The Evolution of Crypto Wallets
And the best way to store your digital assets
I remember the first time I got twenty bucks. I was probably around 8 years old, and my sisters and I had spent all week selling lemonade to the people who drove down out neighborhood street. I’m sure most of the purchases of our watery, made-from-powder lemonade were pity purchases, but we collected the money we earned proudly and with enthusiasm. We used one of my sister’s pencil boxes to store our cash pile — one of those pink, glittery boxes with a snap on the front and covered with Barbie and Disney princess stickers.
After each lemonade sale, we would carefully place the coins and bills into the box, anxiously waiting for the day when we’d have enough to buy the new Polly Pocket house we all wanted so badly. Our excitement grew as our money pile grew, and we all felt the importance keeping that money safe in the pink pencil box.
In the time that’s passed since my lemonade-selling days, my approach to storing my money has changed drastically in both practicality and security. The one thing that hasn’t changed, though, is that drive to keep my money safe.
As I’ve entered into the cryptosphere, my approach to storing my digital assets has changed once more. I’ve heard a lot about different storage methods and learned a lot about the safest way to store my crypto. There are millions of different ways to store your crypto, and each method has its own advantages and disadvantages. How you decide to store your assets really depends on what you what you want to with your cryptocurrency. In this article, I’ll discuss a few common approaches to storing crypto and what kind of situations they’re good for.
Wallets and Keys
A traditional wallet is a generally thought of as safe place to store your stuff — good place to keep some cash, your credit cards, etc. There is a limit to the amount of money you’d want to keep in a personal wallet, though. You probably wouldn’t want to carry around $100,000,000 worth of cash, so you’d store that amount in a bank, a place with a extra security to keep your money safe. This same principle of wallets and safe storage used with fiat currency is the same in the cryptosphere, with a few unique twists to the system.
Unlike physical wallets, crypto wallets don’t actually store coins (read here for a more detailed description), but they protect to very important pieces of information, called public and private keys. To understand the purpose of public and private keys, think of a cryptocurrency wallet like a P.O. box. You can give the address of the P.O. box to anyone — to family members, coworkers, and even random people on the street. What can you do with a P.O. box address? Not much, besides send mail to it. On the other hand, think about the owner of the P.O. box. Because they have a key to the box, they can open it, remove mail from it, and send mail from it. They have complete control over what stays and what leaves the P.O. box.
A cryptocurrency wallet is the same. The private keys are like the key to the P.O. box. A private key is a long, 64 character that is generated the moment a wallet is created, and looks like this:
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Whoever has the private keys to a wallet has complete control over the coins within it. They can leave them there, or send them all to another account.
The public key is like the address of the P.O. box. With the public key, anyone can send coins to the account, but they can’t actually access the funds within the account. A public key is cryptographically derived from the private key, and is a little bit shorter:
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Whoever has the private keys has complete control of the coins.
In the cryptosphere, there aren’t any heavily protected banks with insurance to keep your assets safe. You and you alone are responsible for the safety of your crypto, and there are a lot of different methods to do so. As you consider your storage strategy, think about how much you’ll be storing in the wallet, how you want to use the coins within the wallet, and how accessible they need to be.
Hot Storage
Software wallets are by far the most accessible and easy to use wallets, and are good for storing the coins used for active trading. Any online, desktop, or mobile wallet are considered software wallets, and are often called “hot storage,” which means that they’re connected to the internet. The internet connections makes using the wallet extremely convenient for trading and exchanging, but also makes them much more susceptible to hacking and computer malfunctions.
It’s also important to only store and trade coins on safe exchanges. In just the last three months, $450 million worth of crypto was hacked from Coincheck, a popular Japanese exchange, $80 million from the Slovenian exchange NiceHash, and the Italian exchange BitGrail lost $190 million.
Whenever you use a software wallet, make sure you only access it from secure personal computers, and use complicated passwords to prevent hackers from getting into your account.
Cold Storage
Larger amounts of coins should be kept in cold storage, which means they are kept completely off of the internet. Two common types of cold storage are paper and hardware wallets.
Paper
A paper wallet involves printing out your public and private keys onto a piece of paper, which can be accessed through a QR code. You’d want to store paper wallets in locations safe from thieves and from unexpected disasters. Because paper wallets are stored completely offline and not even stored on hardware, they’re protected from hackers and computer malfunctions. Make sure you create your wallets on an open source site that allows you to create the wallet offline. A few popular wallet-creators are bitcoinpaperwallet.com, bitaddress.org, and walletgenerator.net. Make sure you do research on the credibility of the generator you use, and make backups of your wallets.
To avoid the physical vulnerability of storing keys on paper, some people have created physical coins with their private and public keys, while others simply punch out their keys into a metal sheet. Options like cryptosteel allow users to create wallets that are made of stainless steel to prevent damage from time, fire, or water damage.
Because paper wallets are a lot less accessible, they are best for storing large amounts of coins you want to hodl.
Hardware
A hardware wallet combines a lot of the security of paper wallets with some of the advantages of software. Unlike software, a hardware wallet doesn’t store any of your coins online, which means that your crypto should be a lot safer, but is easier to access than a paper wallet. As you decide which type of wallet to use to store your crypto, make sure you do plenty of research and understand the strengths and weaknesses of each type, and know which one is best for you and your trading strategy. Some popular hardware wallets are the Ledger Nano S and the Trezor Wallet. Make sure you trust the company that makes the wallet, and never use a second-hand wallet, as the previous owner could still have access to the wallet.
Hardware wallets have both a private key and something called a recovery seed associated with the wallet. The recovery seed is a list of random words that you can use to recover your private key if you lose it, so make sure you save your seed in an equally secure place (or use a mnemonic device to make sure you remember it correctly).
Takeaway
Cryptowallets are powerful tools in protecting your digital assets, but remember, whoever has the private key owns the coins. If you lose the private key to a wallet, there is no way to access those funds, so make sure you keep it in a place you and you alone will be able to access it.
Neuryx Club
Cryptocurrency investment is an exciting world of opportunity, growth, and potential, and represents the future. Entering the cryptosphere is as much about learning as it is investing, and the important thing is not to invest more, but to invest smarter.
Neuryx Club is an AI-powered crypto trading assistant that offers exclusive analytics and advanced trading tools to help you stay on top of your crypto game and trade smarter.
