What is a digital wallet? How to ensure the security of digital wallet?

Dec 27,2022
What is a digital wallet? How to ensure the security of digital wallet?

What is a digital wallet? How to ensure the security of digital wallet? Do you know that the cryptocurrency exchange was attacked more times by hackers last year than ever before? According to the data of Chainalysis, a blockchain analysis company, hackers have invaded 11 large cryptocurrency exchanges in recent years and stolen more than US $283 million of cryptocurrencies. The previous year, hackers launched only six attacks on major exchanges and obtained cryptocurrency worth 875.5 million dollars. In today's financial technology field, security is more important than ever before. By far, having a secure digital wallet is the most important thing to protect your cryptocurrency. Next, we will introduce the background of digital wallet and explain the advantages and disadvantages of hot wallet, cold wallet and warm wallet, so that you can better understand how to protect the security of your cryptocurrency.

What is a digital wallet?

Digital wallet is a software program that interacts with one or more blockchains and allows users to send and receive digital currency.

In addition, it stores users' public and private keys and lets them monitor their account balance. The public key is used to receive funds, identify accounts on the network, and search in the ledger. The private key is used to sign the transaction and prove that the user has the relevant public key. Protect your private key just as your life depends on it, because anyone who owns it can access your funds.

Digital wallets do not "store" currency as traditional wallets do. The ledger (blockchain) is the only ownership record, which can only be accessed through the digital wallet. Remember that digital wallets are only pseudonyms. All transactions of cryptocurrency are publicly (permanently) stored on their respective blockchains. Data from your digital wallet address can be used to track your true identity.

Definition and characteristics of hot wallet

The term "hot wallet" refers to the blockchain wallet connected to the Internet. The hot wallet allows users to store, send and receive cryptocurrencies quickly and easily. There is always an inherent risk in keeping cryptocurrency in the hot wallet, because hackers may use hidden vulnerabilities in the wallet software to access online funds. A good security practice recommended by the cryptocurrency consultant is to only store the minimum amount of cryptocurrency in the hot wallet, because the possibility of leakage is very small. However, they are usually safe and convenient for frequent use of funds. Popular hot wallets include Coinbase and Blockchain. info.

Definition and characteristics of cold wallet

"Cold wallet" refers to a digital wallet that is not connected to the Internet. Offline protects the cryptocurrency stored in the cold wallet from network attacks, unauthorized access and other online related vulnerabilities. Due to the permanence of records on the blockchain, it is very important to store a large number of cryptocurrencies securely Cold wallets are the best way. The cold wallet can be located on an encrypted external drive (called a hardware wallet), or even code written on paper. In any case, the cryptocurrency in the blockchain wallet can be protected from Internet related attacks. However, compared with the hot wallet, it is more troublesome to transfer cryptocurrency into the cold wallet or out of the cold wallet. Another disadvantage is that not all cryptocurrencies are compatible with cold wallets.

Definition and characteristics of warm wallet

Within the range of digital wallet, warm wallet is between hot wallet and cold wallet. They have the seamless transaction function of hot wallet and the security function of cold wallet.

An example of a popular type of warm wallet is the hardware wallet. This dedicated device signs the transaction and generates the key. It can access the blockchain through the Internet. However, once disconnected from the Internet, the hot wallet has the same first-class security features as the cold wallet. If the device containing the hardware wallet is not physically accessed, the funds cannot be accessed. There are different ways to use hot wallets for transactions. When using the hot wallet to transfer cryptocurrency, you will create a "mobile intention" block to record what you are going to do. The transaction can be cancelled for a period of time.

How to ensure the security of digital wallet?

Any good cryptocurrency consultant will tell you that you should back up your digital wallet. This can protect you from hardware failure, human error or even theft. If you encrypt the hardware wallet (you should definitely do this), in case it is stolen, the thief will not be able to access your cryptocurrency, but you can still access it through backup. When you back up your digital wallet, be sure to back up the whole thing. Some wallets use multiple confused private keys internally. If your backup only contains the private key of the visible Bitcoin address, you may not be able to recover all cryptocurrencies from the backup. You should back up regularly.

Finally, a good suggestion is to avoid a single point of failure. They are not conducive to security. When your backup does not rely on a single location, it is unlikely that a single catastrophic event will eliminate all opportunities for recovery funds.


In today's era of blackmail software attacks and hacker threats, security should be the top priority for everyone with a digital wallet The digital wallet contains public and private keys, and allows users to send and receive cryptocurrencies. There are three types of digital wallets: hot wallets, cold wallets and warm wallets. The hot wallet is always connected to the Internet. Because cryptocurrencies can be easily sent and received through hot wallets, they are the best place to store small amounts of money used in frequent transactions. Cold wallet is the only solution for long-term storage of a large amount of cryptocurrency (or small funds that you want to keep with maximum security). Cold storage devices are not connected to the Internet, so they cannot be hacked unless they are physically accessed (either paper or hardware). Warm wallet combines the characteristics of hot wallet and cold wallet. They allow users to connect to the Internet and perform transactions similar to hot wallets, and also effectively become cold wallets when disconnected from the network. Ensure that good safety practices are followed, such as backing up wallets and avoiding single points of failure.