How to Keep Your Crypto Wallet Safe from Hacks

Wallet hacks are a growing concern in the world of cryptocurrency. With each passing year, these hacks become more common, challenging the potential mainstream success of blockchain technology. Understanding the mechanics, history and impact of crypto wallet hacks is key for your continued DeFi security. In this blog post, we’ll review a history of crypto hacks before diving into how these hacks happen, what you can do to prevent them and how FailSafe can help.

A Brief History of Recent Crypto Wallet Hacks

“Not your keys, not your coins” is the mantra that embodies Web3 philosophy. Self-custody keeps your crypto safe from centralized exchange hacks and bankruptcy. However, it also opens up a whole new world of potential threats.

While the crypto security sector continues to grow, there is no lack of wallet hack examples. Atomic Wallet, Exodus, and Trust Wallet were some of the high profile examples in recent years, accompanied by a range of other notable crypto breaches, including the Sushiswap DEX Hack.

Reviewing these high profile wallet hacks will help us understand what happened and how they could have been prevented.

Atomic Wallet Hack

In mid-June 2023, Atomic Wallet suffered a $100-million exploit that affected over 5,500 crypto accounts on the platform. Atomic Wallet hasn’t yet clarified what conditions exactly led to the exploit but instead laid out the four most “probable” causes:

• Malware on user devices
• Infrastructure breach
• Man-in-the-middle attack
• Malware code injection

50 customers that lost a combined $12 million have since filed a class action lawsuit against Atomic Wallet.

Exodus Wallet Hack

In September 2023, technical analysis educator Jayson Casper reported his Exodus wallet had been hacked for $700k worth of tokens.

Exodus’ support team responded with the following message:

Individuals have been impersonating the Exodus support team with the intent to steal sensitive information like your 12-word phrase or lead you to malicious links that appear similar to our official website, Exodus.com.

Exodus further points out in their 2020 blog post that the biggest risk to Exodus wallets is storing the secret recovery phrase electronically. This practice makes it easy for any hacker with access to your computer to drain your wallet.

Trust Wallet Hack

Trust Wallet released a browser extension on November 14, 2022 that allowed users to access digital assets on several blockchains directly from the browser. This extension had insufficient security, however, that allowed hackers to compute all potential seed phrase lists and corresponding private keys for any wallet created with the extension, putting all wallet funds at risk.

Luckily, this flaw was quickly identified by Ledger Donjon on November 17, 2022, preventing what would have otherwise been one of the largest hacks in crypto. The vulnerability was announced publicly on April 25, 2023.

How Do Wallets Get Hacked?

At the root of every crypto hack, you’ll find one or several of the following factors. Understanding these potential issues will help you become more aware of the risks with your wallets.

Wallet hacks typically stem from a combination of software vulnerabilities and user behavior risks. By unpacking these factors, users can enhance their awareness and bolster their defenses against potential security breaches.

1. Phishing Attacks

Phishing attacks are the most common method cybercriminals use to compromise wallet security. In these attacks, hackers masquerade as legitimate websites or services to lure unsuspecting users into entering sensitive information like private keys or seed phrases.

This deception not only leads to the direct theft of funds but also compromises the overall integrity of the wallet.

2. Security Flaws in Wallet Software

The software behind digital wallets is not infallible and can contain vulnerabilities. These security flaws, whether inherent in the design or due to lapses in regular updates and patches, can be exploited by attackers to gain unauthorized access.

As we saw in the Trust Wallet example, regular software updates and vigilant security audits are essential to mitigate these software risks.

3. Weak Private Key Management

The number one rule of wallet security is to safeguard your private keys and recovery phrases. Inadequate management of these keys, such as poor encryption practices or using predictable phrases, opens the door to unauthorized access and theft. 

Robust encryption and secure storage solutions are critical to protecting private keys from external threats.

4. Social Engineering Tactics

Social engineering is a subtle yet powerful tool in the arsenal of cybercriminals targeting wallet security. These tactics involve manipulating users into violating standard security protocols, such as revealing confidential information or executing unauthorized transactions.

From brute-force attacks to sophisticated phishing and exploitation of software vulnerabilities, hacking techniques have evolved dramatically. This ongoing arms race between cybercriminals and security professionals demands constant vigilance and adaptation.

These hacks go beyond financial loss. They erode trust in the digital economy, raise alarms with regulators and hinder technological advancement. They underscore the need for a proactive stance on digital security – one that anticipates and adapts to the ever-changing threat landscape.

Best Practices to Prevent Wallet Hacks

Navigating the crypto landscape requires not just knowledge but also a proactive approach to security. In this section, we delve into essential security measures, strategies to avoid common scams and advanced security practices that can significantly bolster your defense against potential wallet hacks.

1. Implement Strong Passwords and 2FA

The first line of defense in wallet security is the use of strong, unique passwords coupled with two-factor authentication (2FA).

Strong passwords, characterized by a mix of letters, numbers, and special characters, are less susceptible to brute-force attacks. Meanwhile, 2FA adds an extra layer of security, ensuring that wallet access is not solely dependent on passwords but also on a secondary verification method, such as a mobile app or a hardware token.

2. Complete Regular Software Updates

Keeping your wallet software up to date is crucial. Software updates often include patches for security vulnerabilities that have been recently discovered. 

By regularly updating your wallet software, you ensure that you have the latest security enhancements and bug fixes, reducing the risk of exploitation by hackers.

3. Identify Phishing Attempts

Phishing is the most common tactic used by cybercriminals to gain unauthorized access to wallets. Recognizing such attempts is key to your wallet security. Be wary of unsolicited communications, scrutinize email headers and be cautious of emails with urgent requests or suspicious links.

Familiarize yourself with the characteristics of phishing emails and use tools like email header analysis to verify the authenticity of the sender.

Recognizing the signs of phishing, such as unsolicited communications and suspicious links, is crucial in preventing unauthorized access to wallets.

Follow these tips to spot a phishing email:

• Always look carefully at an email’s header and sender address. Keep in mind that even legitimate-looking email addresses can be spoofed.
• Be cautious of emails with urgent or alarming requests, as these are common tactics in phishing to provoke immediate action from your part.
• Be skeptical of any email you aren’t expecting, especially when they include links or download attachments, even if they seem to be from trusted sources.
• Never click on any links or download attachments from emails that are not from trusted sources. This is where most hacks begin.
• To verify an email’s authenticity, inspect the message headers to uncover the true origin of potentially spoofed emails. To learn more, visit Google’s security guide: Trace an email with its full headers.

4. Multi-Signature Wallets

Multi-signature wallets, like the Gnosis Safe wallet, add an additional security layer, requiring multiple keys to authorize a transaction. This is particularly useful for high-value transactions or shared accounts, as it mitigates the risk of a single point of failure.

Implementing a multi-signature wallet means that even if one key is compromised, unauthorized access to the wallet’s contents remains unfeasible without the other required keys.

5. Cold Storage Solutions

For storing large amounts of cryptocurrency, consider using cold storage solutions like hardware wallets. These devices store your private keys offline, making them immune to online hacking attempts.

Hardware wallets provide a secure way to access and manage your assets while minimizing the risk associated with internet-connected devices.

While hardware wallets are among the safest ways to store crypto long-term, they aren’t as practical to use in the short-term. To truly embrace the digital economy, it’s important to use hot storage solutions like MetaMask, Rabby Wallet and Brave Wallet.

This is where FailSafe comes in, adding a new layer of security on top of the practicality of hot wallets.

How FailSafe Protects You from Hacks

FailSafe is a wallet security suite with several features that work together to keep your crypto and NFTs secure. FailSafe has been shown to prevent 98.7% of wallet hacks. It would have protected any of the users who used it in the hacks on Atomic Wallet, Exodus and Trust Wallet.

Whether you use MetaMask, Rabby Wallet, Brave Wallet or virtually any other top crypto wallet, here’s how FailSafe will help you prevent hacks.

1. Real-Time Malicious Transaction Blocking

FailSafe’s security architecture is primed for immediate action, operating with real-time detection and response. When an unauthorized transaction is identified, FailSafe rapidly deploys a protective transaction, effectively blocking the transaction and securing the user’s assets.

We also introduced the FailSafe X-Ray upgrade to better protect against sophisticated phishing attacks by simulating contract transactions in real-time, enabling it to monitor internal transactions while they are still in a pending state.

This proactive stance is crucial in a landscape where milliseconds can mean the difference between safety and compromise.

2. AI-Based Detection and Risk Scoring

At the heart of FailSafe’s defense mechanism is an AI-based system that continuously analyzes transaction patterns for anomalies. This AI-driven approach allows for early detection of potential threats, assigning risk scores to transactions and alerting users to suspicious activity. 

This system ensures that users are protected and informed, ensuring you make more secure choices.

3. Recovery Vault System

The FailSafe Recovery Vault is a significant leap in digital asset protection. In the event of a breach, FailSafe swiftly transfers your assets to a freshly created self-custody wallet.

This just-in-time deployment means the Recovery Vault is activated only during an attack, significantly reducing the system’s exposure to potential threats and ensuring an efficient cost management strategy.

4. Customized Protection Strategies

Understanding that each user’s needs are unique, FailSafe offers tailored protection strategies, including access to our software development kits (SDKs).

This customization ensures that users from various backgrounds, whether individual investors or large enterprises, receive a level of security that aligns with their specific requirements and threat scenarios.

5. Multi-Network Support

FailSafe’s prowess extends across multiple major blockchains, including Ethereum, Polygon and BNB Chain.

This multi-network support not only broadens the scope of protection for diverse digital assets but also signifies FailSafe’s commitment to comprehensive security in the evolving blockchain ecosystem.

Keep Your Crypto Safe with FailSafe

Understanding the risks and mechanisms of wallet hacks is essential to your crypto wallet security. The proactive measures and strategies outlined in this article underscore the importance of security solutions like FailSafe in safeguarding digital assets.

As the threat landscape continues to evolve, so does the need for efficient and adaptive security solutions. Embracing these best practices, new technologies and the FailSafe security suite is key for anyone venturing into the crypto space.

Start using FailSafe for your wallet security needs today.