Are Your Assets in a Digital Wallet Secure?  

Did you know that there were more cryptocurrency exchange hacks last year than in any other year before? According to blockchain analysis company Chainalysis, hackers breached eleven large cryptocurrency exchanges in 2019 stealing over $283 million in cryptocurrencies. The year prior hackers took home $875.5 million worth of crypto with only six attacks on major exchanges. In today’s fintech landscape security is more pertinent than ever before. Having a secure digital wallet is by far the most important thing you can do to protect your cryptocurrency. In this article, we will give background on digital wallets and explain the pros and cons of hot, cold, and warm wallets to give you a better understanding of how to keep your cryptocurrencies safe.

What is a Digital Wallet?

You need a digital wallet - or “blockchain wallet” - to own or trade cryptocurrencies. A digital wallet is a software program that interacts with one or more blockchains and allows the user to send and receive digital currency. In addition, it stores the user’s public and private keys and lets them monitor their account balance. Public keys are used to receive funds, identify accounts on the network, and can be searched for in the ledger. Private keys are used to sign transactions and prove the user owns the related public key. Guard your private key like your life depends on it because anyone who has it, can access your funds.

Digital wallets don’t ‘store’ currency like traditional ones. The ledger (blockchain) is the only record of ownership and it can only be accessed via a digital wallet. Remember that digital wallets are only pseudonymous. All transactions for cryptocurrencies are stored publicly (and permanently) on their respective blockchains. Data from your digital wallet address could be used to trace your real identity.

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