If you are new to the world of cryptocurrency, then you need to get a cryptocurrency wallet.
This is where you will store your funds. Because there is nobody else securing your funds, you need to make sure to get familiar with the best security protocols and to choose the right one for you.
Remember that there is always a trade-off between security and convenience.
An Intro to Cryptocurrency Wallets
Cryptocurrency wallets are very simple to use. And they operate in almost the exact same way as a bank account, except for the fact that you are the one in control.
Video Source: BlockGeeks
Every cryptocurrency wallet will have a wallet identifier, identical to the bank account identifier.
Bank accounts will have an International Bank Account Number (IBAN).
This IBAN is used to send and receive money internationally, using SWIFT/ACH transfers or similar.
The obvious problem with this is:
- The heavy transfer fees.
- Centralization and the potential for serious corruption.
- Needless time delays for transfers.
- Difficulty in sending micro-transactions.
With a cryptocurrency wallet, you can make near-instantaneous transfers, for a price approaching zero.
You can also make micro-transfers and there is no third-party in control of your money.
Most high-quality cryptocurrency wallets are multi-currency. This means they can store a large number of cryptocurrencies, instead of just one or two.
Every cryptocurrency wallet will have a username and password for entry. But you will also be given a seed phrase – this is a number of words that you need to carefully store.
If you forget your username or password, there is no customer support. There is only your seed phrase, which you must have at hand to retrieve your funds.
Types of Cryptocurrency Wallets
Online Wallets
An online wallet is a cryptocurrency wallet where your funds will be stored online.
As such, these are largely regarded as the least secure type of cryptocurrency wallet. This is because your funds are kept online.
After all, the internet is the largest network in the world, with most people on it.
Still, few online wallets have been successfully hacked.
It is inconceivable that a site such as Blockchain.com would be successfully hacked given its security protocols and the fact that it does not actually store the user keys.
What can and does happen often with online sites is that user error leads to the loss of funds.
If keylogging software is installed on your computer, then a hacker could potentially scrape your username and password to an online site.
Phishing scams occur all too often – this is a fake site that looks like the official one. You key in your login details and the hacker now has access to your funds on the real site.
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Best Online Crypto Wallets:
1. BlockChain
2. Coinbase
3. Binance (exchange)
Desktop Wallets
A desktop wallet is one where the funds are not stored online. This greatly reduces the chances of you losing your funds.
These wallets are far more secure than online wallets. Because when you log into your desktop account, no information is sent over the internet.
For the majority of hacks, criminals intercept unsecured data sent over the internet. But with desktop wallets, this is not an issue.
Best Desktop Crypto Wallets:
1. Electrum
2. Atomic
3. Exodus
4. Copay
5. Armory
6. Jaxx
Hardware Wallets
A hardware wallet is the king of cryptocurrency security. Some might even say that these hardware wallets are over the top, and they have a range of security features.
To hack this wallet, the criminal will need to steal your hardware wallet and know your hardware pin. These wallets cannot be brute force attacked.
If you lose your hardware wallet, you can just buy a new one and recover your wallet with the backup seed phrase.
The most common hardware wallets include the Trezor and the Ledger Nano. They typically retail around $100.
They are definitely worth the money if you intend to invest in more than $20,000 of cryptocurrency.
But for most people, a desktop wallet will do, or a high-quality online wallet.
Popular & Trusted Hardware Wallets:
1. Ledger Nano
2. Trezor
3. KeepKey
Mobile Wallets
There are also mobile cryptocurrency wallets. However, even if the wallet itself is high-quality, mobile devices are just not as secure as desktop or hardware wallets.
Only small amounts of cryptocurrency should be stored on these wallets. It is not a bad idea to keep two cryptocurrency wallets – one desktop version for your savings and another mobile version for smaller transactions.
Different wallets will come with different features. Most now support multi-factor authentication and shared accounts. This means you can set up a ‘joint’ cryptocurrency accounts.
This could be useful for people who intend to set up business cryptocurrency accounts. Two or more people could be required to sign off on certain transactions.
These mobile wallets are available on Android play store and Apple App store.
Best Crypto Mobile Wallets:
1. Jaxx
2. BlockChain
3. Coinbase
Best Practices
There a number of ways you could secure your cryptocurrency wallet. You could get a desktop version and store the passcode to it on a piece of paper.
Realistically, a criminal is unlikely to find this piece of paper and associate the phrase with a cryptocurrency wallet, if they even know what cryptocurrency is.
And you can easily offset this by writing the words backward or in code. There are a number of ways to self-encrypt, and this is the ultimate form of security.
In the early days, cryptocurrency exchanges were unsafe and subject to hacks.
But this has become quite rare, and funds kept with top exchanges are relatively safe, once you make sure that Two-Factor Authentication (2FA) is enabled on your online account.
This is an additional layer of security that is highly recommended.
Finally, there are issues related to trading platforms. It’s well-known that you shouldn’t store all the money at exchanges because they’re prone to hacking.
However, external API-connected terminals such as Superorder are safe as they always ask you to leave withdrawal permissions disabled. In this case, exchanges remain the weakest link.
To protect the funds, you want to store them via a dedicated wallet. It’s better to familiarize yourself with the fundamentals of cryptocurrency wallets and play around with small amounts of altcoins and major cryptocurrencies.
So this is it. I hope now you have a good knowledge of Cryptocurrency wallets. Please share this post with your friends to help them understand the same.