with innovative ways to breach the security layer, the software wallet should get regular security upgrades.
Supported cryptocurrencies
Explore the cryptocurrencies that the software wallet will accept. To avoid getting a new wallet every time to trade or store a currency, it is better to opt for a wallet that is compatible with a large number of digital assets.
User interface (UI)
Wallets with an easy-to-use UI enhance the user experience. Regardless of one’s level of skill, such wallets make managing digital assets simple.
Setting up a software wallet
One needs to set up the software wallet before they begin working with it. Here is the process of setting up a software wallet:
Use the right source
Users need to make sure they download the official wallet from its official website, the App Store or the Google Play Store; otherwise, they could become vulnerable to phishing scams. They should double-check the website’s URL to confirm its legitimacy.
Follow the installation instructions
Whether it is a desktop, mobile or web application, the process should be straightforward. The user needs to give the necessary permissions when prompted, ensuring their device aligns with the wallet’s functionality.
How to enhance software wallet security
To ensure the secure storage of cryptocurrencies in software wallets, adopting advanced security practices is paramount:
Store the seed phrase securely
When setting up the software wallet, the user needs to generate their seed phrase, which they could later need to access their crypto assets. It is a series of words that act as a master key to accessing funds. It is important for the user to keep it confidential, as anyone with access to the seed phrase will have access to funds.
In the event one loses the seed phrase, the funds are irretrievable (if they also cannot remember their login password). In case the user loses access to the device or something breaks, they can restore access using the seed phrase.
Use of password managers
Keeping strong passwords for all financial applications is important. However, it creates another problem, as most find it hard to remember the different passwords they use on various websites.
Password managers simplify the process of using and managing strong passwords. These applications keep wallet passwords in an encrypted vault that is secured with a master password.
Password managers usually come with strong password generation features, which strengthen security by creating unique and difficult passwords. Moreover, the encryption implemented by these managers makes it exceedingly unlikely for unauthorized individuals to access stored data without the master password, which augments the protection.
Two-factor authentication (2FA)
Two-factor authentication (2FA) adds an additional security layer that goes beyond conventional login and password systems. Once users activate 2FA on software wallets, they might have to enter two different codes received via two different modes of communication in order to be verified.
For instance, they might receive one code via email and another via smartphone. The application will grant access to the user only when they have entered the password and the two codes correctly.
Even in the case that an attacker obtains the password, they are unlikely to get access to the email and the mobile device at the same time. The dual-verification system strengthens security against unauthorized access attempts.
Multisignature wallets
Wallets with multiple signatures employ a cooperative security mechanism that requires consent from designated individuals prior to executing a transaction. This approach provides robust security to protect funds from abuse or unapproved access. Requiring independent approval from a predefined number of participants for each transaction provides a strong barrier against unauthorized activity.
This method works well for any group that manages shared cryptocurrency holdings since it segregates the duty of safeguarding the wallet’s contents and improves security. By virtue of their joint authorization, multisignature wallets reduce the possibility of single points of failure.
Biometric authentication
Biometrics in crypto wallets introduces an additional layer of security, ensuring that getting access to funds simply becomes improbable without the physical presence of the user. The mechanism leverages physical characteristics such as fingerprints, face IDs or iris scans to authenticate users.
Integration of biometric authentication in crypto wallets effectively mitigates the vulnerabilities associated with password-based systems. The user experience becomes more convenient, as they can securely access their funds with a simple scan or touch.
Update software
The user needs to keep their wallet software updated. Developers frequently release updates to patch vulnerabilities, add features, and improve security. A crypto wallet that isn’t regularly updated is more likely to fall prey to hackers’ tactics.
Verify the authenticity of websites
The user needs to be cognizant of phishing attempts and malicious websites that aim to steal information from their device. They need to verify the authenticity of the websites they browse before entering any sensitive information regarding their crypto wallet.
Avoid public WiFi
When accessing a wallet or conducting transactions, one needs to use a secure and private internet connection. Public WiFi networks are often unsecured, making them hotspots for attackers looking to intercept data.
Find the balance between security and convenience
Settling somewhere between security and convenience is important when it comes to software wallets.
One needs to select a reliable software wallet, protect recovery phrases, and be on top of potential security threats. Ticking all these checkpoints will ensure the security of one’s digital assets.
