A Simple Guide To The Not-So-Simple Concept of Crypto Wallets
A common problem with cryptocurrency is the barrier to entry for everyday investors. Like in any industry, simplicity results in adoptability. This is why most “traders” turn to Coinbase, and only Coinbase, to purchase and hold their crypto portfolio. All you have to do is connect your bank account or charge card, press a couple of buttons, and boom, you are an official crypto investor. Unfortunately, Coinbase currently offers only four coins: Bitcoin, Bitcoin Cash, Ethereum, and Litecoin. Today, as this article is being written, there are 1523 listed cryptocurrencies on Coin Market Cap.By the time this article is finished, there will likely be a few more.
People are constantly looking for “the next Bitcoin”, or possibly some cheaper options to diversify their investment portfolio. For example, the average investor has probably heard of the coin with the third largest market cap, Ripple (XRP). Unfortunately you can’t just press a button and buy it. You have to verify your identity on an exchange, connect it with some app-based identification, and then learn an entirely foreign interface to be able to purchase the cryptocurrency. If you are someone who has taken the necessary steps to get on an exchange, you are probably aware of the vulnerabilities of cryptocurrency exchanges.
You know there are other options to keep your coins safe, but you don’t want to study up. Again, the barrier to entry prevents a lot of people from exploring the different types of wallets or options to actually move their portfolio to a safer location. It’s like leaving your laptop at a coffee shop while you use the bathroom, you are running the risk of it getting taken. As fun as it is to refresh Binance over and over, it is considered a huge risk to keep your money in an exchange. If you understand the risk, you need to transfer your investments to a secure wallet. Otherwise, you are just waiting for someone to pluck your Ethereum right out of the blockchain cloud or wherever it actually is. We at Alpha Token want you to be smart when it comes to keeping your cryptocurrency safe, so let’s go through what a wallet actually is, the differences, and the advantages and disadvantages of the different types.
What is a wallet?
A wallet is something that holds money. In cryptocurrency, a wallet is software that stores private and public keys that interact with various blockchain to enable users to send and receive digital currency. Blockgeeks have a great reference. In English, a wallet is where you technically “store” your crypto holdings. With blockchain technology you know that these currencies aren’t stored in any single location and don’t even take a physical form. Instead, they exists on the records of blockchain. You can actually visualize your holdings in a digital wallet. The balance will depend on the transfer of funds, matching private and public keys that increase or decrease the amounts depending on the transaction. Then all of this is recorded on the blockchain.
Hot Wallets are connected to the internet. Think of it like your checking account. Coinbase is a hot wallet. Binance is a hot wallet. Bittrex is a hot wallet. Every exchange where you can check your account is considered a hot wallet. Because hot wallets are always connected to the internet, they are far more vulnerable to theft. You are basically at the mercy of the technological infrastructure and safety of the exchange.
Advantages: Easier set up, they accept more tokens, and they are inexpensive or free.
Disadvantages: Not nearly as safe, hackable, easily influenced by regulation. One factor that makes cryptocurrency so volatile is the constant shadow of potential regulation and government influence.
Cold Wallets are NOT connected to the Internet. Consider a cold wallet to be offline storage in the form of something like a USB.
Disadvantages: Not as easy to access, expensive (avg. cost being $80), can’t hold every coin, few options. The most common “Cold Wallets” are listed below.
- Trezor — Stores BTC, BCH, BTG, ETH, ZCash, Dash
- Ledger Wallet — Stores BTC, BCH, BTG, ETH, ZCash, Ripple, Dash, ARK, Stellar
Do your own research and choose the wallet that works best for your holdings and your budget!
Other Types of Wallets:
Mobile: Like Coinbase, these are wallets that run on an app on your smart phone. Mobile wallets are usually simple to use, but cannot hold every cryptocurrency.
Online wallet: Online wallets are the public exchanges that hold your currencies. Because they are controlled by the actual exchange, they are more susceptible to theft, government regulation, and technological difficulties.
Desktop wallets: These are accessible from a single computer that they are installed on. Despite being one of the highest forms of security, you can lose all your funds if your computer gets hacked, broken, or stolen. Hint: don’t leave it unattended at a coffee shop.
Hardware wallets: These are “cold wallets” that store the user’s private key on a device like a USB. Hardware wallets are offline and offer the most security.
The bad news is there currently are not many great options for safe, cheap wallets that hold a variety of currencies.
The good news is that we at Alpha Token are coming out with our own wallet. The announcement is coming soon, so stay up to date on any one of the socials below to be the first to find out about when we launch our cryptowallet called The Alpha Wallet!
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You may have heard about cold and hot digital wallets but do you know how they are different from each other?medium.com
Can you explain the difference between a Hot Wallet and Cold Storage? Hot wallet refers to any cryptocurrency wallet…learn.onemonth.com