Investing in crypto presents many opportunities, but it also introduces new risks. As crypto scams evolve, the question isn’t just where to invest, but also how to protect your assets. With over $4.6 billion lost to crypto scams in 2023 alone, securing your digital assets is as important as choosing the right investment.
Many investors use non-custodial wallets because they offer full control over their assets, unlike centralized exchanges. While exchanges hold funds for users, they don’t offer true ownership—custodial wallets are controlled by centralized entities that can impose rules or restrictions on your funds without warning, much like traditional banks.
Effective security features in wallets can significantly reduce the risk of falling victim to scams, allowing investors to focus on growth. Recent research by Coinspect, a cybersecurity company with over 10 years of experience dedicated to securing crypto projects, has developed a standardized method to compare the security levels of different wallets, helping you make a better-informed decision about where to store your assets.
The First Layer of Protection: Physical Access
This is the first layer of protection, and it starts with using the most advanced local security features available on your device. On your phone, it should use things like fingerprints or face ID. On your computer, it demands strong passwords and kicks out anyone who tries to guess too many times. Just like the front door of a vault, the Physical Access checks ensure that even if someone tries to get in, they hit a wall.
If you lose your phone in a public place, anyone who picks up the device could potentially access your crypto wallet if they know your passcode. However, a secure wallet that employs these features would be impossible to open without your unique fingerprint or face scan, effectively blocking unauthorized access.
Your Defense Against Scammers: Threat Prevention
Some crypto wallets implement threat detection mechanisms that flag malicious web domains associated with known scams. You might stumble upon these fake sites through several channels like phishing emails or direct messages that link to a compromised site, hacked social media accounts, or even by clicking on malicious ads displayed as part of search engine results.
For example, you might receive an email that looks like it’s from a well-known DeFi platform, offering an exclusive “airdrop” of tokens. The link in the email directs you to a site that looks legitimate, but it’s a cleverly disguised phishing page meant to trick you into connecting your wallet. Before you even connect to a site, your wallet should check if it’s legitimate, and warn you if it’s a known phishing site. As a next step, wallets also verify blockchain addresses to determine if they are linked to known scammers. A secure wallet will update these lists often.
Know Every Detail: Intent Verification
You wouldn’t sign a contract without reading it. In crypto, approving a transaction without understanding the details can go as far as losing your assets in a single click. Imagine visiting a website that promises exclusive early access to a popular NFT drop. The site asks you to approve a transaction, but it’s not obvious what permissions you’re giving. If it’s a phishing website, you could unknowingly authorize the transfer of all tokens in your wallet.
Wallets should summarize the details of every transaction in a human-readable way and clearly show that you are about to sign a transaction to interact with an unknown token, probably created recently by untrusted sources. If a phishing website is trying to steal your assets a secure wallet will give you a clear heads-up, showing you the requested permissions or blockchain actions.
In traditional investing, you evaluate risks before committing. Some wallets allow you to do this by simulating transactions, providing you with the outcome of a transaction before it’s approved. This method allows you to quickly identify unintended changes and see the impact of them on your balances, catching potential mistakes or red flags before they cost you money.
You’re in control: dApp Permissions
A dApp allows you to interact with various parts of the web3 ecosystem, like trading, financial services, or digital asset marketplaces. To explore the full range of investment opportunities like decentralized finance (DeFi) products, staking rewards, or purchasing digital assets you’ll need to connect your wallet to a dApp.
Each time, the dApp will ask for permissions to interact with your wallet, such as seeing your balance or approving transactions. They also let you manage and revoke token approvals, giving you control over which contracts can transfer your tokens.
Think of this as your wallet’s permission settings. Just like when you download a new app and it asks to access your phone’s camera or contacts, your wallet asks you before letting any DApp see your address, account balance, activity and suggest transactions to approve. When you click links or connect to websites, your wallet will ask your permission before allowing any access to your funds. You can see which apps are connected, easily disconnect them, and your wallet always double-checks with you before allowing any important transactions.
Risk Management Through Security
By choosing a wallet with strong security features, you’re managing risks while putting yourself in the best position to capitalize on opportunities.
Coinspect’s research provides a clear framework so you can decide which wallet to use. While enhanced wallet security features cannot stop all scams, prioritizing anti-phishing and other security features, wallets can significantly reduce user risk.
Disclaimer: GeekWire newsroom and editorial staff were not involved in the creation of this content..