A self-custody wallet is a cryptocurrency wallet in which you have absolute control over your private keys and funds; as a result, you have access and absolute ownership of the funds stored in these wallets without a third party's access to your private key or funds. However, having so much control over your funds and the activities of your crypto wallet comes with the responsibility of ensuring its safety.
Although a self-custody wallet provides complete decentralized functionality, eliminating the need for central authorities or third parties to oversee transactions and manage assets. However, if necessary precautions and security measures are not taken, the potential pitfalls associated with this level of control and freedom can be disastrous. For example, if you lose your self-custody wallet seed phrase, you will no longer have access to your funds. As a result, a crucial aspect of a self-custody wallet is security.
So, what are the drawbacks of using a self-custody wallet? What are the most effective security practices for mitigating these risks? Here are some best security practices to help you avoid losing access to your self-custody wallet funds forever. But first, the drawbacks.
The Drawbacks of Using a Self-custody Wallet
No Third-party Protection
Any error you make with a self-custody wallet is irreversible, and you're stuck with the consequences with no protection from your wallet provider because they don't have access to your private keys. Unfortunately, there is no "forgot password?" option or customer service to file a complaint. So, if you lose your seed phrase without a backup or restore option, there is no way to recover your wallet's assets.
Possibility of Human Error
One of the most significant difficulties of using a self-custody crypto wallet is the possibility of committing a human error. Self-custody wallets are difficult to use and require some technical knowledge to comprehend. As a result, managing the use of the wallet for various purposes necessitates a technical understanding of the interface, without which it is possible to carry out transactions incorrectly, resulting in the loss of funds.
Vulnerable to Scams and Hackers
Self-custody wallets are more vulnerable to scams and other fraudulent transactions because hackers can program malicious smart contracts prompts that could expose your wallet without your knowledge. Even if you do not lose your private keys, interacting with a malicious smart contract could cause your wallet to be emptied without your knowledge.
Best Security Practice for a Self-custody Crypto Wallet
Knowing the risks of using a self-custody wallet, let's look at the best security precautions to prevent significant asset loss.
Don't Share or Keep Your Seed Phrase Online
Your seed phrase serves as a master key to your crypto wallet, allowing you to access or recover your wallet at any time and from any location. Because having it in the wrong hands could lead to losing all your assets, keeping it safe and secure from unauthorized access is crucial. Therefore, store this seed phrase offline in a secure location. As a result, keep this seed phrase offline in a safe place. Preferably, write it down on paper and keep it somewhere safe, such as a safe or safety deposit box.
It is critical to note that no wallet provider, crypto community, or dApps connection will ever ask for your seed phrase, and any such request should be treated as fraudulent activity. Lastly, your seed phrase is the master key to your financial freedom; protect it with your life.
Change or Update Wallet Password Regularly
As a general rule, don't use the same password combination for different platforms for any online activity, especially if it involves your finances. This is also true for the security of your self-custody wallet. Therefore, the best way to keep your self-custody wallet safe from hackers is to frequently create and change a complex password. Make sure your password is a complicated one to guess by using a mix of uppercase, lowercase, numeric, and special characters without including any publicly available personal information, such as your pet's name, favorite color, or date of birth. Finally, never let your browser save your self-custody password.
Use 2-Factor Authentication for Extra Protection
The crucial security feature of two-factor authentication ensures that only you have authorized access to your account by adding a second layer of security to your password. This additional security layer makes it significantly more difficult for hackers to access your funds because they can't break your login using just one password. A timely changing code will be sent to you to authorize the transaction when someone tries to access your cryptocurrency wallet. You won't allow access if you notice the code is coming from an unidentified source. Since no staff member of a crypto wallet will ever ask for your 2FA code, it is crucial never to share it with anyone.
Be Careful With Connecting With Unknown dApps
Since self-custody crypto wallets have more features and provide access to various DeFi protocols such as staking, farming, and many other dApps, you should be cautious when connecting with unknown or unauthorized platforms. To avoid risk, always disconnect from a dApp after any transaction.
Use Multiple Crypto Wallet
Never keep your entire cryptocurrency portfolio in one wallet. Instead, you should divide your portfolio by keeping a separate wallet for trading, investing, and personal research. Generally speaking, you should have a cold storage wallet for your portfolio of investments and a hot wallet for your portfolio of trading assets. Use custodial and self-custody wallets; use the custodial to carry out total deposits and withdrawals and the self-custody wallet to communicate with dApps and smart contracts.
Whether you are an expert or just building a crypto portfolio, safeguarding your assets should be your top priority. One of the most important security practices to protect your self-custody crypto wallet is to use multiple wallets to keep your crypto activities safe, so if you want to fully control your crypto wallet activities, whether custodial or self-custody wallet, you should consider Cwallet.
Even though self-custody wallets are not recommended for beginners due to the difficulty of setting them up and using them, you can enjoy a user-friendly non-custodial wallet experience with access to beautiful and easy-to-understand asset overviews while maintaining complete control over your assets with Cwallet, giving you the best of both worlds of custodial and non-custodial wallet features.
Benefits of Choosing Cwallet
Let's look at the benefits of using Cwallet as your preferred crypto wallet for increased security and a worry-free experience.
2-Factor Authentication
Cwallet comprehends the importance of security and has implemented Two-Factor Authentication (2FA) to protect your account from unauthorized access. Adding 2FA to your wallet adds an extra layer of protection, making it much more difficult for cybercriminals to access it even if they've learned your password.
Cloud-Based Encryption
Cwallet uses cloud-based encryption to ensure your private keys and other sensitive data are always safe. Compared to wallets that store keys and data on local devices, this advanced encryption method protects your digital assets from potential threats and adds an extra layer of security.
MPC Encryption
Cwallet takes security further by utilizing Multi-Party Computation (MPC) encryption. MPC is a cutting-edge cryptographic technique that allows multiple parties to compute a function without revealing their inputs. This means that even if a hacker successfully penetrates one security layer, they cannot access your private keys or jeopardize your wallet. This novel approach to encryption strengthens Cwallet's position as a reliable and safe option for managing your cryptocurrencies.
Final Note
Indeed, great power comes with great responsibility, especially when you have complete control over your cryptocurrency wallet. Protecting your self-custody wallet is critical if you do not want to become a victim of permanently losing access to your self-custody wallet funds.
Utilizing a reliable wallet like Cwallet and following the best practices recommended in this article will go a long way toward preventing the possibility of losing all of your cryptocurrency.
Don't leave your crypto wallet's security to chance; download Cwallet today and discover the future of secure crypto management.
