There is a common saying, don't put all you eggs in one basket. This saying might be stretched to a very wide range of things, and even to the cryptocurrency world.

Why you should have multiple crypto wallets

Hello Bulbers,
Today we shall be delving into the risks of having a single crypto wallet and the benefits of having multiple wallets for your cryptocurrencies. Learn why having multiple crypto wallets can help you avoid losing all of your funds in the event of an attack in this comprehensive guide.

According to MOONPAY Crypto wallets are the linchpins of decentralized finance (DeFi). These simple lines of code provide a secure way to store, send, and receive cryptocurrencies like Bitcoin and Ethereum.
With the rising popularity of crypto, however, the risk of theft and fraud has also increased. In the last few years, crypto-related thefts, hacks, and frauds resulted in losses of $1.9 billion in 2020, $3.3 billion in 2021, $4 billion in 2022, and $343 million last month in November 2023 alone.

As a beginner to the world of cryptocurrency, it is crucial to understand the importance of wallet security to safeguard your digital assets. Creating and maintaining multiple cryptocurrency wallets is a good way to secure your assets.

Risks of having a single wallet

Most new entrants into the crypto space assume their assets are completely safe because they have written down their passphrase. While this is a reasonable point of view, there still may be risks depending on how you are using your wallet and what kind of wallet you are using.

1. Remote access to your hot wallet:
If you are using only hot wallets, like the MetaMask Chrome extension, for example, there is always a risk of someone gaining remote access to your wallet, which can potentially result in the theft of your entire balance of crypto assets.

This could happen by cybercriminals introducing malware or installing keystroke loggers onto your device and then using the information to gain access to your wallet.

2. Connecting to compromised websites:
When interacting with dApps on the internet, you are usually required to connect your wallet to the website or platform and authorize transactions. Ideally you should connect your wallet only to legitimate websites.

But even with a legitimate website, there is always a risk of it being hacked at some point in time.

Say you authorize a website to sign transactions on your behalf and the website gets taken over by a malicious actor. In this scenario, a hacker could steal all the funds in your wallet at once, even if you are not near the device on which you have the wallet extension enabled.

Benefits of having multiple crypto wallets

1. Security:
this is one of the greatest benefits of having a multiple crypto wallets. When you divide your cryptocurrency among several wallets, you reduce the risk of losing your entire investment if one wallet is compromised.

Additionally, using different types of wallets can provide further security benefits, as different wallet categories have their own strengths and weaknesses. This can include custodial wallets, non-custodial wallets, hot wallets, and cold wallets.

One event that showed the importance of having multiple wallets is the 2014 Mt. Gox hack, which resulted in the loss of around 744,000 Bitcoins (worth over $460 million at the time). 

The hack was possible because Mt. Gox kept all of its customers' Bitcoins in a single hot wallet, which was vulnerable to a security breach. 

If the company had used multiple wallets and spread out its customers' holdings, the damage caused by the hack might have been greatly reduced.

2. Diversification of Risk
By using multiple crypto wallets, you can spread out your holdings across different wallets, reducing the risk of losing all your cryptocurrencies in case of a security breach or hack. If one wallet is compromised, your other wallets can still remain secure, safeguarding your investments.

Remember as a crypto investor you want to be in complete control over all of your funds. Meaning, leaving your money under someone else’s control(centralized crypto exchanges) should be reduced as much as possible.


3. Separation of Funds
Having multiple wallets allows you to separate different types of cryptocurrency holdings or investment strategies. For example, you could use one wallet for short-term trading and another for long-term investment.

Finally, a separate wallet for storing your cryptocurrency for everyday transactions. This can help you better manage your investments and keep track of your various crypto holdings.

4. Access to Different Exchanges
Using multiple crypto wallets can give you access to different cryptocurrency exchanges. Firstly, this can be beneficial for diversifying your trading options. Also, you have the option of trading other trading pairs. Third, each exchange offers different services and unique features that keep you ahead of the game.

Access to different exchanges allows you to spread out your investments. This reduces the risk of losing access to your funds in case one exchange goes down or faces technical issues.

5. Privacy and Anonymity
Some cryptocurrencies, such as privacy coins, are designed to offer enhanced privacy and anonymity. By using multiple wallets, you can keep your transactions and holdings separate. Additionally, this reduces the chances of your identity or transaction history being linked to a single wallet.

6. Convenience and Accessibility
Using multiple wallets can also provide you with convenience and accessibility. You can have different wallets on devices like mobile phones, desktop computers, or hardware devices. Allowing you to access your cryptocurrencies from different locations or devices as needed.

Conclusion

Though it is highly safer to use multiple wallets, It’s important to note that managing multiple wallets also comes with its own challenges. Good examples are remembering multiple passwords, keeping track of different private keys, and managing different user interfaces. While that is so, one can simply write down this keys and store in a safe place to reduce the risk of theft.

By following these aforementioned practices, you can create and manage multiple crypto wallets effectively and enhance the security of your cryptocurrency investments. Remember that two of the keys to wallet security are to eliminate single points of failure and implement multiple layers of protectionand maximise profit.