Developing resilient crypto wallets: security best practices for developers

Crypto wallet developers build the tools that investors rely on to manage their digital assets. It’s crucial work, but it carries serious weight because crypto wallets sit squarely in the crosshairs of hackers and fraudsters. Investors place immense trust in a wallet’s security, which is why it cannot just be a feature. It has to be the bedrock of any crypto wallet.

At CoinCover, we’ve pioneered blockchain protection since 2018, securing billions in digital assets. We understand the specific challenges that wallet developers face. In this article, we will talk about the critical importance of security, which common security risks exist in crypto wallet development, and which actionable wallet security best practices you can take if you want to build a resilient, hack-proof crypto wallet.

Why security is critical in crypto wallet development 

The crypto industry is unfortunately familiar with headlines announcing major breaches and staggering losses. In 2024 alone, an estimated $2.2 billion worth of crypto assets were stolen through hacking incidents, up 21% from 2023.

These attacks have become incredibly sophisticated. Bad actors leverage everything at their disposal, from advanced malware that exploits smart contract vulnerabilities to phishing campaigns that compromise private keys.

The stakes are incredibly high for wallet developers. A security breach not only leads to direct financial loss for investors, but also irrevocably damages trust in a wallet. Building security into the core of your wallet architecture from day one is paramount to protecting both your customers and your wallet’s reputation.

Common security risks in crypto wallet development  

Developers must be aware of several common vulnerabilities that attackers routinely exploit. Perhaps the most critical attack vector remains the private key. Compromised private keys grant complete control over someone’s digital assets, and they accounted for nearly 44% of stolen crypto value in 2024. Vulnerabilities arise from poor key generation using low entropy, insecure storage methods like keeping unencrypted keys on a device or in browser storage, accidental user exposure, or theft via malware and phishing.

Beyond direct key theft, wallets face risks from interactions with the broader blockchain ecosystem. For example, some dApps request excessive permissions, wanting broader access to wallet data or functions than necessary for their state purpose. 

Smart contract exploits are a significant concern too. An investor’s wallet may be secure, but that doesn’t matter if they inadvertently grant broad permissions (like unlimited token approvals) to a smart contract that’s designed to steal assets or with vulnerabilities that bad actors can exploit.

Phishing and social engineering attacks also remain highly effective, primarily targeting end customers by tricking them into revealing their credentials through fake websites or impersonation tactics. This is also called authorised push payment (APP) fraud. Clear warnings in your wallet design, combined with the use of a solution like CoinCover Protect, can eliminate these worries.

The nature of the wallet itself also introduces risks. Hot wallets are convenient, but present a much larger attack surface compared to offline cold storage. Because the private key is held online, they are more vulnerable to malware, keyloggers, and server-side breaches. Major incidents, like the $100 million exploit of the Atomic Wallet in June 2023, often involve compromised hot wallets or associated infrastructure.

Wallet security best practices

Building a resilient wallet requires a multi-layered security approach that focuses on prevention, detection, and recovery. A cornerstone for preventing wallet hacks, especially as a business, is through multi-signature (multi-sig) security. Requiring multiple private keys to authorise a transaction prevents a single point of failure. If one key is compromised, the funds remain secure, making multi-sig important for platforms that manage significant digital assets or offering institutional services.

Alternatively, multi-party computation (MPC) solves the same problem with advanced cryptography by splitting a private key across multiple parties off-chain. These parties collaboratively sign transactions without ever combining their key parts or revealing them to each other. MPC is increasingly favoured for its flexibility and smoother user experience, while still providing robust protection against single points of failure. 

Equally critical is secure key management. This starts with generation, demanding the use of cryptographically secure random number generators (CSRNGs) and well-vetted libraries. For storage, developers must avoid plain text or easily accessible locations. Best practices involve using hardware security modules (HSMs) for server-side operations, or secure enclaves within devices (like Apple's Secure Enclave or Android's TrustZone) for mobile wallets, isolating keys from potentially compromised operating systems. Robust encryption, such as AES-256, is mandatory.

But even securely stored keys can be lost. Implementing secure, user-friendly key backup and recovery mechanisms is vital. Good crypto wallet security solutions already exist for this problem. CoinCover Recover is a crypto key backup and recovery solution with secure backup vaults and recovery processes, so they never lose access to their crypto.

Regulatory adherence also plays a role in security. Ensuring compliance with KYC/AML regulations is vital for building trust and preventing the illicit use of crypto. Robust identity verification is one way to screen out malicious actors. Another is a robust crypto wallet security solution that scans transactions in real-time for suspicious activities, like CoinCover Protect.

Underpinning all these measures is secure cryptocurrency wallet development:

• Stick to a secure development lifecycle (SDL)
• Conduct rigorous code reviews
• Perform regular third-party security audits
• Sanitise your inputs
• Keep code dependencies updated

Lastly, never underestimate the importance of secure UX and customer education. Clear interfaces, explicit warnings before risky actions, giving customers the ability to simulate transactions, and educating them about common threats all significantly reduce the chance of a successful wallet hack.

How CoinCover helps developers build secure crypto wallets   

Integrating robust security measures can be complex and resource-intensive. CoinCover partners with wallet developers and crypto platforms to offer proven security solutions that improve protection without compromising on customer experience. This includes:

Real-time transaction screening: We provide an essential layer of defence through real-time monitoring and transaction screening capabilities. Our systems analyse activity against known threats and suspicious patterns, helping you detect and prevent unauthorised transactions before assets are lost, safeguarding both your customers and your platform's integrity.

• For your retail customers, our secure backup and assisted recovery services offer peace of mind, ensuring that they don't permanently lose assets due to lost keys or device failure. This builds immense trust and loyalty.
  
  
• For institutional clients and platforms managing significant assets, our disaster recovery solution provides enterprise-grade protection. It ensures uninterrupted access even in worst-case scenarios like compromised infrastructure or widespread key loss, meeting the stringent demands of regulated entities and high-value operations.

Future trends in crypto wallet security   

We’re currently seeing the following emerging trends in crypto wallets and wallet security: 

• Decentralised Identity (DID) solutions will offer more secure, user-controlled authentication methods, reducing investors’ reliance on traditional credentials.
  
  
• Easier and more seamless hardware wallet integrations will drive wider adoption of cold storage practices, improving protection against online threats. 
  
  
• There will be significant advancements in AI-powered threat detection, including in our own solutions, for faster identification of sophisticated fraud patterns and zero-day vulnerabilities.
  
  
• Formal verification techniques, like using mathematical proofs to validate code correctness, are becoming more accessible and will help ensure the integrity of smart contracts and wallet software.

Get started with secure crypto wallet development 

Building a secure crypto wallet is not a one-time job. It’s a continuous process that asks for vigilance, expertise, and the right tools. By adopting a security-first mindset and by implementing the best practices outlined above, you can create products that earn and maintain customer trust in this competitive, dynamic environment.

Protecting your customers is synonymous with protecting your business. Partner with CoinCover to integrate next-level security into your crypto wallet. Contact us today to explore our advanced fraud prevention and recovery solutions, and build a more secure future for your platform and its customers.