For people getting into buying and selling NFTs, whether as collectors or artists, it is extremely important to learn how to protect your crypto wallet. The last thing you would want is for someone to gain control over your wallet, stealing all of your hard-earned cryptocurrency or prized NFT artworks!
In this article, we’ll run through the basics of crypto wallets and some of the best practices for keeping your crypto wallet safe.
What Is A Crypto Wallet
A cryptocurrency wallet is a software program that stores your public and private keys, sends and receives digital currencies, tracks their balance, and interacts with various blockchains and programs.
You must have a cryptocurrency wallet to manage your crypto assets and keep them secure.
There are a ton of different cryptocurrency wallet options out there, but the most important distinction between types is whether they are hot or cold.
A hot wallet is connected to the internet and can be accessed at any time. Hot wallets include all online cloud wallets, most mobile, and software wallets, and exchanges.
A cold wallet is not connected to the internet and allows you to store your funds offline. You can still receive funds at any time, but no-one can transfer them out. Cold wallets are hardware wallets, offline paper wallets, and USB and offline data storage devices.
Currently, most major NFT marketplaces require you to have a software (hot) wallet, like the Chrome plug-in Metamask, which can be used to create your account instantly on the platform.
Since software wallets are connected to the internet, they comes with some security risk. Your private keys are somewhat exposed, but they make transactions on dApps, or most NFT marketplaces, much easier and more convenient. In the next section, we’ll discuss best practices for keeping your wallet secure.
Despite some risk, using a software wallet to purchase NFTs is way safer than buying them with credit cards. In the past, Nifty Gateway had some issues with hackers stealing purchased NFTs that had been bought by some of its credit card-using customers. According to Nifty Gateway, none of the compromised accounts had 2FA, or two-factor authentication, enabled.
Probably the best option for someone with a moderate to large amount of crypto assets would be to use a hardware wallet to store the majority of their assets, while transferring a smaller amount of cryptocurrency and NFTs to the software wallet for day-to-day trading and use. Software wallets are handy for frequent trading, while hardware wallets are better for long-term holding of crypto assets.
Unlike software wallets, hardware wallets offer the best security, since your private keys are disconnected from the internet. The downside is that using a hardware wallet makes it difficult to directly buy or sell NFTs on marketplaces.
However, there are also options like Ledger Nano, which offers a range of hardware wallets that allows you to connect with trusted third-party hot wallets like MetaMask and MyEtherWallet.
Metamask & Protecting Your Passphrase
Most of the major Ethereum-based NFT marketplaces allow users to connect with Metamask, an easy-to-use Chrome extension software wallet.
Other wallets that support ERC-721 (the Ethereum-based NFT token standard) include Trust Wallet or Coinbase Wallet.
When you set up your Metamask account, you will be given a 12 word passphrase. Anyone who has access to the passphrase can gain access and control of any of the crypto assets stored in your wallet, so it is incredibly important to keep this passphrase safe.
To protect your passphrase:
Never give anyone the seed phrase, the words that represent the private keys of your wallet.
Make two handwritten copies of them (note the word order) and hide them in a safe place that no one has access to and most importantly — that you will not forget! If you lose these sacred words, you lose access to your wallet and all of your cryptocurrency. And that would be a crying shame!
Store this phrase in a password manager like 1Password.
Memorize this phrase.
Download this Secret Backup Phrase and keep it stored safely on an external encrypted hard drive or storage medium (slightly less secure)
Be careful of phishing! MetaMask and NFT marketplaces will never spontaneously ask for your seed phrase.
If you need to back up your seed phrase again, you can find it in Settings -> Security.
All Transactions Are Final
There are no refunds on the blockchain. It’s important to realize that once an NFT transaction is made on the decentralized ledger and allocated to a different private key, there’s no way anyone can reverse the transaction.
If someone gains access to your account and transfers your tokens to their wallet, it would be impossible to get back your tokens.
The safest and best option is to store your NFTs in a wallet that gives you control of your private keys and also provides you with the security of a 2FA, two-factor authorization, like Metamask.
Privacy on the Blockchain
Since the blockchain ledger is publicly-accessible, if a website or individual knows your wallet address, they can see all of the cryptocurrency and token transactions in and out of your wallet. They can also potentially correlate this with your IP address.
For additional privacy and anonymity, some people prefer to segregate their addresses to prevent any overlap, while others aren’t concerned with these risks (the blockchain is public after all). The level of privacy you want to achieve ultimately depends on you.
As a general rule, don’t connect your crypto wallet to websites you don’t trust.
Beware of scams!
Lastly, the DeFi and crypto world is full of scammers and hackers looking to take advantage of new users.
To protect yourself and your future hard-earned NFT earnings:
Be skeptical of anyone who contacts you privately on social media, text message, or email. Project managers, admins, and help desks will never contact you first!
Don’t be afraid to ask for advice on public pages, and in open communities and groups. The NFT community is very supportive and people are usually happy to talk you through how something works.
Beware of phishing! Browse sites only through your bookmarks! Not through Google search, not through groups in Telegram, and not through links in email.
Understand that there is a risk that smart contracts may be breached! Understand the risks and never invest more than you are willing/able to lose.
I hope that this article provided you with some insights into how to protect your crypto assets and NFTs. If you have any questions, please let us know in the comments!
*This article is for educational purposes only, and is not financial advice. Please do your own research and understand the risks and advantages of NFTs and crypto investments.