It’s time to finally get off the beach and dive into the cryptocurrency wave. Good for you, cryptocurrency can be exciting, lucrative and it gives you the opportunity to meet new people and have out of body experiences. No, that’s not true but who knows, you could make some decent money. The first thing you’re going to want to do is get yourself a crypto wallet. Which sounds like something Lex Luthor uses to buy food at a drive thru but, it’s really the starting point if you’re looking to buy, sell or store cryptocurrency. In this article I’m going to give you a quick rundown of wallets to help you decide which one works best for you and your crypto needs.
WHAT IS IT?
A crypto wallet is a software program that stores private and public keys and interacts with various blockchain to enable users to send and receive digital currency and monitor their balance. If you want to use Bitcoin or any other cryptocurrency, you will need to have a crypto or digital wallet. A crypto wallet is basically like your own cryptocurrency bank.
Crypto wallets have a public key, which is the address you use to send and receive crypto, and a private key which allows you to access your own money. Important to note, you cannot hack into a wallet with a public key so you shouldn't feel trepidation when you share that key. You can have multiple keys. It's suggested, but not required, that you have a new key (also known as an address) for each time you receive cryptocurrency. However, your private key should remain private to avoid losing your cryptocurrency. Also, if you lose or forget your private key, there is no way to access your money.
TYPES OF WALLETS
There are basically two types of wallets you can use to store, send and receive your crypto, hot wallets and cold wallets. There are pros and cons to each type and which one you chose will depend on your needs and your plans for the your future involvement with crypto.
Hot wallets are any kind of online wallet. To use a hot wallet you have to be connected to the internet. Hot wallets are vulnerable to hackers and theft and should really only be used for short term buying and selling and you should not store large amounts of crypto in your hot wallet. There are two types of hot wallets; online exchange wallet or a software wallet.
ONLINE EXCHANGE WALLETS
Use these for short term, small sum storage. To get one, sign up for an account on Railto. It usually takes a few minutes and you can start using it right away. Simple, clear, easy to use, those are the pros. The cons look like this; there are real security issues here. When you use an exchange wallet, the wallet operator has control of your private key, they store it. This means if that site gets hacked, you’re likely to lose all your coin. If you look at MtGox, which was a Bitcoin exchange, you’ll see that they got hacked and lost something like 630,000 Bitcoin. So, an exchange site wallet is easy, free, and more secure than a wallet on your own computer, but a hardware wallet is even better.
Again, recommended for short term, small sum storage. There are two types here, desktop or mobile. Desktop wallets are programs you download and will store your currency on your PC or laptop. They’re only accessible from the single computer they were downloaded to. The pros on these are you have control over your keys and your coin, there is no third party. The cons are you’re in charge of your security. If your computer gets hacked or is compromised by a virus you could lose all your coin forever.
Mobile wallets work through an app on your phone. The pros on this, you get quick access and you can easily use your coins in a physical retail store. The cons, if a malicious app is installed it may steal the cryptocurrency from your mobile wallet or if someone cloned your phone they get your keys and they get your coin.
Cold wallets are devices that store all your information, keys, balance, transactions etc., offline. Cold wallets, often referred to as cold storage, do not have an active connection to the internet and they are not really intended to be used in day to day transactions. Because it is much more secure, this is where you would store your Scrooge McDuck sized pile of altcoins. There are two types of cold storage or cold wallets.
Hardware wallets are stand alone devices which store info offline and are usually some form of USB device. These wallets have a secure chip in them that means when you connect them to your computer to send your currency you never need to input your private key, you simply input a pin code on the piece of hardware. These are very secure. With hardware wallets if it breaks, gets lost, stolen or washed with your vintage parachute pants, you can access your currency on a new hardware device from ‘seed words’ you receive with your hardware wallet. Two of the most popular hardware wallets are Trezor and Ledger Nano S. With these devices your keys are stored securely and even when you plug them into your computer the computer doesn't have access to your private keys. This severely cuts down on hacking and virus worries.
Now, a paper wallet is deceptively simple. In essence, you simply print out your private and public keys on a piece of paper and your coin is safe. Paper wallets are useful if you plan to only store your cryptocurrency and never spend it. So a paper wallet is really just that, a piece of paper with info printed on it that you can fold into a wallet shape or, if you’re Sipho Mabona, into a puffer fish. These are very secure unless you lose the paper or it burns up when a cow kicks over a lantern and sets the city on fire. There is also a chance of having your information hacked if you’re generating your paper wallet on a compromised computer. However, there are ways to make your paper wallet, in the creation stage, more secure.
Bitaddress.org and walletgenerator.net are both sites that will generate a paper wallet for you in very secure form. These sites can be saved and run offline for added security. With these sites, no keys are sent over the internet and random sequencing is used to generate both private and public keys. Be aware that if a paper wallet is generated on a compromised computer, a hacker may still get your private keys. For even more security, Mycelium offers a USB dongle that you plug directly into your printer and it generates a paper wallet that automatically gets printed without ever having touched your computer.
Paper wallets are indeed secure but, you still have to use a device to deal with your currency and, if your device is compromised, so is your currency. To spend funds from a paper wallet you must first load a software wallet to your computer, import (or "sweep") your private key into the software wallet and then spend your cryptocurrency. For these reasons, we recommend most users use a hardware wallet instead.
THINK ON THESE THINGS
No method is 100% safe. Sadly once someone creates the technology, someone else is seeking a way to compromise it. It’s best not to store all your coin in one place and always, always, always backup your information. Think about using a computer that has never been used for email or video or anything else for your crypto adventures, that will cut down on the chances of a virus or a hacker. It is vitally important that you remember that there are no fail safes in place when you buy and sell Bitcoin or altcoins. If you make a mistake, lose your information, get hacked, the exchange site gets hacked, your paper wallet does not survive your spontaneous, fully clothed plunge into a lake on a first date, your coin is gone. Because this technology is decentralized, there is no committee or bureau to call and say I want my Bitcoin back. Use MtGox as a touchstone, those folks are still waiting for their coin to return. So, back up your information, jealously guard your private key, keep your paper wallet in an antproof case. Don’t keep large numbers of coins on an exchange site and don’t give your private key to anyone, especially not my Uncle Nunzio, he cannot keep a secret.