To trade or hold crypto, you'll need a cryptocurrency wallet. Crypto wallets are identified via addresses, which can come in a number of forms. One such form, a vanity address, offers some interesting capabilities but may pose a security risk.So, what is a crypto vanity address, and is it unsafe?

What Is a Crypto Vanity Address?

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Image Credit: Bybit/Flickr

Before getting into crypto vanity addresses, it's best that crypto wallet addresses themselves are understood. A crypto wallet address is a string of letters and numbers used to identify a specific cryptocurrency wallet. All crypto wallets have addresses, with some blockchains displaying them publicly and others keeping them private (such as privacy-focused Monero).

Crypto vanity addresses go a step beyond typical addresses because they let the user personalize their wallet address. In other words, it lets users create their own address that stands out from typical addresses. More specifically, vanity addresses let you personalize the first part of your address, say with your name, a fun phrase, or something similar.

Vanity addresses share many similarities with regular addresses. Most importantly, the wallets of both address types have both a public and private key, two key elements in holding and trading crypto. How these wallet addresses work is the same, i.e., they can send and receive funds in the same way. It's purely the address itself that differentiates the two.

The most well-known example of a crypto vanity address at the time of writing is that offered for Bitcoin. If you want a Bitcoin vanity address, there are numerous generators out there that you can use. These generators often come in the form of websites and allow you to create your own Bitcoin vanity address, which you must then import onto your chosen BTC wallet.

However, if you want to generate a vanity address in a safer way, you can do so without using an online generator. But this process can be challenging and requires some technical know-how.

Various wallet providers, such as Electrum, Blockchain.com, and BTC.com's wallet support vanity addresses.

The 3 Risks of Crypto Vanity Addresses

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While crypto vanity addresses offer users convenience and personalization, there are also some security considerations to make here. After all, your addresses highlight the wallet in which your crypto is kept, so it's important that you know it's secure. So, what risks are posed here?

1. Identity Exposure

A key risk associated with crypto vanity addresses is their potential to highlight your true identity. On a typical blockchain, senders and receivers within transactions are only displayed via their wallet addresses. Wallet addresses themselves are just lines of random characters, so it's impossible to determine the identity of the wallet owner by simply looking at this.

While there are ways through which one's identity can be found via their wallet address, this is not a quick and simple process. However, including a personal word or phrase at the start of your address increases the chance of a malicious actor finding out who you are.

In general, using a vanity address could make it that much easier for a cybercriminal to find and target your wallet, especially if you're holding a large amount of crypto. So, if you're a high-profile crypto trader, using a vanity address could lead to huge financial loss if your wallet becomes the target of a hack.

2. Misdirected Transactions

What's more, generating a unique address similar to someone else's may cause a mix-up, in which a person accidentally sends funds to the wrong wallet. Because crypto transactions are irreversible, this could pose a major problem, especially when large sums of crypto are being sent.

A cybercriminal may even try to make their vanity address similar to a well-known wallet to confuse people, increasing the chance of a misdirected transaction. In such a scenario, an unknowing trader could send funds to the wrong address, possibly multiple times, before realizing something is wrong.

3. Shady Generators

You should also note that if you use an automatic generator to create a vanity address, there's always a chance that the generator site is holding certain sensitive data relating to your address, such as the wallet's private key.

Only you should have possession of your private key, as this piece of data is the gateway to your wallet and the funds held within it. Private keys are used to authorize transactions, meaning someone could conduct a withdrawal of funds from your wallet if they have your private key. Of course, this can lead to severe consequences, as you could lose all your crypto in a matter of minutes.

Have Vanity Addresses Been Hacked?

So, has a vanity address ever been targeted in a hack? Unfortunately, yes.

In September 2022, a crypto user lost almost one million dollars when their vanity address was hacked. The hack, reported by PeckShield alert, resulted in the loss of 732 ETH (worth $950,000 at the time).

The hacked vanity address was created by Profanity, an address generator. This huge hack fueled concerns about vanity addresses and how they put users at risk.

When Should You Use a Crypto Vanity Address?

You may or may not like the sound of crypto vanity addresses, but are there any scenarios in which you'd need to use one?

In short, not really. Crypto vanity addresses are more of a fun option than anything else and provide no extra functionality over normal wallet addresses. The added personalization is really all you're getting here.

However, if you run a business using cryptocurrency and have funds being sent to your wallet on a very regular basis, it may be useful to put your company name at the start of your address to make it easily recognizable.

However, if you're a casual crypto trader and you want to keep your privacy and security at a maximum, it's best to use a typical wallet address. Or, if you want to take things further, a private wallet address (such as a stealth address). If you don't need a vanity address, you may be unnecessarily exposing yourself to hacks and theft.

Crypto Vanity Addresses May Expose You to Hacks

While vanity addresses haven't been confirmed as a huge risk, there seems to be an issue with security and anonymity when it comes to personalizing your crypto address in this way. So, unless you have a very good reason for using a personalized wallet address, think twice before switching to a vanity address, as it may land you in hot water.