Because cryptocurrency users enjoy much anonymity, ownership of the coin is determined by whoever holds the codes for it. That means if it’s gone, it’s most usually just that—gone. You may be able to track the address of the last wallet, but that will be futile.
If you have kept you coin at a crypto exchange wallet and that exchange was hacked, you can hope for some form of compensation.
What Hackers Do
Basically, hackers take advantage of simple human flaws.
The most popular type of hacking is phishing. Here’s how it usually works: hackers send you a fake-email, making you believe it’s from your wallet service. It contains a fake URL that may differ by only one or several letters from the real URL of your wallet service. Sometimes hackers even redirect the right URL to a fake one when you’re entering the online wallet.
Aside from phishing, hackers can also exploit simple human mistakes, which include keeping private keys in mail, exposing keys in public, using unprotected networks that allow hackers sift through the data and find the password.
Depending on the type of wallet you use, there are various ways to recover your keys for your wallet.
Most popular software wallets have it that you use only a backup phrase, consisting of 12 words, in case you forget your keys. Just uninstall the app, install it back using the backup phrase, and then create a new pin. Meanwhile, there are wallets that offer Touch/Face ID aside from or instead of pin codes.
Of course, if you forget your backup phrase, you’ve lost access to the wallet. It’s hopeless.
Wallets usually set a new address every time you sign up, and it’s for its safety. This process if called HD-safe, or “hierarchical deterministic” safe. This means that every time you send or receive funds, a new address will be generated.
This makes your transactions more difficult to track; it also makes it more difficult for hackers to calculate the actual amount of money you have in your wallet.
Pro tip: if you need to transfer big amount coins, it’s a good idea to do it in several transactions.
The Ideal Type of Wallet
It is quite tough to find an ideal type of wallet with the “best” security since all wallets differ by online and offline types. The security mechanisms are different for each type of wallet.
A huge slice of the existing online cloud wallets, or the so called “hot” wallets, uses two-factor authentication in case hackers try to enter your email.
“Warm” wallets, which are the ones you can install as software on your computer or as an app to your phone smartphone, use 12-word backup phrase and pin codes.
“Cold” wallets are hardware that is located at a USB stick or a special gadget. These are by far considered the most secure, but recent reports would show they’re also not foolproof.