Securing Your Crypto: Protecting Seed Phrases, Hot Wallets, and Cold Storage Devices

 

Key Takeaways

• There are several methods involved to protect your seed phrase - Disguising your seed phrase, Obscuring the order of the 24 words and using a passphrase for added security.
  
  
• Online or hot wallets are not generally safe, but you can follow some security tips to make them as secure as possible.
  
  
• For enhanced security, buy cold wallets directly from the manufacturer, use biometric authentication, and consider a decoy wallet to protect your main holdings.

Before we dive in, it’s essential to have a solid understanding of private keys, public addresses, and how hot and cold wallets function. This blog is designed is not designed for beginners, so having this background knowledge will help you better grasp the concepts discussed.

How to Protect Your Seed Phrase

Your seed phrase is 12 or 24 random words used to recover your wallet in case the software wallet gets accidently deleted or hardware wallet gets lost. 

It is usually advisable to go for a 24-word seed phrase just because 24 words offer increased levels of entropy (randomness), doubling the protection against brute force attacks.

Below are some smart ways to protect your seed phrase.

Disguise your Seed phrase

You can also use invisible ink (UV ink) to write down your seed phrase and store your UV pen separately. In this way nobody will see it or notice it. 

You can also disguise your seed phrase by writing it on the back of a book or a couple of books for more protection where other notes are written, or you could use the page numbers of a book to write every single word in order using the UV pen.

This way, it becomes very difficult for someone to find your seed phrase. First, no one would suspect that an old book with school notes or other random writing contains a 24-word seed phrase. Second, with the invisible ink, it would be almost impossible for anyone to notice it.

Obscure the Order of the Seed Phrase

It's your responsibility to write the 12 or 24 words in order, but what if someone finds your seed phrase? To add an extra layer of protection, you can deliberately write down the seed phrase in an incorrect order or with a subtle pattern that only you remember and understand. 

For example, you could swap the 4th word with the 8th word or the 3rd word with the 6th word. By making a small, simple change like this, only you will know the exact order, adding an extra layer of security.

Therefore, know that you do not always have to write your seed phrase in the correct order, but any change that you do, do a very minor change so that you can remember the change you did. 

Use a Passphrase and Store Seed Phrase at Multiple Locations

I will separately write a blog about what a passphrase means, but for now, just understand that a passphrase is essentially a password and acts as an additional security layer to protect your cryptocurrency wallet.

The combination of a passphrase and a seed phrase significantly enhances the security of your crypto wallet or private keys, making brute-force attacks 99.9% impossible.

So, how can you make use of this? Here is my professional advice:

Implement a strong passphrase (password) that you can easily remember. Write down the seed phrase carefully, obscure it if necessary, and provide a copy of the seed phrase to someone you trust.

In case you lose your seed phrase, the trusted person will have a copy. However, they won’t be able to access your wallet because it requires both the seed phrase and your passphrase. Additionally, you have obscured the seed phrase, adding another layer of security.

For your friend, the seed phrase alone is useless. You could also store multiple copies of the seed phrase in different locations that you trust using this method. Even if someone finds the seed phrase, they won’t be able to access your crypto. They would neither know your passphrase nor how you have obscured the seed phrase.

This is a very creative way to securely store all 24 words in multiple locations without too much worrying about them being discovered. For anyone else, the seed phrase alone is entirely useless. But avoid oversharing. 

And always use a very strong passphrase and remember how you obscured the seed phrase. Avoid making it overly complicated to ensure you can recall it when needed.

Use a Seed Phrase Storage Device

You can also use seed phrase storage devices like Cryptosteel Capsule or Ellipal Mnemonic Metal for better storage security. 

These are typically made of stainless steel or other durable materials, ensuring that your seed phrase remains safe from physical damage, such as water, fire, or general wear and tear.

A more effective strategy is to combine this method of storing your seed phrase with a passphrase, and to store your seed phrase in multiple locations while obscuring it! 

This adds multiple layers of security, making it much harder for anyone to access your crypto even if they find your seed phrase.

How to Secure Your Crypto in Hot Wallets

Many who use software or hot wallets to store crypto in the blockchain run the risk of storing their private keys online posing security threats. 

Since these wallet apps are installed in internet connected devices - mobile or computer, they are vulnerable to online threats that could steal private keys or initiate transactions without the user's knowledge if the device gets compromised

The course of action to follow if you are financially tight to go for a hardware wallet is this:

Step 1: Categorize your crypto holdings 

Separate your short term (3 to 6 months) and long term (1 plus years) crypto holdings

Step 2: Download Two Reputable Hot Wallets

Install two reputable software wallets such as Exodus or Trust Wallet. Install the wallets in a device that is not compromised.

Use one wallet for short-term transactions and reserve the other for long-term holdings. Our main focus is on the long-term holding wallet where you hold a large amount of your portfolio. 

Step 3: Test Your Seed Phrase 

Before you transfer your long term crypto, send a small amount to the wallet.

Write down your wallet seed phrase very carefully on a piece of paper and delete your wallet app from your device, then try to recover it using the seed phrase.

If the recovery is successful, congratulations! you’ve written the seed phrase correctly!

Step 4: Transfer Long-Term Holdings and Delete the Wallet

Since your seed phrase is accurate and tested, transfer all your crypto to that wallet dedicated for the long-term holding. 

After you are done with the above tasks, do a full uninstallation of the wallet app. This makes sure that if your device gets compromised in the future, your crypto is safe as no one can access your wallet or private keys.

Step 5: Verify Funds on the Blockchain

Use public blockchain explorers (e.g., Etherscan for Ethereum, Blockchair for Bitcoin) to confirm your crypto remains securely stored in your wallet. Each cryptocurrency (e.g., BTC, XRP, ADA) has its own public address to track.

You can get these public addresses from your exchange or from the wallet.  For example, when you transfer your crypto from your exchange to your personal wallet, the exchange records transaction data, which includes your hot wallet-generated public address as the withdrawal address. 

💡Tip: Before installing any wallet to your device, make sure it is not compromised and it's 100% safe, meaning you should make sure that no malware or suspicious apps are installed in your mobile that can read your mobile screen and also track what you type on your screen. 

If your mobile or pc is compromised, then it does not matter how secure the wallet you download, or it doesn't matter even if you follow all the steps above, because if anyone gets access to your seed phrase, everything will be in vain. 

How to Secure Your Crypto in Cold Wallets

Buy Directly from the Manufacturer’s Website

This is crucial, do not buy your cold storage devices from any third party that you see on ecommerce websites like amazon. If you do, you might receive a compromised device. So, make sure your device is genuine, security zeal is not broken, and the device directly comes from the manufacturer.

Use Biometric Security 

While storing your seed phrase at multiple locations and using a passphrase definitely helps, you should remember that all these methods are used to recover your wallet if you lose your crypto wallet.

But what if someone physically gets access to your cold wallet, in this case they can easily start your wallet by connecting it to a laptop and access all your crypto. In this case it is always better to set a combination of PIN code and biometric authentication to prevent access to your wallet.

Many cold storage devices now have fingerprint scanners, for example NGRAVE Zero wallet,D'CENT Biometric Wallet and Keystone Pro 3.

Decoy Wallet

Now, this feature is highly valuable. A decoy wallet is another wallet in your cold wallet. Many cold wallets offer this feature, allowing you to create an additional wallet within the device, each with its own separate seed phrase.

So basically, you can have two separate wallets inside one cold wallet, and you can set up two different PIN codes to access each wallet. This allows you to store a small amount of crypto in the decoy wallet while keeping the majority of your funds in the main wallet.

In a real-life security threat, such as being forced to give access to your cold wallet, you can provide the PIN for the decoy wallet. This will direct them to a wallet containing a smaller amount of crypto, protecting the majority of your funds in the main wallet.

This is incredibly useful - it's like having two safes in your house. Your primary safe, which holds your actual money and valuable items, is well-hidden. Meanwhile, a second, more visible safe contains fewer valuable items or even fake money.

In the event of a break-in or if thieves demand access to your belongings, you can direct them to the visible safe with minimal loss, while your true valuables remain secure and undiscovered.

Cold wallets such as Trezor safe 3, Keystone Pro 3 and Ellipal Titan provide decoy wallet feature, but not all cold wallets offer this feature, therefore check before you buy. 

Multisignature Wallet

Multisignature (multisig) is a wallet configuration that requires multiple private keys to authorize a crypto transaction. This is like having a safety deposit box that requires multiple keys to open the box. Similarly, in a multisignature setup, multiple private keys are required to sign a transaction before it is executed.

This security measure prevents any single point of failure and if someone threatens you or scammed you to reveal your private key, they still won't be able to access your crypto unless they obtain the required number of signatures from other key holders.

Hardware or cold wallets can be configured to set up the minimum of signatures required to sign a transaction out of the total number of keys. For example:

A 2-of-3 multisig wallet requires at least two signatures out of three to authorize a transaction.

A 3-of-5 multisig wallet requires at least three out of five signatures to sign a transaction.

Multisignature is an ideal choice for businesses, shared accounts, and high-value crypto holders. Hardware wallets like Trezor, Ledger, Keystone, Jade support this multisig feature.

Final Thoughts

While there are many ways to secure your cryptocurrency, this blog specifically focused on protecting your crypto through seed phrases, hot wallets, and cold wallets.

Security is paramount in the crypto space, and there are many other factors to consider when safeguarding your assets. One major threat is scams—especially phishing scams—that target unsuspecting users.

To learn more about different scams and how to avoid them, check out my blog Top Crypto Scams to Avoid.

As the crypto space continues to evolve, so do scammers' tactics. I’ll be covering new methods they use in future blogs, so stay tuned. Until then, stay safe. If you found this blog helpful, please share it with others who are interested in crypto space.

Disclaimer: The contents of this article are for informational purposes only and are not financial advice. The views here are just the author’s opinions. The crypto market is volatile, so be sure to do your own research before investing.