Crypto Wallet - How to choose one that suits you | If you're walking around with dollars in your pocket, chances that you keep them nicely in your wallet is hundred percent (100%) especially if it's a BIG CASH. If you're not accustomed to carrying around cash, then you probably keep your dollars stored at the bank and have a card in your wallet to spend those dollars.
The same idea applies to cryptocurrencies. If you're going to hold digital currency, for example, Bitcoin Cash or Bat Token Airdrop, you're going to need a wallet to store, send and receive your coins. Just like traditional methods of storing money, crypto wallets exist in different forms with different purposes.
Some wallets can simply be a software wallet running on your mobile device or desktop computer. Others exist as a hardware wallet, a flash drive or even just a piece of paper. Some digital currencies have their own dedicated trusted wallets while others can support a multitude of different crypto’s in bulk.
If you're going to be buying, selling or trading cryptocurrencies, you will need at least one digital wallet for your assets. Owners also generally hold most of the responsibility for their own wallet, meaning that owners can potentially lose their wallet and cryptocurrencies with no recourse. So it's very important to understand how's they work.
What Is Cryptocurrency Wallet ?
Before getting too deep into the different types of wallets and which one is right for you, it’s important to understand what a crypto wallet is and how they work.
Let’s use Bitcoin as an easy example. Bitcoin transactions are recorded on the Bitcoin blockchain ledger, which tracks all of the wallet addresses, balances and transactions for Bitcoin. You can think of the blockchain as a huge database or spreadsheet that is shared with everyone on the Bitcoin network. Anyone with the updated blockchain ledger can review balances and transaction history associated with a specific wallet address.
If you want to send some Bitcoin from one wallet address to another, you need the private key associated with that address. This is because the crypto wallet doesn’t actually store the Bitcoin. Instead, the wallet stores the private key associated with the address. So if you have access to the wallet, you have the private key and can send Bitcoin from that address.
So let’s assume you own one Bitcoin and have it stored in a wallet. The wallet holds the private key to your wallet address that has the one Bitcoin recorded on the blockchain ledger. When you go to transfer the one Bitcoin, the wallet simply gives you access to the private key, essentially unlocking the Bitcoin in order to be sent to another wallet address.
The wallet address is the public key that is available for anyone to see and send cryptocurrency to. It’s basically the account number for the wallet. If someone wants to send you Bitcoin, they use your public key or public address.
So the public key is something that anyone can access, while the private key is the top secret number that unlocks all the crypto assets in your wallet. It’s incredibly important to keep the private key safe, secure and hidden. Anyone with access to the private key has access to your cryptocurrency.
Two (2) Type’s of Cryptocurrency Wallet, Hot vs Cold
Cryptocurrency wallets are usually either referred to as ‘hot’ or ‘cold’. The basic distinction between the two is that hot wallets are connected to the Internet, while cold wallets are kept offline. Therefore, funds stored in a hot wallet are much more accessible in comparison to funds in a cold wallet. This has pros and cons.
When you are evaluating hot wallet vs cold wallet, you need to consider the balance of accessibility and security that you require. It’s worth keeping in mind that you don’t have to definitively choose either a hot wallet or a cold wallet solution, you can store a percentage of your funds in each to mitigate risk while maintaining accessibility as required.
HOT WALLET .
Hot wallets are more common, but they are higher risk. There are a number of popular hot wallets for example, the Ethereum network which work on your web browser, such as MyEtherWallet. If you download a wallet to your desktop or your phone, that is also a hot wallet because it is connected to the internet.
Most exchanges utilize hot wallets at least to some degree. This allows for fast access to user funds. However, it also means if you are storing your funds on an exchange with these practices, those funds could be at risk. The wallets are connected to the Internet, so they are always being targeted by malicious individuals and hackers.
COLD WALLET .
For any cryptocurrency assets that you don’t need instant access to, it’s best to store them offline in a cold wallet. Maintaining high levels of security is key in crypto.
There are different choices of cold wallet, such as a hardware wallet or a paper wallet. A hardware wallet is an external device like a Ledger Nano S or Trezor that stores your private keys. You must push a button to complete a transaction, so hackers cannot take control. Hardware wallet access is locked behind a password or pin. In general, the funds stored on a hardware wallet are fairly accessible, as long as you have access to the wallet.
A paper wallet is a print out of the private key and pubic address on a sheet of paper or another material. This is generally regarded as a risky form of cold storage, because you can lose the paper or someone could easily find it and access your funds.
Another Type’s of Crypto Wallet
Besides the hot and cold, or online and offline wallets, there are several various types of wallets to choose from for your cryptocurrencies.
Desktop WalletDesktop wallets are hot wallets. The wallet is software that’s downloaded and installed on your computer and should work for either Windows, Mac or Linux. Desktop wallets are pretty secure for hot wallets, but of course, it’s only as secure as the computer you host the wallet on. If your computer has malware and viruses running in the background, or there is no password to protect anyone from accessing it, then the wallet might be easily compromised.
Mobile WalletMobile wallets are hot wallets. This wallet is an app you download from the app store on your iPhone, Android or Windows device. These mobile app wallets are pretty similar to a desktop wallet and many crypto wallet providers will offer both desktop and mobile versions. Mobile wallets are more convenient than desktop wallets because you have access to send or transfer crypto on the go from your mobile device.
Cloud WalletCloud wallets are hot wallets. This wallet stores the private key online in a cloud-as-a-service solution. This allows users to access their crypto wallet from any computing device, which makes this wallet super convenient. However, just as with the other hot wallets, your private keys are stored online and controlled by a third party, making them at more risk of hacking and online theft.
Hardware WalletHardware wallets are cold wallets. These types of wallets are small physical hardware devices that store the private key to access your cryptocurrency. Hardware wallets usually plug into your computer’s USB. Using a simple internet browser allows you to access the information stored on the wallet and send or transfer crypto. Hardware wallets are much less convenient for everyday transactions, or payments made on the fly. However, they provide much more security against hacking or theft. You just need to make sure you keep the hardware device in a safe spot.
Paper WalletPaper wallets are cold wallets. It might sound rudimentary, but paper wallets can be effective. A paper wallet is simply a written document with your public and private keys on it. Instead of relying on software, a mobile app, or a flash drive to store your private key information, you can write it down on a piece of paper so no one else can access it. This is commonly referred to as ‘cold storage,’ as the private key is offline on the piece of paper. But again, this method is only secure if you properly store the paper and keep it safe.
Exchange WalletExchange wallets are hot wallets. Exchange wallets are how you keep your cryptocurrency on a crypto exchange in order to trade between coins. You can have an exchange wallet on either a fiat-crypto exchange or a crypto to crypto exchange. In order to access your crypto exchange wallet, you would log in to the exchange and access the funds. They make your public key and wallet address available so you can send funds to the wallet and trade cryptos on their exchange. The exchange hosts the private key for you so you can access your cryptocurrency and trade or withdraw coins.
However, that means your private keys are in the hands of the exchange, and they have the responsibility for the safety of your cryptocurrency. It’s usually a good idea to only keep a small amount of crypto on exchange wallets that you plan to trade. Otherwise, if the exchange is hacked, your cryptocurrency could be stolen with no recourse available.
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Are Cryptocurrencies Wallet Positively Anonymous or Pseudonymous ?
Many people are attracted to cryptocurrencies because of the private nature of the blockchain and the anonymity they can potentially provide. So that begs the question regarding crypto wallets, are they also anonymous?
Wallets themselves are considered pseudonymous. They are not inherently connected to the user’s identity. Your name, birthdate, and address won’t be found in your crypto wallet. However, simple data like your wallet address can be traced back to your identity. With transactions being publicly stored on the blockchain, someone could potentially link your wallet and financial transactions back to you.
Certain cryptocurrencies aim to give users full privacy and anonymity. Monero is a popular example of a cryptocurrency that includes several features to hide the identity of senders and receivers, as well as mask the transaction amount.
How To Keep You Crypto Wallet Safe ?
Along with the many benefits associated with cryptocurrencies comes the responsibility of managing your own funds and money. This means the privacy and security of your currency and wallet are ultimately in your hands.
Many people put their money in the bank rather than under the mattress because they trust the security of the bank over the security of their home. And this makes sense when banks have a history of good security and insured funds.
On top of that, most people keep their money in digital form by carrying around credit and debit cards. This gives them the convenience of having access to their funds with a single card they can keep in their wallet. This opens up obvious security risks as most people have had the scare of losing their card or having their card account hacked.
Keeping your cryptocurrency safe follows the same principles. You can achieve ultimate security of your crypto at the expense of having it available on hand for easy transactions. You can also have your crypto accessible through multiple devices and platforms to make everyday purchases but at the cost of properly securing your funds.
With the security vs. convenience tension in mind, let’s discuss some of the best ways to keep your wallet, and thus your cryptocurrency, safe and secure.
Create Backups of Your WalletCreating multiple backup copies of your software wallet protects you from the worst case scenario, losing access to your wallet and currency. You never know when your computer software will fail, leaving you without access to the wallet and private key to unlock your crypto. Your computer or device might also be lost or stolen, meaning you could again lose access to your wallet and funds.
Different software wallets support different backup methods. Each wallet’s website should have a dedicated section to help guide you through creating a backup wallet and protect your currency.
Don’t Keep Too Much Currency On an ExchangeWe’ve discussed the dangers of keeping your crypto on an exchange and in their hosted wallets. But it’s worth repeating and covering here. Even though Coinbase or GDAX might seem like viable options, experienced crypto holders will agree that best practice is to get your currency off the exchange as soon as possible.
Over the past several years as Bitcoin has gained popularity, there are multiple accounts of exchanges being hacked, shut down, or simply disappearing… leaving users and customers bewildered and without their coins.
Best practice is to only keep the amount of cryptocurrency you are actively trading on the exchange. If you are a short-term trader, you need to keep some amount of coins on the exchange to trade, but anything past that is an unnecessary risk.
Use two-factor Authentication Whenever PossibleAdding extra security layers is just simply data and computer security best practice. Many companies in the cryptocurrency space understand the push for maximum security, and in response have allowed or forced users to enable two-factor authentication techniques. This can include a security code sent to your mobile device through SMS message, a time-based Google authentication code, or a special PIN number.
If the crypto wallet allows you to enable two-factor authentication, do it and use it. Protect your account with the best techniques. And if the wallet doesn’t offer two-factor authentication or an extra layer of authentication security, that should be a red flag and you should be concerned about their overall security practices.
On top of two-factor authentication, it’s worth noting that you should use a different strong password for each online account you have, especially your crypto wallets, exchanges and other related accounts. You don’t want a hacker that compromised your Facebook or email account to be able to access your crypto wallet and steal your funds.
Update Your Wallet Software RegularlySoftware wallets frequently find bugs or security holes and fix the code in an update. Users should be aware of updates sent out by the wallet’s software or development team and update the wallet whenever an update is released or sent. Some companies don’t actively send out notifications when an update is available, so it’s best practice to periodically check for updated versions. Some companies will announce updates through social media, along with other important information. It’s a good idea to find and follow the company on those platforms.
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