Where do you store crypto after mining? How Crypto Wallets Work: Key Things To Know

In my previous blog, we read about how to mine cryptocurrency and the most effective ways to do it, let’s talk about storing cryptocurrency after you obtain them through crypto mining.

A San Francisco man has 300 million dollars worth of bitcoin, but he forgot the private key to access it. He has only two more guesses left to access them, if he gets it wrong he’ll get locked out of his account and will lose the bitcoin forever.

To avoid this kind of a nightmare it is suggested to keep your crypto assets safely. When you mine or buy cryptocurrency it is stored in a wallet.

When we hear the word “wallet” we immediately think of the pocket or purse accessories that hold our cash, IDs, credit, and debit cards.

However, unlike cash, digital currencies are not stored in a specific location nor do exist in a physical form.

A better way to think about a cryptocurrency wallet is as a key to access your funds. Each wallet has a private key associated with it. Because your cryptocurrencies are on the blockchain, which is a live ledger of transactions distributed all over the world, and are basically just assigned to your private key, so your wallet gives you access to the funds assigned to your “account”.

A private key is a password to the wallet. It is a long string of numbers and characters, once lost it can never be recovered. Yes, you read it right IT CAN NOT BE RECOVERED!

We will go through it with a very simplified analogy to help us wrap our heads around how cryptocurrency wallets work together.

Imagine your bank is the blockchain, your bank account number is the public key, your crypto wallet is your online banking app and your online banking app login credentials are your private key.

So, your bank records and tracks all of the transactions going to and from your bank account, just like the blockchain records and tracks all of the transactions going to and from your public key.

Using your online banking app, you are able to check the balance of your bank account and send or receive transactions, just like a cryptocurrency wallet allows you to check your balances and send or receive crypto.

However, in order to login into your online banking app, you need to first type in your username and password, which is like using your private key to access your cryptocurrency wallet.

A public key is similar to your bank account number, in that if you provide anyone with your bank account number, they can send you funds.

Keep in mind that public keys are also commonly known as “wallet addresses.”

However, having your bank account number alone would not allow someone to take funds from your account.

How does a public key work?

Giving your online banking app login credentials to someone would allow them to send funds from your bank account to somewhere else.

People can send you cryptocurrency using your public key or public wallet address, but they cannot access your funds by using your public key.

What happens when you give someone access to the private key?

If you give someone your private key, they can access your cryptocurrency and send it somewhere else.

Elon Musk recently tweeted — any crypto wallet that doesn’t give you your private keys should be avoided at all costs because those precious private keys are entrusted to a third party for more control

A cryptocurrency wallet has software that interacts with the blockchain, stores your public and private keys, monitors your cryptocurrency balances, and allows you to send and receive cryptocurrency.

What are the different types of Cryptocurrency wallets?

We can break wallets down into two categories: HOT and COLD.

A hot wallet creates and stores your private keys online, while cold wallets create and store your private keys offline.

Examples of hot wallets include desktop or mobile app software. These wallets operate on your computers and cell phones, which are connected to the internet. An example of a Hot Wallet is TRUST WALLET

When you set up these wallets, your private key is generated on a “hot” device, which just means it’s connected to the internet, which could be more vulnerable to being compromised.

DID YOU KNOW?

The LEAST secure way to store large investments in cryptocurrency for the long term is on an exchange!

Since it is online it is, therefore “hot”, hence more vulnerable to hacks. And to add cryptocurrency exchanges are HUGE targets for hackers since there are a ton of potential crypto that can be stolen.

The safest, and most ideal way to store significant amounts of cryptocurrency for the long term is Cold wallets. Cold wallets are also known as hardware wallets. Hardware wallets are designed to safely create and store your private key offline.

And when sending, receiving, or managing funds, you will need to use the hardware device and go through more security steps in general, which makes your funds less vulnerable to theft.

By creating and storing private keys with hardware wallets, your funds are safer from hackers and other potential security issues that hot software wallets are more likely to experience.

So storing your cryptocurrency on a hardware wallet is the safest, most secure way to manage your funds.

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