Cryptocurrency wallets are an essential tool needed to store your digital assets in a safe and secure manner. As more and more people invest in cryptocurrencies, its only natural that crypto wallet interactions would increase amongst users. According to analysis conducted by Polaris Market Research, the number of crypto wallet users rose to 82.02 million in 2022, up from 76.32 million in 2021.
This growing tendency to use crypto wallets, however, draws attention to several security concerns. For example, centralised cryptocurrency exchanges keep control of consumers' funds in online hosted wallets and retain their private keys. Unfortunately, these online digital wallets (hot wallets) are frequently the subject of numerous types of breaches and thefts. Infamous incidents include the Mt. Gox scam and the and the Coincheck theft, both of which involved funds being stolen from hot wallets.
Meanwhile, hardware (cold) wallet storage solutions are considered to be relatively safer than hot wallets because they store private keys offline. But are hardware wallets truly safe from external risks? Let's find out.
Five common threats to hardware wallet
Hardware wallets do not require internet connectivity to access your crypto, unlike hot wallets, which need an internet connection to function. However, do not let their working trick you into believing that these wallets are completely fool-proof. Here are five common threats to hardware wallets that you should be aware of in order to keep your crypto secure.
Physical security risk:
Hardware wallets, such as Ledger and Trezor, are physical devices that resemble USB drives, and come with OLED screens and side buttons. These wallets can be connected to computers whenever you wish to utilize your cryptocurrency. However, because they are physical devices, they are vulnerable to the same risks as any other item, such as being stolen, lost, or broken.
To mitigate this risk, it is crucial to have a secure seed phrase. A seed phrase is a list of 12 or 24 random words that serves as a password to recover the cryptocurrency stored in the hardware wallet. By entering the seed phrase sequentially, you can regenerate both your private and public keys. It is recommended that you do not to save this seed phrase on any digital devices, such as phones or in text messages, as doing so may expose your seed phrase to detection.
Social engineering risk
Social engineering risks involve phishing scams, where users may unknowingly disclose their seed phrase to fake technical support specialists of crypto wallets. This can lead to a loss of funds from your crypto wallet.
In April 2022, a phishing fraud occurred at hardware wallet operator Trezor, which was using something called ‘Mailchimp’ email distribution services. In this particular incident, hackers sent fake data breach notifications via newsletters, urging users to download an application from a fake domain. The fraudsters intended to steal the content of Trezor crypto wallet owners. However, it is doubtful that many users fell for the scam because the problem was quickly spotted and reported.
Trezor later wrote in the blogpost that hackers gained access to this tool as a result of a successful social engineering attack on the Mailchimp staff. This means, the hacker tricked the Mailchimp customer support team into handing over their log-in credentials and then used the company's internal tools to send fake notifications to Trezor customers.
Side Channel attacks
Side channel attacks take advantage of the physical properties of hardware wallets. This is accomplished by using electromagnetic emissions from a device to extract data from the crypto wallet. Crypto keys from hardware wallets can be stolen as a result of side channel attacks. To succeed, an attacker must understand the precise technical details of the targeted wallet and have physical access to it.
Malware
Malware poses a threat not only to hot wallets but also to cold wallets. When a user connects their wallet to a computer for a transfer, a malware can manipulate the destination wallet address by replacing it with the hacker's address. While this risk can be mitigated by carefully verifying the addresses displayed on cold wallet screens, certain devices may have screens that are too small to show lengthy blockchain addresses, leaving them vulnerable to such attacks.
Fake wallets
Fake wallets have also emerged as a growing concern in the crypto space. There have been cases where individuals bought crypto wallets and received USB sticks containing Trojan payloads. Criminals sell counterfeit units with modified firmware to gain access to users' private keys and compromise device security. To mitigate this threat, it is essential to purchase hardware wallets from trusted manufacturers.
Conclusion
While hardware wallets are widely regarded as the most secure option for storing cryptocurrency, you should acknowledge its potential risks and take precautionary measures to safeguard your crypto funds. These measures include refraining from sharing seed phrases online, purchasing wallets only from authorised manufacturers, and avoiding clicking on suspicious links.
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