Crypto Wallets 101
Cryptocurrency has attracted lots of people in recent years. The growing number of people who own cryptocurrencies has created the need for a secure and safe cryptocurrency storage. If you are new to the digital currency market and currently thinking about the best way to store your money or a veteran who is in need of a refresher. Here is a guide to everything you need to know about crypto wallets:
What is a crypto wallet?
Cryptocurrencies do not exist in a physical form unlike the paper bills we have in circulation, you will need a special place for storing and manipulating them. A crypto wallet contains public and private keys and an address for you to send, receive and store cryptocurrencies like Bitcoin and ETH. The private key is used to access your wallet to allow you to make transactions or manipulate tokens in storage. NEVER SHARE YOUR PRIVATE KEY unless it is with someone you trust like a family member. Sharing your private key is akin to giving a thief full control of your bank account or they key to your safe.
The public key on the other hand is is not usually used and is instead hashed to produce the wallet address.
The wallet address is like a postal address, it is the part of the cryptocurrency wallet that is visible to people publicly and and should pose no risk if people know your wallet address. You need to share your wallet address in order for people or organizations to send cryptocurrency to your wallet. Without this, they will not be able to send cryptocurrency.
Why do you need a crypto wallet?
When you buy any kind of cryptocurrency, it is not actually stored in the wallet. Since cryptocurrencies have no physical form, they cannot really be “stored” anywhere. What you get is a secure digital code or private key showing your proof of ownership of a cryptocurrency. This key is a code linked to a certain cryptocurrency. Your crypto wallet also serves as your personal ledger of transactions using cryptocurrencies.
Types of crypto wallets
Crypto wallets have different kinds according to accessibility, convenience and security. You can choose to have your cryptocurrency stored in either software wallet, hardware wallet or paper wallet. Hot and cold wallets are also popular terms for crypto storage. A hot wallet simply means a crypto wallet that is connected to the Internet while a cold wallet is not connected unless you connect the wallet to the internet for when you want to transact some crypto. If you want to hold on to your cryptocurrencies for a longer period, a cold or offline wallet is best for storage.
- Software Wallet or Hot Wallet
Cryptocurrency can be stored using a type of application installed on your computer or mobile device connected to the internet. A software wallet can also take the form of a website or online wallet provider that you access through the internet. Some popular examples of software wallets are MyEtherwallet (MEW) for Etherium and Electrum for Bitcoin.
Several companies or services offering online crypto wallets have servers that are always online. Depending on the service you choose, a service provider can offer different features like integration and more layers of authentication for added security.
Aside from web services, cryptocurrencies can also be stored in mobile wallets. A mobile crypto wallet is convenient for some users because of their convenience and ease of use. Using an app, you can access your digital currencies while on the go as long as you are connected to the Internet. In the future, ico-check will have an article covering software wallets in more detail, so stay tuned!
- Hardware Wallet or Cold Wallet
A hardware crypto wallet is regarded as the most secure way of storing digital currencies. Unlike, software-based crypto wallets, a hardware wallet cannot be hacked as long as it is offline. It works by storing the private keys of your cryptocurrencies on a hardware device. With this type of wallet, you can simply plug your hardware device to a computer connected to the Internet and enter a security code to access your cryptocurrency.
Hardware crypto wallets like Trezor and Ledger are recommended by users for long term storage of digital currencies. Unlike software-based wallets, a hardware crypto wallet keeps your cryptocurrencies away from online hackers. The ico-check team will expound on hardware wallets in a later article so keep watch!
If you’re not comfortable with either of the two types of crypto wallets, there’s always the paper cryptocurrency wallet This is basically a document containing a physically printed copy of your private and public keys to access your cryptocurrencies.
A paper wallet can be generated from service providers. The keys contain printed QR codes, passphrases or a string of numbers and letters that you can scan or input to a software crypto wallet to transact your cryptocurrencies. Some service providers offer more security by offering users holographic labels or tamper-proof designs. Having a paper wallet makes you immune from hackers and malware that sometimes plague hot wallets.
How to keep your crypto wallet safe and secure?
The security level of your crypto wallet depends on what kind of wallet you use and the company providing the service. When compared to a cold wallet, a hot wallet poses higher risks for cryptocurrency storage. Hot wallets or those connected to the Internet, may expose your stored digital currencies to software vulnerabilities that hackers may use to their advantage to steal your cryptocurrency. Although cold wallets are not susceptible to malware and hacker attacks, you will still need to observe safety measures and be diligent in storing your digital currencies.
- Keep a backup of your crypto wallet when using a software provided by a third party service provider. Market experts advise the storage of small increments of cryptocurrencies online on your mobile or computer for daily transactions. The majority of your funds should be kept in a cold wallet.
- Make sure the software you’re using as well as your computer or mobile is up to date with the latest security updates or patches.
- Beware of malware in browser extensions when using online crypto wallets. You may want to consider using a different browser for your daily online activities, or installing a cryptocurrency browser extension such as Cryptonite that notifies you of phishing attempts.
- Stay away from suspicious virtual exchange services. Do your research first before trusting them with your digital currencies. You may wake up one day with the virtual exchange running away with your funds.
- Secure your mobile devices containing your private keys and keep them away from any risk of physical damage or theft.
No matter what you choose for a crypto wallet, always remember that when you lose your private keys, you will no longer have access to your cryptocurrency so keep your private keys safe.
The ico-check team hopes this has been a helpfully informative article.
Best regards from the ico-check team!