Managing crypto-wealth starts with setting up two wallets:
Hot wallets are the epicentre of wallet management system. They interact with both the outside world and offline storage. On the other hand, cold wallets should exclusively interact with hot wallets.
In personal finance, hot wallets are current accounts and cold wallets are savings accounts.
Cryptocurrency wallets should be utilised the same way than bank accounts:
A wallet can generate an unlimited amount of private key and public address combinations. However, a wallet (and its password) does not need to be generated for every pair.
Because the blockchain is transparent, one should avoid re-utilising a public address as its balance is available online.
It is important to generate new public addresses for every transaction; otherwise, the person you transact with will match the public address' balance with your identity.
Setting up a wallet password is mandatory if you want to store your crypto safely. Be sure your password follows the undermentioned:
A good idea for extra security is to use Multiple Factor Authentication, it is an additional layer of protection for your account. There are three different authentication factors: knowledge, possession and inherence.
With 2-FA you have to present two components of authentication to access your account.
In most cases, 2-FA will work with a smartphone: you can access your wallet (or any encrypted account) only after entering your password (knowledge) successfully and insert a code generated from a mobile app (possession).
WARNING! SMS-based 2-FA is not considered safe, use only certified applications.
It's best to avoid storing 100% of capital in one bank account, and the same applies with cryptocurrency.
You do not want to keep everything in one wallet or in one place
It’s best to set up several crypto transaction management systems where:
The security of a wallet is as good as the device that holds it. In other words, if the device is lost, corrupt or broken, there is no way out: funds are lost forever.
Backing up a wallet is a good idea to prevent any unnecessary loss. In many cases, access to private keys can be as easy as holding a pen drive in hand; henceforth threats also exist in the "physical world.
Multi-sig addresses give the ability to share ownership over a cryptocurrency wallet between several users. Transactions require signatures from multiple private key holders, depending on how it has been set up.
It adds an extra layer of protection for cold storage.
Unsecured wallets are like cash lying in the open in the crypto-economy. To summarise, in order to build a "digital vault", one needs to: