Where to Keep Crypto: Types of Crypto Wallets
Have you heard this story of how someone bought Ledger from an unauthorized reseller, placed $30k bucks in crypto there, and then it melts away? It turned out that the seller replaced the microchip in the wallet, and it quietly sent the villain all the addresses and money with them. Have no idea whether the story is true but looks like it could have happened not even once.
Crypto is full of astonishing stories like the one about the man who threw away the hard drive with 7500 BTC, and it makes us alert and curious! What is the best place to trade? What is the most promising coin? And where to keep crypto?
While we’re still in progress with the first question (Rokkex is on the development stage). I can already share with you the answer to the last question.
Make yourself comfortable and listen :)
Some theory of crypto wallets
When creating a new wallet address, private key and public key are generated. The private key is a randomly generated code that is attached to the assets of your wallet and confirms possession of them. The public key or wallet address is created by calculating the hash sum of the private key.
Figuratively, you can compare a public key with a credit card on which money is stored, and a private key is a pin-code from a card.
You can tell someone the number to get the money, but it will not be the most sensible decision to report a PIN code. If you do not own private keys, then you do not control the funds on the wallet.
Hot, cold, and hardware crypto storage
The crypto wallets can be divided into two large groups and a small one. The small one is hardware wallets, which are like flash drives. At first, it seemed to everyone that this was an absolutely crazy idea; being constantly online is the part of the whole crypto, but now, in the light of various problems and hacking attacks, it seems that the majority turns to hardware.
For a start, I would like to compare the hot and cold storage of cryptocurrency so that you can more easily understand these two methods.
Hot storage (hot storage, hot wallet, online storage) — these are all online wallets that make it possible to spend cryptocurrency at any time and, of course, they should always be connected to the internet. The hot storage method is excellent for handling small amounts of money in large quantities. The threat of losing such a wallet and money on it should not be critical to a person as hot wallets are an easy target for hacker attacks and phishing sites, viruses, etc.
Types of hot wallets
- Web Wallets — the user gets access to them through the browser. Under this model, providers store information on their own servers, which implies the need for trust from the user. Examples: Blockchain.com, Green Address.
- Desktop wallets — downloadable software for personal computers. All data is stored on a local device, so users are responsible for their security. Examples: Exodus, Jaxx.
- Mobile wallets — applications for smartphones and tablets. They can store keys on remote servers in the same way as web wallets. You can also download them like desktop wallets. Examples: Mycelium, Copay.
Cold storage (cold storage, cold wallet, offline storage) — offline storage involves keeping a private key somewhere outside the internet. This storage method is mainly used to store large, if not huge amounts of money. In cold storage, the public address is used to receive funds, and the private key is used for withdrawal.
Types of cold wallets
I think you’ve already understood that this method naturally involves the presence of a paper sheet. In this paper sheet, your private key will be recorded. One of the most common methods for creating a paper wallet is using the bitaddress.org service.
Advantages of a paper wallet
- Storage does not depend on any technology (PC, USB flash drive …)
- It takes up very little space, you can even hide it between pages of a book (the main thing is not to forget about it and don’t donate a book to the library :))
- An unprotected leaflet can burn, get dirty, burn out in the sun, get wet, tear or decay
- Error while writing the key on the leaf will put everything under the tail
- Someone can take a picture of it
- Over the years, you may not understand your handwriting
This method requires a flash drive, preferably made of durable protective material, ideally moisture/waterproof
- You need to generate a new wallet.
- After that, write down the private key/seed phrase to restore/backup the wallet file to the USB flash drive.
- If you write down a private key or a phrase to restore (as this is text), then you can save this information in a PDF file that you can hide from reading with your password.
Advantages of USB-drive
- Also takes up little space
- No need to manually write something
- May be mechanically damaged, burned, get wet
- Data may be damaged due to strong magnetic field changes
- You can catch a virus
We will need a computer and a distribution kit of the cryptocurrency wallet downloaded from its official website. For example, for Bitcoin, it’s Bitcoin Core, and for Ethereum — Mist. Before installing, check your PC for viruses. The key to such a wallet will not be the usual mnemonic code, but the .dat file, which should not be stored in the same place as the wallet software. To increase security, a key file can be divided into several parts — fragment and store them in different places. Funds will be available only upon presentation of all parts.
Advantages of PC cold wallet
- Highly secured
- The software can weigh more than 100 GB.
- Synchronization with the network can take a long time, in the case of Bitcoin — several days.
This is a kind of cold wallets. Hardware wallet is a physical device on which special software is installed that allows you to store cryptocurrencies.
One can steal funds from such a wallet only when it is directly connected to a PC, which means he or she has to steal the hardware first. Some devices are equipped with a screen showing the address to which funds are sent, and a button to confirm the completion of the transaction. So even if your computer is infected with viruses, your funds will still be protected. Examples: Trezor, Ledger, KeepKey
Advantages of hardware wallet
- Allows you to make a transaction quickly
- Does not take much space
- Support for a large number of crypto wallets
- High-level private key protection
- The loss of a hardware wallet will deprive you of access to your money if the manufacturer does not provide for recovery
Oh yeah, and one more thing! For different cryptocurrency often there should be a separate wallet. There are wallets for several currencies at once, or for all currencies of a certain type (like the ERC20 token). Therefore, it happens that the cryptocurrency does not have an “official” wallet, but there is a recommended list — like, for example, Ripple (although we confess, the list is not very useful).
How to choose a crypto wallet
I’m sure that you often take a small wallet with a certain amount of money to the store, and keep large sums of money in your bank accounts or in safes so as not to worry about their safety. You’re unlikely to go for bread with all your capital :D
Similarly, the situation with cryptocurrency wallets. Cold ones are needed to store a large number of crypto safely, and hot ones are required for frequent transactions. Therefore, we believe that you need to use both types of wallets.
In general, whichever wallet you choose, follow simple cybersecurity rules: use two-factor authentication, do not tell anyone the private address of your private key under any circumstances. And for storing large amounts of money instead of a hot wallet, use cold storage, for example, hardware cryptography.
In turn, ROKKEX will do our best to secure your funds from our side.
P.S.- ROKKEX Demo Version is Live
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