Online wallets are a convenient way of storing and managing funds. But hackers and their untiring efforts to break through any security measure are concerning. Despite the convenience, people wonder if online wallets are as safe as they appear. After all, is the convenience worth potentially losing all of your funds?
The reasons for using an online wallet are clear: you don’t have to carry cash or cards that can easily be stolen, and you can pay, receive, or send money with one tap on your phone. So why shouldn’t you keep your money in online wallets?
Reasons Why You Should Avoid Keeping Your Money in Online Wallets
There are many popular payment processors that have been around for a long time such as PayPal, Wise, Payoneer and perhaps a cryptocurrency exchange called Binance too. But the question arises, is it really worth keeping your money on these online platforms? Keeping in mind the recent collapse of Silicon Valley Bank, Signature Bank collapse, FTX, Mt. Gox and many others in last couple of years.
1. Security Breaches
A security breach is the another biggest threat here. Companies try to make online wallets safe by offering two-factor authentication and one-time passwords, and encoding personal information so a third party cannot access it. Nevertheless, hackers are relentless.
Hackers frequently use the following strategies:
Phishing: Misleading/fake links are sent to
unsuspecting users requiring them to fill in their account information and passwords. These are then easily traced and hacked.
Malware: hackers use malicious software (backdoor trojan) to illegally enter computer systems such as Windows and Mac/iOS. They can then copy the user’s account information and access their online wallets.
Social Engineering: It is apparently the most successful method, hackers follow your online pattern through stalking and using psychological methods to gather/exploit your personal information and thereby emptying your online accounts. There are many vectors to such attacks, which include impersonating as your family member, suspicious download links, emotionally blackmailing you for charity. In this method, the victim willingly provides the personal information to the hacker, which often happens due user not being tech literate (tech savvy).
2. Rise of Cryptocurrency (Blockchain Technology)
Crypto has been around for a while, but it’s yet to be adapted mainstream due to steep learning curve for new users, and different type of protocols/networks which offer wide range of services such as DeFi, NFT creation, DAO, Loans (Lending/borrowing) and securing the network. Most internet users are not aware of how it works and significance of a wallet’s private key, as losing one can make you lose all funds in an instant.
Cryptocurrency (Bitcoin) is double edged sword, it could bring great profits if invested at right time (usually a 70%+ drop). On the other hand, it is a magnet for scammers who try to message/contact you as soon you reveal your portfolio/assets in order to steal your coins.
3. Choosing the Right Digital Wallet
It is crucial to choose a trustworthy digital wallet provider so your funds remain safe. The FTX scam is a good example to illustrate this. FTX was a highly popular cryptocurrency exchange platform – until its collapse in 2022.
The company was exposed for stealing account holders’ money for private benefits (the CEO used FTX funds to purchase extravagant luxury items and pay for over-the-top marketing campaigns such as Super Bowl ads!). This mismanagement of funds and the consequent withdrawal of funds caused FTX owners to file for bankruptcy. Let’s also mention that FTX disabled the option for users to withdraw money during this chaos, which means so many people could not access their money.
It is best to choose a platform that is not only trusted by other users and has a spotless reputation but also has been around for a while. Binance, the largest cryptocurrency exchange in the world, checks all of these boxes as it was initiated in 2017 and has only risen in popularity since. Another good example is PayPal, one of the oldest online banks but is still trusted by millions of users worldwide.
It is worth noting that, cryptocurrencies exchanges are not supposed to be wallets for storing your crypto assets. Cryptocurrency as a whole, has yet to be approved and regulated by governments worldwide. So, before diving into the world of ‘crypto coins’, make sure you know what you are doing. The cryptocurrency exchanges and so called fiat banks (banking partners) may escape with your hard earned money, also known as an exit scam.
4. Phone Security and Accessibility
Phone security is critical for keeping your online wallets safe. All phones now offer multiple security features such as two-step verification (2FA Guide), face ID, password, and fingerprint scan. It’s a good idea to activate all of the security features provided so if you lose access to your phone, your online wallet will still be safe.
While online wallets have eliminated the need to carry cash or cards, they still require you to carry something. They increase phone dependency so if you forget your phone at home or forgot to charge it before you left home, you won’t be able to pay for anything either.
5. Difficult to Choose Right Digital Wallet and Merchants
You cannot pay for everything with an online wallet. Some merchants, especially small businesses, cannot afford to provide this facility, rendering your online wallet useless.
New payment processors, online wallets, payment gateways appear every now and then, promising you low transfer fees or giving attractive rewards, cashbacks and prepaid cards. It is important to do proper research, read online review thoroughly before registering/depositing your money on these platforms. Also, it does not hurt to ask someone tech savvy, ask around! people are generally helpful.
6. Exorbitant Fees
Lastly, online wallets may charge a small fee with every transaction, especially when transferring money to your bank account. For example, Venmo charges 1.5% of the total funds being withdrawn to a bank account, Payoneer, PayPal and stripe has also upped their to making it less attractive for merchants. These small payments may initially seem insignificant but can add up over time. Nevertheless, using your money with negligible fee will always be preferable.
Online wallets are convenient but their safety depends on the users. They must enable all security features on their phone and mobile applications; they should also look out for hacking attempts such as phishing, social engineering. In addition, limited merchants offer the facilities to pay digitally, and losing your phone can mean losing your wallet as well.
Personally, I have lost thousands of dollars during my life’s internet journey in last 2 decades. Therefore, I only keep a small amount in online wallets and generate a new reloadable virtual Visa/Mastercard when making payment to a lesser known online store. So that way, even if my card details are compromised, my main bank account remains safe. For cryptocurrency, I try to avoid keeping my coins on centralized exchanges as much as possible. Like they say ‘Not Your Keys, Not your Coins‘
To conclude, using a combination of payment methods is the best route to take. Don’t put all your eggs in one basket. Divide the risk by putting your portfolio in stocks, cash, gold, crypto wallets and real estate. Do Not Keep All of your Wealth Online.