How safe are DeFi Wallets?
Decentralized Finance otherwise known as DeFi is a broad term for all financial products and services built on top of open-source public blockchains. DeFi uses emerging blockchain technology to provide financial services without any intermediaries. The core aim of DeFi is to eliminate all forms of intermediaries in order to allow for fast peer-to-peer transactions between individuals regardless of their geographic location.
A recent survey called “Mind over money survey” by Capital one and The Decision Lab shows that 77% of Americans are feeling anxious about their financial situation. There are people who know that it is a wise decision to save and invest but are scared to lose their assets in the process. Similarly there are a lot of individuals who want to invest in crypto through DeFi wallets but are scared of losing their funds for several reasons which includes security, which prompts the Question “How safe are DeFi wallets?”
What can lead to loss of assets?
There is always a good and bad side of every innovation, so we can’t say that keeping your assets on DeFi wallets is completely safe. One of the few risks of DeFi that could lead to loss of assets is coding errors. Coding errors can lead to vulnerability of wallets, allowing attackers to gain access and steal assets embedded in a financial smart contract. It could also cause an error in execution processes in smart contracts. Luckily this is a very rare case and can happen on any financial platform right? You can easily avoid this by making your own research about a DeFi wallet that you have decided to use.
Furthermore, one of the common ways people lose their crypto assets is by falling for scam investments platforms. In 2021 Americans reported to have lost $680 million to crypto fraud, also the Percentage of scams that used crypto as a payment method that started on social media rose to about 49%. In DeFi wallets you have full control of your assets and only you can send crypto out to another wallet, so if you are scammed through fake investments it’s totally not a fault from your DeFi wallet software security.
Data theft is also a risk involved in using DeFi wallets. Most DeFi platforms make use of Admin keys to upgrade smart contracts and perform emergency shutdown. If these keys are not properly secured, third parties may steal them and compromise the smart contract. Leading to millions of people losing their assets.
How to ensure safety of your assets
Despite the several risks involved in using DeFi wallets, there are several ways in which you can ensure the safety of your assets.
Firstly, before storing or investing your money or assets on any DeFi platform, Do your own research (DYOR). You can check users’ reviews on several platforms, make research on the security history of the platform. Also, consider what steps the wallet provider has taken to ensure the user’s safety. Some wallet providers seriously prioritize security. Argent is an example of a DeFi Wallet with top security. Argent lets users nominate “guardians” who can help them recover access to their wallets if they ever forget their private keys.
Secondly, checkout the smart contract used to set instructions for the blockchain. Smart contracts are codes that are stored in a blockchain that runs when predetermined conditions are met. An issue with the code can lead to a potential weakness in the security of the project. Although it is technical, it is worth checking out the smart contract behind a project. If you feel like it is too technical, you can ask someone knowledgeable in the field to do so.
Lastly, it is important to keep your private keys and letter strings and other secret phrases or password safe from the public. This includes being careful while clicking links on your browser. Some scammers buy google ad space to advertise fake wallet websites that may look exactly like your wallet website, these phishing websites will request for your key phrases and other security details which will be received by the scammers, giving them access to your wallet.
In conclusion, compared to other financial institutions most DeFi wallets are totally safe and the security of your assets depends on your decision. It is important to do research before deciding on what wallets to use and also be careful about giving out your private information such as your private keys or password.
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