So, What’s all the fuss about Cryptocurrency Wallets?

While it is possible to get started in Cryptocurrency by storing your tokens on exchanges, it goes against the original tenet of blockchain; Taking personal responsibility and direct control of your assets, without any middle man or “custodian” of your funds.

This article looks beyond the standard “coins in wallet” view, at what’s actually going on, but hopefully without getting too technical. We then take a look at the various types of wallet and wallet security.

For ease of language, in this article, we use the term “Token” to refer to a stored virtual asset of any type.

What is a cryptocurrency wallet?

It’s perhaps simpler to begin with what a cryptocurrency wallet is not. Contrary to the popular analogy of storing electronic money in a digital wallet, it does not actually store any “money” (cryptocurrencies). The record of what cryptocurrency you own (i.e. stored at your address) is stored as unchangeable (immutable) ledger records on the blockchain.
So, what is stored in the wallet? The wallet contains an encrypted version of the keys needed to transfer tokens or coins from your address to another address. Your wallet’s keys consist of a Public Key, from which your address is derived and can be freely shared; and your Private Key, which must never be shared. Wallets are also able to read from the blockchain so it can display the balance of tokens stored at your wallet address.
Modern wallets incorporate more advanced features, such as buying/selling tokens, transaction history or running decentralised application (dApps), such as Media Content services or cryptocurrency exchanges.

How does it work?

To receive tokens, you need take no action other than passing your address to the sender, who then transfers the tokens to your address. The next time you open your wallet, you will see the received tokens on your token balance. You don’t need your wallet open in order to receive.

Sending tokens is where the wallet magic happens. To send tokens from your address to a friend’s recipient address, you must first correctly “sign” the transfer request (transaction) with your Private Key, which matches your address. Since only you have this Private Key, stored in your wallet, only your wallet can successfully sign. The mechanics of signing the transaction and sending it to the blockchain are performed automatically by your wallet.

The method used to keep the keys stored in your wallet safe is dependent on the type of wallet you choose and the level of security you need. This is the subject of the next section.

What Types of cryptocurrency wallets are there?

There are various types of cryptocurrency wallets. Each offering differing levels of security and ease of use.

• Paper wallet
  A paper wallet is the most secure, since once it is written down, there is no electronic access to it. It is also the least convenient to use and is typically used for long term storage of infrequently accessed funds.
• Software wallets
  Software wallets are available for desktop computers and phones (Android & iOS) and may be grouped into the following categories.
  - Apps installed on your device (keys are securely stored within the app and are protected by a strong password or biometric/2 Factor Authentication).
  - Web Wallet, running in a browser
  - Online apps where your keys are stored on a server and protected by a login process
• Hardware wallets
  A Hardware wallet consists of a hardware device (e.g. Ledger of Trezor), paired with a Software/Web Wallet to provide access to it. The strength of a Hardware wallet is that your private keys never leave the device, so this is the safest and most practical way to store your keys. If you lose/break your device, it’s simply a matter of replacing it and restoring the backup phrase.

Which wallet to use?

All wallet software is available for free download or direct access via the web. Different wallets are required for different blockchains. Our day-to-day focus is on Ethereum (ETH) and NEO, for these blockchains, we recommend the following:

ETH + ERC-20 Tokens

• MyEtherWallet Vintage with Metamask Plugin (for old school users 😄)
• MyEtherWallet with MEWconnect
• MyEtherWallet with Ledger Nano S or X (Hardware Wallet)

NEO + NEP-5 Tokens

• O3 (Desktop) with Ledger Nano S or X (Hardware Wallet)
• O3 (Desktop or Phone), with Encrypted Key + Passphrase

How do I keep my funds safe?

• Keep your computer’s Anti-virus/Anti-malware software up to date.
• Always keep your wallet software up to date
• Don’t get Phished — If you use a Web Wallet e.g. MEW, always access it via a stored, known good bookmark and always check the URL and site identifier (padlock & name) before entering your password.
• Backup your wallet — make a paper backup and store the backup offline in a safe location. If possible, restore using the backup onto a different device and ensure you can access your wallet and see the funds.
• Add additional security keys — If 2FA (Two factor Authentication) is available, use it.
• Never Share your Private Key — Your Private Key provides open access to the funds at your address, sharing you keys, deliberately or accidentally, gives the recipient total control of your funds.