• Pricing
  • Enterprise
  • Customers
  • Blog

Crypto Wallets 101: Web3 security best practices

As blockchain technology and decentralized applications evolve, the Web3 era has generated an increased demand for secure and user-friendly ways to manage digital assets. Crypto wallets are at the forefront of this movement, serving as essential tools for storing, managing, and transacting with cryptocurrencies and other digital assets. Not only do they serve as personal banks for individual users, but they also play a critical role in connecting people to the decentralized world of Web3.

With the growing popularity of cryptocurrencies and digital assets, the need for robust security measures has never been more crucial. Cybercriminals constantly seek ways to exploit vulnerabilities and gain unauthorized access to users’ wallets, often losing valuable assets. By following best practices and Web3 security guidelines, you can significantly reduce the risks associated with crypto asset management and ensure that your investments remain far from the clutches of the bad actors in the blockchain world.

To recap April’s crypto security month, we’ve put together an article that delves into Web3 and crypto security best practices, providing valuable tips and insights to help users navigate the digital landscape securely.

Web3 and crypto security best practices

1. Regularly updating wallet software

Keeping your wallet software up-to-date is essential for maintaining security and optimal performance. Developers frequently release updates to fix vulnerabilities, enhance features, and improve user experience. Ensure that you’re using the latest version of your wallet software to benefit from these enhancements and protect your digital assets from potential threats.

2. Using strong and unique passwords

A strong and unique password is your first line of defense against unauthorized access to your crypto wallet. Avoid using easily guessable passwords, such as names, dates, or common phrases. Instead, opt for a combination of upper and lowercase letters, numbers, and special characters. Use different passwords for each platform or service to prevent a single compromised password from jeopardizing all your digital assets.

3. Activating Two-Factor Authentication (2FA)

Two-Factor Authentication (2FA) adds an extra layer of security to your wallet by requiring a second form of verification, such as a one-time code sent to your mobile device. Activating 2FA makes it significantly more difficult for attackers to access your wallet, even if they have your password. Most wallet providers offer 2FA, and enabling this feature for added protection is highly recommended.

4. Recognizing phishing attempts and avoiding scams

Cybercriminals often use phishing attacks and scams to trick users into revealing sensitive information or downloading malicious software. Be cautious when clicking on links or opening attachments from unknown sources. Always double-check the URL of websites, especially when entering your wallet credentials or other sensitive information. Look for red flags like misspelled words, unusual domain names, or suspicious email addresses.

5. Utilizing hardware wallets for long-term storage

Hardware wallets, or cold wallets, provide an additional layer of security for storing digital assets. These wallets store your private keys offline on a physical device, making them less vulnerable to hacks and cyber-attacks. While hot wallets are convenient for everyday transactions, hardware wallets are recommended for long-term storage and larger amounts of cryptocurrencies.

6. Storing backups of wallet data in secure locations

Backing up your wallet data ensures you can recover your digital assets in case of device failure, theft, or loss. Make copies of your wallet’s private keys, seed phrases, and secret recovery phrases, and store them in secure locations, such as a safety deposit box or encrypted cloud storage. Remember, losing access to your private keys or recovery phrases may result in permanently losing your digital assets, so keeping them safe and secure is crucial.

Secret recovery phrases vs. seed phrases

Secret recovery phrases

Secret recovery or mnemonic phrases are human-readable words representing a wallet’s private keys. The wallet software generates these phrases and serves as a backup for recovering your digital assets if you lose access to your wallet. By entering the secret recovery phrase into a compatible wallet software, you can restore your wallet and regain control of your digital assets.

Seed phrases

Often used interchangeably with secret recovery phrases, seed phrases are essentially the same thing. Both terms refer to a sequence of words that allow users to recover their wallets in case of device loss, theft, or failure. Seed phrases are generated using a standardized algorithm, making them compatible with various wallet software applications. They allow you to recreate your wallet’s private keys and access digital assets from different devices, if necessary.

To ensure the security of your secret recovery and seed phrases, follow these best practices:

  1. Write down your phrases on paper and avoid storing them digitally to minimize the risk of hacks or data breaches.
  2. Make multiple copies of the phrases and store them in secure locations, such as a safety deposit box, locked drawer, or secure home safe.
  3. Do not share your phrases with anyone, as possessing them grants full access to your wallet and its contents.
  4. Consider using a metal backup solution, such as a Cryptosteel or Billfodl, to protect your phrases from fire, water, or other physical damage.
  5. Regularly check the condition and legibility of your stored phrases, and create new backups if necessary.

See our extensive guide on the safekeeping of private keys and recovery phrases to ensure the security of your digital assets.

Exploring crypto wallets

Crypto wallets can be broadly categorized into two types: hot wallets and cold wallets. Hot wallets are connected to the internet and provide easy access to digital assets for daily transactions. Examples of hot wallets include desktop, mobile, and web-based wallets. On the other hand, cold wallets store digital assets offline and provide higher security. Hardware wallets and paper wallets are examples of cold wallets.

Hot wallets vs. cold wallets

Hot wallets offer several advantages, including convenience, user-friendliness, and easy access to digital assets, making them suitable for day-to-day transactions. However, they also come with disadvantages, such as increased vulnerability to online attacks, hacks, and potential issues arising from software vulnerabilities or user errors.

On the other hand, cold wallets provide enhanced security for long-term storage, making them less susceptible to online attacks and hacks. They are ideal for storing large amounts of digital assets. Despite their security advantages, cold wallets can be inconvenient for regular transactions, and the risk of physical damage or loss could result in the permanent loss of digital assets.

As for security considerations, it’s essential to recognize the differences between hot and cold wallets. While hot wallets offer convenience, they are more susceptible to online threats. It’s crucial to use strong passwords, enable 2FA, and follow other security best practices to minimize the risks associated with hot wallets. Though more secure, cold wallets require proper storage and handling to avoid physical damage or loss. Combining hot wallets for daily transactions and cold wallets for long-term storage can be an effective strategy for maintaining convenience and security.

Check out our detailed comparison of hot and cold wallets, examples, and more in-depth information.

Non-Custodial Wallets

Non-custodial wallets allow users to maintain complete control over their private keys and by extension, their digital assets. Unlike custodial wallets, which store users’ private keys on a third-party server, non-custodial wallets ensure that the user is responsible for the security and management of their digital assets. The benefits of using non-custodial wallets for security purposes include the following:

Full control: Users have complete control over their private keys, preventing third parties from accessing or mismanaging their digital assets.

Reduced risk of hacks: Since private keys are not stored on a centralized server, non-custodial wallets are less susceptible to large-scale hacks and security breaches.

No single point of failure: Non-custodial wallets decentralize the storage of private keys, eliminating a single point of failure that could jeopardize users’ digital assets.

Increased privacy: Users can maintain a higher level of privacy and anonymity, as non-custodial wallets do not require users to share personal information with third-party providers.

To find a suitable non-custodial wallet, start by researching the wallet’s reputation and history by looking for reviews from trusted sources and feedback from the community. Next, ensure the wallet offers robust security features, such as strong encryption, 2FA, and open-source code that the community can audit. Then verify that the wallet supports the cryptocurrencies and tokens you wish to store and is compatible with your preferred devices or platforms. Finally, look for wallets that provide straightforward backup and recovery options, such as seed phrases or secret recovery phrases, to ensure you can regain access to your digital assets in case of device failure or loss.

For the full scoop on non-custodial wallets, their features, and how they differ from custodial wallets, refer to our in-depth article on non-custodial wallets.

Smart contract wallets

Smart contract wallets, also known as programmable or contract-based wallets, are non-custodial wallets that leverage smart contracts’ power to provide additional security features and functionalities. Unlike traditional wallets, smart contract wallets enable users to set customized rules, conditions, and logic for managing their digital assets.

Smart contract wallets offer several advantages over traditional crypto wallets. They provide enhanced security by implementing multi-signature authorization, daily withdrawal limits, and time-locked transactions, which help prevent unauthorized access. These wallets also allow users to define custom rules and conditions, enabling greater control and personalization in digital asset management. Another key advantage is their interoperability with decentralized finance (DeFi) platforms, allowing users to interact seamlessly with various DeFi services and applications.

To learn more about smart contract wallets, their features, and how they differ from traditional wallets, explore our guide here.

Common crypto scams and how to identify them

Junk tokens (Shit coins?) and rug pull schemes

A widespread cryptocurrency scam involves the promotion of junk tokens. Scammers tempt investors with a lesser-known digital asset with limited supply but promise massive returns. Although these tokens can be purchased, they are created solely to inflate their value before scammers cash out, leaving investors with valueless assets. To avoid such scams, thoroughly research the tokens you plan to invest in and only invest what you can afford to lose. In some cases, tokens can be “honey pots,” where you never have a chance to withdraw them at all!

Fraudulent investment proposals

In this scam, con artists approach potential victims with seemingly attractive business or real estate opportunities that require cryptocurrency payments. Despite the alluring benefits promised, these opportunities are nothing more than a ruse, and the scammer will pocket any crypto sent. Remember that legitimate organizations are unlikely to contact you unexpectedly about your cryptocurrency holdings.

Extortion and social engineering scams

Scammers may target individuals through social media or email by initiating a romantic relationship or claiming to possess damaging information about them. In online romance scams, fraudsters establish trust before requesting cryptocurrency transfers for various reasons. In extortion scams, they threaten to release sensitive information unless a ransom is paid in crypto. To avoid falling for these ploys, remain vigilant and be cautious when interacting with people online.

Social media messaging scams

Scammers often attempt impersonation by mimicking trusted email addresses or social media accounts. Verifying that the account name or email address matches the authentic source is crucial. You can check the destination of a link by hovering your mouse over it on a computer or tapping and holding it on mobile devices. This type of scam is especially prevalent on platforms like Telegram and Discord, where malicious actors thrive.

Be cautious when dealing with attachments in emails or messages from unknown or first-time senders, as they could be part of a phishing attempt. Furthermore, scammers may impersonate reputable companies like Binance, providing clickbait links and falsely claiming that assets can be returned after paying a fee. They might even create fake images to make the scam appear more credible.

Final thoughts

Protecting your digital assets is paramount in the rapidly evolving world of Web3 and cryptocurrencies. By following the crypto security best practices discussed in this article, you can significantly reduce the risks associated with digital asset management. Always remember to stay alert, DYOR, and maintain a healthy skepticism when interacting in the crypto space.

As the blockchain landscape expands, staying being proactive in safeguarding your crypto assets is essential for keeping them safe. Stay informed about the latest security trends, developments, and potential threats in the crypto space. By staying one step ahead of cybercriminals and continually adapting your security practices, you can ensure that your investments remain safe and secure in the Web3 era.


What is a Secret Private Key Recovery Phrase?

A secret private key recovery phrase is a sequence of 12 or 24 words that grants complete access to your private key wallets. This recovery phrase is an essential security feature in the world of cryptocurrencies. It serves as a backup for situations where you may forget your password or when your device is lost or damaged. By utilizing this phrase, you can regain access to your account and crypto assets, ensuring that your investments remain secure despite unexpected challenges. Storing this recovery phrase safely and confidentially is crucial to preventing unauthorized wallet access.

What is Two-Factor Authentication (2FA)?

Two-Factor Authentication (2FA) is a vital security measure that requires users to provide two separate forms of identification to access an account or perform sensitive actions, such as a unique, time-sensitive code generated by an authenticator app or sent via SMS. Biometric authentication, like fingerprint or facial recognition, may also be used.

The importance of 2FA in the crypto sphere is multifaceted. First and foremost, it enhances security by making it more difficult for unauthorized users to access your account, even if they have your password. It also protects against phishing attacks, as cybercriminals would need both login credentials and the second form of identification to compromise your account. Additionally, 2FA mitigates the risk of human error related to weak or reused passwords.

What is phishing?

Phishing is a prevalent cyber threat where scammers attempt to deceive you into sharing personal information, granting them access to your accounts. While some phishing attempts are easily detectable due to misspelled words, bad grammar, or strange writing, scammers continuously evolve their tactics and become more sophisticated.

These attacks come in various forms, but the ultimate goal is for the criminal to gain access to your sensitive information. This can be achieved by tricking you into providing login credentials or downloading malicious software that compromises your data. Phishing can occur through emails, direct messages, or text messages you did not initiate and may request sensitive information.

To protect yourself against phishing attacks, be cautious when encountering unsolicited messages requesting personal details or encouraging you to click on links or download files. Always verify the source and remember that legitimate organizations typically do not ask for sensitive information through unsolicited messages.

Power-boost your project on Chainstack

Have you already explored what you can achieve with Chainstack? Get started for free today.