Guide to CryptoCurrency Wallets
Here’s primer to help you choose how to properly store your cryptocurrency
Cryptocurrency wallets are not a difficult concept, but there is a lot of fascinating technology underpinning how they work. Simply, cryptocurrency wallets hold your private and public keys, allowing you to monitor your cryptocurrency balance, and send and receive coins through the blockchain. They are similar to an online bank account.
Keys
Cryptocurrency wallets, unlike real wallets, don’t hold any money within them. Your private keys are like your PIN number for your bank account. They are a digital signature that only the account holder has. Your public keys act as account numbers where people can see where they have sent cryptocurrency to or received cryptocurrency from.
When you send coins, you send value. In order for you to receive the cryptocurrency sent to you, your private keys must match the public key the sender sent the money to.
It is vital to keep your private keys PRIVATE. Only you should have access to them, and you should never lose them as you have no “password recovery” for cryptocurrency wallets due to the nature of blockchain.
Hot Storage vs. Cold Storage
Before we get to the breakdown of the wallet types, it’s important to know the difference between hot and cold storage.
Hot storage is when your wallet is on a device directly connected to the internet, such as desktop/mobile and exchange/cloud wallets. You should view hot storage wallets like cash that you carry around with you- easy to access, easy to lose, easy to damage and you don’t carry too much around.
Cold storage is when your wallet is completely offline. They are not 100% safe, but they are a safer alternative, especially for long term holding of cryptocurrency. They make it difficult for hackers and thieves to access funds.
Types of Wallets
Here a few types of cryptocurrency wallets:
Online (Exchange)
Desktop/Mobile
Paper
Hardware
There are pros and cons of each type, as well as some good wallets to use in each case.
These days, many wallets hold multiple cryptocurrencies.
If you are interested in holding multiple cryptocurrencies, look into which wallets hold your currencies of choice and choose accordingly.
Online
Online wallets are ran on the cloud. This means they are accessible from any device that is connected to the cloud in any location.
Pros
- Convenient
- Easily accessible
Cons
- Controlled by a third party that controls the cloud platform.
- More vulnerable to corruption, hacks and theft.
When to use it
- Store the bare minimum of your coins needed for trading here. Always remember to move large amounts to a different wallet.
Examples
- Blockchain.info
- Green Address
- Coinbase
Exchange Wallets (Online)
When you join a cryptocurrency exchange, such as Binance or Coinbase, you automatically receive an exchange hosted wallet (cloud wallet). These are a type of online wallet.
Many people fall into the mistake of using the exchange wallet as their permanent wallet. This is a bad solution: exchange -held wallets host your private and public keys and you DO NOT have control over them. Having control of the keys means having control of the coins
Exchanges are a third party that exchanges value in a centralized place, like a bank; they are a trusted party. They are at risk of shutting down, being hacked and being bad actors, especially because of the lack of regulation around them. You can have control over your funds with your own wallet.
Desktop/ Mobile
Desktop/Mobile wallets come in the form of software that you download and run on your own computer or mobile device. They are only accessible by the device which the program is ran on.
Pros
- High levels of security
- Rely on yourself to keep keys safe
Cons
- May lose all of your coins if the computer is hacked or receives a virus.
- Must be on the device the wallet was downloaded to.
When to use it
- If you care about cybersecurity and trade often.
Examples
- Electrum
- Bitcoin Core
- Jaxx
- Exodus
- Mycelium
Paper
Paper wallets are a simple printout of your public and private keys which you must secure and store. The keys are usually printed as QR codes.
Pros
- Complete control, you are the only person to have any access
- Cheap/free to manage
- No worries about cybersecurity or hacking
Cons
- You are the master of your fate, if you lose your keys, they’re gone forever.
When to use it
- If you are not good with cybersecurity, are organized and plan to hold your coins for a long time, this is a good method.
Examples
- Myetherwallet.com
- Walletgenerator.net
- bitcoinpaperwallet.com
Hardware
Hardware wallets make transactions online but store the clients private and public keys in a piece of hardware that can be taken offline, such as a USB.
Pros
- Compatible with multiple online interfaces.
- Transactions are easy: plug in to internet-connected device, enter PIN, trade.
Cons
- You are the master of your fate, if you lose your hardware, your keys are gone forever..
When to use it
- If you are very big on cybersecurity and hold a large amount of coins, but still want to trade frequently.
Examples
- Ledger Nano S
- Trezor
- KeepKey
Tips and Tricks
Here are a few tips you can use to keep your coins safe:
- Backup your wallet! You can use a paper wallet as a good backup or even a USB wallet.
- Regularly Update Software: Update the software on all the devices you use to access your funds, as well as the software on any hardware or desktop/mobile platform that you use.
- Make good passwords! Make unique, hard to answer and long passwords to access your account. Don’t use your birthday or mother’s maiden name!
