Cryptocurrency Wallets – keeping your money safe

Cryptocurrency Wallets

Cryptocurrency Wallets

Groundbreaking concept meaning to change various industries, increasing growth and potential for high returns are key reasons why many traders are focusing on cryptocurrencies. Entering the global crypto market is easy because one only has to create and verify trading account at the chosen exchange, make the initial deposit and everything is set up and ready. All cryptocurrencies bought by the trader are automatically saved in the exchange’s aimed wallet. In the world of cryptocurrency, a wallet is a specific piece of software that helps you buy, sell, keep and convert your cryptocurrencies. Since every cryptocurrency is basically a piece of code, the crypto wallet doesn’t physically store your currencies. Instead, it protects your private and public key, the only two information required for trading.

 A wallet is a crucial factor for absolutely every trader that wants to keep his funds safe. Therefore, we’ve written this extensive review of various cryptocurrency wallets currently present on the market. So keep on reading and discover which one is perfect for your needs!

Cryptocurrency wallets | Private and public keys

As we have previously stated, the main purpose of cryptocurrency wallets is keeping your private and public keys safe. There is an important difference between them – while public key serves as an address for receiving cryptocurrency, public key lets you access and send funds received on the corresponding public key. These are actually basics of cryptography – data sent to the public address can only be decrypted by appropriate private key. Therefore, the security of your private key is of utmost importance, since losing it may lead to the loss of all funds associated with that private key.

A public key can be shared anywhere freely, as it is mathematically impossible to obtain private key by reverse engineering the public key. However, you should never share your public key. That’s why wallets are usually coated with additional security layers, such as passphrases, mnemonic seeds, recovery files, two-factor authentications and such. Also, there are wallets that generate new private key dynamically, linking them all to the master private key to add extra protection, since a multitude of public addresses makes it more difficult to link transactions to one person. These are the basics of cryptocurrency wallets. Now, let’s take a look at different versions, their pros and cons, and how to set them up.

Cryptocurrency wallet | Software wallets

Basically, software wallets are present online or on one of your digital devices, such as smartphone or computer. They are usually referred to as hot wallets, since they are occasionally or permanently connected to the Internet, thus exposing your information to potential threats. But don’t worry, if you use them right and with caution, your funds will be perfectly safe. There are three main types of software wallets: online, mobile and desktop wallets.

Online or cloud-based wallets are usually tied to exchanges and are thus accessible from any device with Internet connection. They offer basic send/receive functionality, portfolio insight and security settings such as passwords, phone number check, ID check and such. However, its main advantage is also its biggest potential problem, since online wallets store private keys on a remote server. Therefore, if the exchange becomes a target of a hacker attack, or if there are some security breaches of any kind, your funds might get stolen. Online wallets are not recommended for storing larger amounts of money, but rather for transactions between fiat and cryptocurrencies or for day trading with smaller amounts.

Mobile wallets, on the other hand, provide a higher level of security since they keep private keys stored on your device. They also often implement additional backup and login methods, preventing unauthorized access to the application. Mobile wallets are convenient for spending cryptocurrency directly at retail stores since they support both sending and receiving money. Although there are some mobile wallets designed specifically for a single cryptocurrency, the majority of mobile wallets offer support for a multitude of them. Furthermore, some of them come with a convenient built-in exchange feature, so you can change your cryptocurrency for others without the need to enter the exchange. All in all, mobile wallets are a good way of keeping smaller amounts of funds for everyday payments or quick exchange.

Desktop wallets offer even higher security since they can be accessed only from the computer they are installed on. They also tend to be richer in features, particularly regarding backup, digital signatures, and some of them also offer staking options where you get the chance to earn some extra coins by holding long term. Desktop wallets are a great way of keeping your funds even for a longer period of time, but you are advised to take extra care when it comes to backing up your wallet. Since you only have it on your computer, if your computer gets hacked or damaged, you might suffer a complete loss of your funds. Therefore, ensure yourself by creating a backup and saving it on the physical medium or on a different computer. As you have seen, software wallets offer great functionality and accessibility, but they also have some flaws. We’ll be discussing more pros and cons later on, but for now, let’s see which cold storage options are present as well.

Cryptocurrency Wallet | Cold wallets

Cold wallets stand for hardware and paper wallets or, in other terms, types of wallets that don’t get directly connected to the Internet, and thus are not endangering the security of your private keys. Hardware and paper wallets are excellent solutions for keeping your cryptocurrency portfolio secured and stored away as a form of long-term investment. They offer unmatchable protection compared to hot (software) wallets, but there are still some disadvantages present. Let’s take a detailed look at them, shall we?

Physical devices similar to USB memory sticks designed to guard your private keys and control your cryptocurrency transactions are called hardware wallets. There are multiple commercial options available out there, with TREZOR, KeepKey and Ledger Nano being the most popular ones. The backbone of a hardware wallet is a microprocessor similar to the ones built in credit cards. The whole encryption procedure is done by that microprocessor when the device is connected to a computer via USB interface. They often feature a small screen with visible transaction details and options for approving or rejecting the transaction. However, hardware wallets still need some software for interaction with blockchains, be it in form of a wallet manufacturer’s solution or third-party applications such as Electrum, Copay or Mycellium. Hardware wallets support dozens of different cryptocurrencies, with new ones being added with each software upgrade. It’s good to mention that hardware wallets are completely immune to computer viruses and malware and, thanks to its protected microcontroller environment, private keys can’t be exported from it.

Paper wallets are yet another popular way of keeping your funds offline. If created and stored properly, they provide even more security than hardware wallets due to the fact that they don’t have any electrical circuits that could be prone to failure. The term paper wallet refers either to a printed copy of your private and public key accompanied by appropriate QR codes or to the piece of open-source software used for creating paired keys ready for print. Bear in mind that paper wallet can keep only one currency type, so if you have a diversified portfolio, you will have to print a separate paper wallet for each currency you hold. Generally, the best practice is to print several copies of each paper wallet and store them in separate locations – e.g. your house, your bank safe, your parents’ house etc. Since this piece of paper contains all information needed to access your funds, you should be keeping it safe at all times – much like the PIN code for your bank card. Transferring funds to a paper wallet is done by scanning given QR code of a public address or by manually typing in the address. On the other hand, if you desire to cash out your cryptocurrencies, it’s strongly advised to do the so-called „sweeping“ – transferring all funds tied to your paper wallet to a software wallet, and then convert them to fiat currency of your choice.

To conclude, offline wallet options are the ultimate way for having a long-term cryptocurrency investment. However, all of the reviewed wallets have some advantages and disadvantages. So the question is – which one should you choose? Keep on reading and see for yourself!

Cryptocurrency Wallets | Which one to choose?

In previous sections of this article, we’ve made a quick overview of main cryptocurrency wallets out there. Now, we’ll help you choose the right wallet option for your needs by analyzing the pros and cons of all reviewed wallets. Let’s start with software wallets!

Online wallets, for instance, are the fastest way for handling transactions of multiple cryptocurrencies and are generally suitable for holding smaller amounts of money. However, they are susceptible to various security and DdoS attacks, since your private keys are held at the third-party server, and if you are working on an infected computer, someone can steal your login credentials. Mobile wallets, on the other hand, offer more features such as QR scanning and are handy because you always tend to keep your mobile device close. On the other hand, mobile phones are prone to security attacks and malware, are easy to break or lose and are generally electronic devices that can malfunction out of the blue. Desktop wallets offer most features and store private keys on the device, but can be hacked if your device is connected to the Internet or lost if your computer dies. Hardware wallets are completely offline which provides the ultimate protection of your funds, making them ideal choice for big amounts of money. However, they can still get lost, they are not the best solution for daily transactions and are generally a bit intimidating for newcomers trying to set them up. As for the paper wallets, it also features completely offline storage of your keys and is fully hacker-proof, but, as it is just a piece of paper, it can be easily destroyed or misplaced.

So, which wallet should you choose? That pretty much depends on what you want to achieve by involving into cryptocurrency market. If you prefer day trading and fast exchanges of cryptocurrency, you should consider software wallets. The ideal setup would be a smaller portion on the exchange’s online wallet, a portion on your mobile wallet for everyday use and the rest on your desktop wallet. However, if you plan to be in the crypto world for a long time, and don’t want to convert any deposited crypto back to fiat, cold storage is your only choice. Just keep in mind that hardware wallets can keep multiple currencies, while paper wallet store only one. And two final remarks – always do backups and never underestimate the importance of security!

Cryptocurrency Wallets | Conclusion

To wrap it up, cryptocurrency wallets are essential features in the world of crypto. There are multiple solutions available, each with its own pros and cons, but the final decision is up to you. We can only strongly advise you to do your own research regarding all of them before depositing your currency. Find the one that best suits you, whether you tend to gain fast profits or hold for years to come. Also, don’t forget to secure and backup your wallets! Remember, you and only you are responsible for the safety of your funds – coat them with appropriate security, and your funds will always be safe from harm. Finally, be sure to follow us in the future, as we will be posting more educational material and news from the exciting world of cryptocurrency. Stay safe!

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Author: Ben Prescott
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