There’s no password reset for crypto. Learn the storage, authentication and scam-prevention habits that keep your assets safe: cold wallets, 2FA and more.
In crypto, you have to be your own bank and security team. If you ever lose access to your funds, there’s no hotline to call and no password to reset. That’s why learning how to secure your crypto assets is one of the most practical things to do as a holder.
This guide walks through what sound security looks like, which boils down to these three things: sensible storage, beefing up your logins and being aware of modern scams.
Everything in crypto starts with your wallet. A wallet is an application or device used to store these cryptographic keys and interact with the blockchain. But the wallet doesn’t actually ‘hold’ your tokens the way a physical wallet holds cash. They live on the blockchain.
What the wallet stores are the keys that prove that the tokens are yours.
The most important of those is your private key: a long, random number that's the sole credential for authorizing transactions. From it, your wallet derives a public address — the shareable string you give others so they can send you funds — while the private key itself stays secret. It's not a password and it doesn't behave like one.
A private key can't be reset. As the Bank for International Settlements notes, unlike a bank login, there's no support channel that can recover a lost key. The funds behind it are simply gone.
The scale is sobering: Chainalysis, a leading blockchain analytics firm, estimates that several million bitcoins are permanently stranded, lost to forgotten credentials, discarded hardware and misplaced backups.
Modern wallets back up the master private key as a 12- or 24-word recovery phrase (also called a seed phrase), following the BIP-39 standard. Anyone who possesses this phrase can restore and control the wallet.
Industry best practice is to record a seed phrase on a durable, offline medium – such as an engraved metal plate – and store copies in at least two physically separate, secured locations.
Your seed phrase should not be shared with anyone or typed into a website or app. It functions as the master key to every asset in your wallet. No exchange, wallet provider or support team can recover it on your behalf.
Where your crypto lives comes down to two independent decisions: whether a wallet is hot or cold, and whether it's custodial or non-custodial – a user can hold a self-custodied hardware wallet (non-custodial and cold) or use a regulated exchange that keeps the majority of assets offline (custodial and cold).
Where your crypto lives comes down to two separate questions. First: is your wallet hot or cold (i.e., connected to the internet or kept offline)?
The second question, covered further down, is whether you or a third party holds the keys.
The two are independent: you might keep an offline hardware wallet yourself or leave your tokens with a regulated exchange that stores most of its assets offline on your behalf.
A hot wallet is a software-based wallet that remains connected to the internet, enabling quick access for everyday transactions. Hot wallets prioritize convenience and speed but carry a higher exposure to malware, phishing and remote attacks because the keys reside on an internet-connected device.
Cold storage keeps your keys on a device that never touches the internet — usually a hardware wallet or an air-gapped machine — and signs transactions offline. A hardware wallet is a dedicated device that generates and stores private keys internally and signs transactions without exposing those keys to a connected computer or the internet.
As they're offline, cold wallets shrug off remote attacks, but they can still be lost, physically stolen or damaged. A misplaced seed-phrase backup will lock you out just the same. No setup is bulletproof.
The International Monetary Fund (IMF) notes that most platforms use cold wallets for storing the bulk of assets and strictly limit hot wallets to short-term transactional liquidity. For most holders, that split may be a sweet spot.
Feature | Hot wallet | Cold wallet |
Internet connection | Always online | Offline |
Convenience | High – instant access | Lower – requires physical device |
Exposure to remote attacks | Higher | Highly resistant |
Best suited for | Daily transactions, small balances | Long-term holding, larger balances |
Key vulnerability | Malware, phishing, remote theft | Physical theft, damage, lost backup |
A custodial wallet (also called a hosted wallet) is one in which a third-party service provider holds and manages the private keys on the user's behalf. An unhosted wallet (also called a non-custodial or self-custody wallet) is one in which the user retains direct control of the private keys, with no intermediary involved.
Every custody model involves a trade-off. Hosted wallets reduce the user's operational burden but introduce counterparty risk. Self-custody eliminates counterparty risk but places the full burden of key management on the user.
The two most consequential losses in crypto history – Mt. Gox (2014) and FTX (2022) – resulted from custodial failures, not from flaws in the underlying blockchain technology. Mt. Gox, once the world's largest bitcoin exchange, filed for bankruptcy after the loss of a significant portion of its bitcoin holdings.
In November 2022, FTX filed for bankruptcy after reports that customer funds could not be accounted for.
This popular saying highlights the importance of key control, but it doesn’t mean self-custody is always safer. Much have changed since those early failures. Regulated custodians in major jurisdictions are subject to capital, segregation, governance and audit requirements designed to protect client assets.
In July 2025, the Federal Reserve, OCC and FDIC jointly reaffirmed that banks offering crypto-asset custody services must conduct those operations in a safe and sound manner.
If you want a custodial option with built-in protections, the Crypto.com App is one place to start. For full non-custodial control of your own keys, the Crypto.com Onchain wallet lets you manage them directly.
Even a great password can be phished, guessed or leaked in a breach. Multi-factor authentication (MFA) adds a second layer of verification but not all methods are equal.
SMS-based two-factor authentication (2FA) is considered less secure because attackers can hijack a victim's phone number through SIM-swapping – convincing or bribing a carrier to transfer the number to a new SIM card. The FBI has specifically flagged SIM swapping as a growing vector in crypto fraud cases.
NIST Special Publication 800-63B restricts the use of SMS-based one-time passwords for authentication. The standard identifies authenticator apps (TOTP) and FIDO2-compliant hardware keys as more resistant alternatives because they do not rely on the cellular network.
They generate time-based one-time passwords (TOTP) directly on your device. As the code never travels over the cellular network, a SIM swap cannot intercept it.
They provide the strongest widely available option. They require physical possession of the device to authenticate, making remote compromise extremely difficult.
In the Crypto.com App, you can set up authenticator-app-based 2FA and enable an Anti-Phishing Code. When enabled, every legitimate email from us includes your personalized code, making it easier to spot fakes.
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Securing crypto now involves more than hiding keys. Chainalysis's crypto crime research tracks smart-contract exploits and cross-chain bridge hacks as a fast-growing risk category, distinct from key theft. One of the most overlooked risks in that category is the token approval.
When a user signs a smart-contract approval (sometimes called a ‘token allowance’), they grant that contract permission to move a specified amount of tokens from their wallet. Legitimate decentralized applications need these approvals to function; for example, to swap tokens or provide liquidity.
The danger arises when a malicious or compromised contract exploits this permission to drain funds. A single careless signature can open the door to total loss, even if the private key itself remains safe.
Step 1: Before signing any transaction, read the approval request carefully. Verify the contract address and the amount of tokens you are granting access to. If a contract requests unlimited token access and you don't recognize it, reject the request.
Step 2: Use a token-approval checker tool to review all active approvals tied to your wallet address. Several blockchain explorers and wallet interfaces offer this feature.
Step 3: Revoke any approvals that are no longer needed. As a best practice, users should periodically review the list of smart contracts they have approved to spend tokens on their behalf and revoke unused ones. Think of it like canceling old subscriptions you've forgotten about.
Step 4: After interacting with a new decentralized application, return to your approval list and confirm that only the intended permissions were granted.
The use of multisignature or threshold cryptographic schemes have been increasingly adopted in the industry’s best practices to protect keys. Multisignature (multisig) schemes require a predefined quorum of separate keys – for example, two out of three – to authorize a transaction, reducing the risk of a single point of failure.
NIST is also developing standards for multi-party threshold cryptography (MPTC), which splits a private key into multiple shares so that a defined subset of shareholders must cooperate to sign a transaction.
According to the FBI's 2024 Internet Crime Report, cryptocurrency-related complaints accounted for more than $9.3 billion in reported losses. Americans over 60 reported the highest cryptocurrency-related losses of any age group.
The FBI identifies phishing, social engineering and seed-phrase theft as major means through which individuals lose access to or control of their crypto assets.
These emails mimic legitimate services. They tend to employ urgent language (‘Your account has been compromised. Verify now.’) and link to convincing but fraudulent websites. Always verify URLs manually and look for your Anti-Phishing Code in emails from us.
This is rampant on social media. Scammers pose as exchange or wallet representatives and ask for seed phrases or private keys. No legitimate company will ever ask for your seed phrase.
They promise to double or multiply your crypto if you send an upfront transfer. These are always fraudulent.
Scammers have mailed physical letters – branded to resemble official hardware-wallet correspondence – asking recipients to enter their seed phrases on a fraudulent website. Phishing is no longer limited to the digital world.
Address poisoning is a technique in which an attacker sends a negligible transaction from a wallet address that closely resembles a legitimate contact's address. If the victim later copies the look-alike address from their transaction history, funds are sent to the attacker instead.
Never copy-paste addresses from your transaction history alone. Always verify the full address from a trusted source before sending funds.
Can someone hack my hardware wallet?
Hardware wallets are highly resistant to remote attacks because they sign transactions internally without exposing the private key to a connected computer or the internet. However, they remain vulnerable to physical theft or loss of the seed-phrase backup. No device should be considered completely immune.
What if I lose my seed phrase?
If a seed phrase is lost, no exchange, wallet provider or support team can recover the associated assets. There is no reset mechanism on a blockchain. Store your seed phrase on a durable, offline medium in at least two physically separate locations.
What if I lose my phone?
If your phone is lost, your crypto is not necessarily gone. A non-custodial wallet can be restored on a new device using the seed phrase. For custodial accounts, contact the provider's support team – your assets are held on your behalf. In both cases, having authenticator-app backups or recovery codes is essential for regaining access to 2FA-protected accounts.
Is a paper wallet safe?
A paper wallet is a form of offline storage and is resistant to remote attacks. However, paper is vulnerable to physical damage, water, fire and fading over time. A more durable medium – such as an engraved metal plate – is generally preferred.
Should I use a VPN for crypto?
A VPN encrypts your internet traffic, which can add a layer of privacy – particularly on unsecured networks. It's one part of broader network hygiene, not a standalone solution. No major regulatory body has issued specific guidance on VPN use for crypto transactions.
Is my crypto covered by FDIC insurance?
No. The FDIC has stated that deposit insurance does not apply to crypto assets. Only deposit accounts at FDIC-insured banks are covered. In 2022, the FDIC issued cease-and-desist letters to companies for making false or misleading representations that their crypto-related products were FDIC-insured.
Is crypto anonymous?
Cryptocurrency transactions are pseudonymous, not anonymous. Because blockchain ledgers are public, every transaction is permanently recorded and can be traced. Europol notes that bitcoin transactions have always been traceable, and law enforcement and analytics firms routinely use this transparency to attribute addresses to real-world identities.
Do I need to report crypto on my taxes?
Beginning with transactions on or after January 1, 2025, the IRS requires brokers to report digital-asset proceeds on the new Form 1099-DA. Consult a qualified tax professional for guidance specific to your situation.
What is the difference between custodial and non-custodial wallets?
A custodial wallet means a third-party service provider holds and manages the private keys on your behalf. A non-custodial wallet means you retain direct control of the private keys, with no intermediary involved. Each model involves trade-offs between convenience and personal responsibility.
Important information:
This article is for informational purposes only and should not be construed as financial or investment advice. Trading cryptocurrencies involves risks, including price volatility and market risk. Past performance may not indicate future results. There is no assurance of future profitability. Before deciding to trade cryptocurrencies, consider your risk tolerance.
Services, features, and other benefits referenced in this article may be subject to eligibility requirements and may not be available in all markets. They may also be subject to change at the discretion of Crypto.com.
