Crypto Burner Wallets And How They Can Protect You From Exploits

By CNBCTV18.comSep 22, 2022, 07:51 AM IST (Published)


Burner wallets are like any other crypto wallet, only they are not permanent. They are created and used for specific purposes such as minting NFTs or making transactions on a dApp.

Cyber safety is paramount for individuals who actively dabble in cryptocurrency or NFTs. As such, one of the first things you must protect is your crypto wallet. This is because, trading, investing, transacting and mining, all require a cryptocurrency wallet. And with crypto crimes on the rise, securing your digital assets is all the more critical. Here is where crypto burner wallets come in.

You might have often seen a character using a “burner phone” in many movies and TV shows. Usually, this phone is used for illicit activities; once the job is done, the phone is hidden or destroyed. Crypto burner wallets are similar, although they are seldom used for unethical activities.

Burner wallets are like any other crypto wallet, only they are not permanent. They are created and used for specific purposes such as minting NFTs or making transactions on a dApp. Users can transfer funds from their main wallet to these burner wallets and then use them for various transactions.

The primary purpose of using burner wallets is to keep your actual crypto holdings hidden from the outside world. If you transact using your main wallet, the public key can be extrapolated from a block explorer and anyone can view your holdings. However, when you use a burner wallet, people can only view the limited assets stored within it. Burner wallets also add safety; you can transact without disturbing the major investments stored in your primary wallet.

Let’s look at some advantages of using a crypto burner wallet. Say, for instance, you are interacting with a dApp for the first time, and you use a burner wallet for your transactions. If malicious code is hidden in the platform’s smart contracts, your actual holdings will remain untouched, thanks to the burner wallet. Crypto burner wallets are also preferably used for minting NFTs since there’s always the possibility that the minting platform could be a scam.

Burner wallets also prove to be helpful when visiting unknown places that accept crypto payments. These wallets are generally accessible through a smartphone and usually have a QR code scanner. Therefore, you can easily pull out your phone and make petty payments. Also, when it comes to paying for goods and services, you’d rather pay through a burner wallet than erroneously punch in an extra digit and risk significant losses through your primary wallet. This is also why crypto burner wallets are used to pay a network’s gas fees.

Burner wallets were the brainchild of Ethereum dev Austin Griffith. He developed these wallets in 2018 to make daily transactions more convenient and safer. While specialised burners still exist today, you can also use any wallet as your burner wallet. The basic premise is to create a separate wallet from your main wallet. It should contain minimal amounts of crypto, perhaps just enough to cover planned transactions.

Here are some things to keep in mind when using a burner wallet:

1. A burner wallet is a temporary wallet and must not contain a large share of your total holdings. Keep your permanent wallet address separate.

2. If security is a major concern, you should keep switching your burner wallet periodically or sporadically.

3. A cold wallet (a hardware wallet) works best for long-term storage, while your secondary burner wallet can be used for your daily trading, investing, or transacting activity.

So far, there aren’t many use cases that warrant the need for a burner wallet, as the crypto industry is still developing and trying out new things. When the technology matures and becomes aligned with mainstream finance, the popularity of burner wallets is likely to rise.

However, the best way to avoid crypto scams and losses is to remain informed and conduct thorough research before investing and transacting in cryptocurrencies. Because, while burner wallets act as a safety net, consciously steering clear of red flags is the most effective solution to protect your digital assets.