A crypto wallet is an interface between a user and their crypto assets, which “live” on the blockchain. A user’s private keys are managed by a wallet, which then communicates with the blockchain to initiate transactions. Wallets exist in numerous forms, from simple web wallets offered by leading exchanges to specialized hardware devices such as Ledger and Trezor. The term “wallet” may be a bit of a misnomer, as crypto wallets do not actually hold coins or tokens. Instead, they manage the private cryptographic keys that allow users to interact with their holdings on the blockchain, and the public key that is used to make transactions. There are two main types of cryptocurrency wallets, “hot” and “cold.”
“Hot” wallets (aka custodial) allow a third party, typically a crypto exchange, to manage a user’s private keys, and use those keys to sign initiated transactions on their behalf. “Cold” wallets, on the other hand, are self-custody, allowing users to safeguard their own private keys, and essentially eliminating the risk of an exchange going bankrupt or otherwise losing a user’s deposited funds. Some wallets offer a feature called multi-signature, which requires more than one key to access the wallet and execute transactions. This can be a good security measure, but it should be combined with other best practices, including the use of strong passwords and proper backups. Many wallets have additional features, such as a “seed” phrase that can be used to regain access to the wallet and associated keys if they are lost or stolen.
Others have the ability to be synced across multiple devices, and many provide a mobile app to help with managing and executing transactions. A common mistake that many newcomers to crypto trading make is relying too much on centralized exchanges as their primary source of wallet management. This can be a costly mistake. As recent events have shown, centralized exchanges can be vulnerable to hacking and other cybersecurity threats, and they can also lose large amounts of deposited user funds. Using a cryptocurrency wallet is an important first step to ensuring that you are protecting your digital assets, and that your company is doing the same. A company’s digital assets can include the website and all of its content, social media accounts, photos and visuals, business processes like spreadsheets and manuals, intellectual property such as trademarks and patents, and more.
Limiting access to these systems to only those employees that need them can reduce the amount of exposure and vulnerability to cyber-attacks. As a result, companies that take this step are better equipped to respond quickly when a breach does occur. This is why it is essential that all employees are familiar with the company’s cybersecurity policies and procedures. It’s also a good idea to regularly update these documents, and to train new employees in them as well. This will ensure that the latest best practices are being followed and will help to minimize the impact of a data breach or other incident.