What is a crypto wallet
Each investor or user who decides to dive into the crypto world should immediately learn the main rule – you are responsible for your coins. If fiat savings can be put into the bank and not worry about anything, then the owner will be responsible for storing the cryptocurrency and there will be no one to compensate the damage. This is a kind of payment for market freedom, which can only be avoided if the crypto wallet is chosen correctly.
Crypto wallet – a place to store digital savings. Most of them are implemented in the form of programs and online services, but there are those that are in physical appearance and are comparable to a regular wallet.
Any cryptocurrency wallet has two important components:
- Public key (address) – a unique set of letters and numbers, which is comparable to a bank cell and serves as an address for sending coins;
- Private key – a cryptographically secure hash that also looks like an alphanumeric combination, but is comparable to a key that opens access to the same bank cell.
A pair of these keys is interconnected. The public key is visible to everyone and it can be safely transferred to third parties as a payment detail. The private key must be securely stored by the user or the service that was assigned such obligations, since it allows you to make transactions from the wallet.
Digital coins are not assigned to a specific user. In fact, the person who owns the private key to the wallet also owns all the coins stored in his account.
How does a crypto wallet work
Cryptocurrency wallets are used by millions of users around the world, but not everyone understands exactly how this works. Unlike cash transactions, when during a payment one participant in a transaction transfers an nth amount of money to another, transfers with digital money are made without physical transfer.
Cryptocurrencies do not exist in physical form, so all operations with them are reduced to changing the entries in the blockchain registry. When a transaction is made through a crypto wallet, in fact, ownership of the ownership of coins from one address to another is simply rewritten.
Such a transaction is possible only if it is signed with a private key corresponding to the public address. If the public and private keys for the wallet match, then the transaction goes to the miners for verification, after which it is added to the blockchain registry, and the balance of the wallet of senders and recipients is changed accordingly.
You can replenish a crypto wallet with an incoming transaction in one of the following ways:
- Through exchange services. The system will automatically debit money from one payment system and credit the equivalent amount of digital coins to the indicated wallet number;
- Transfer coins from cryptocurrency exchanges to which you first need to deposit money, and then exchange them for coins of interest.
Which crypto wallet to choose
When deciding which crypto wallet to get, you need to immediately learn the main rule: the more convenient the use, the less the security of savings. This is due to the fact that more convenient crypto-wallets provide easy access to the private key, but together with the owner, attackers can get the same easy access.
Which cryptocurrency wallet is best for every coin owner decides for himself. A wallet with quick registration and easy access to the balance will be convenient for those who often plan to make transactions for small amounts. If we are talking about storing large savings, then crypto-wallets of increased reliability, but less convenient to use, will become a more rational option.
Types of Crypto Wallets
In fact, any cryptocurrency wallet is only two digital codes, but the developers took care of the users and presented several solutions for the convenient use of codes.
Each wallet has its own security level, which mainly depends on its type and service provider. In total, all cryptocurrency wallets can be divided into two main groups:
- “Hot” storage – they save private keys with an Internet connection, which provides easier access, but adds vulnerabilities to hackers;
- “Cold” storage – private keys are stored without access to the network. Performing operations requires preliminary preparation, but you can be sure that outside the Internet hackers will not be able to get to the private key.
Each of the groups, in turn, has several varieties of wallets, which have their own advantages and disadvantages.
Cold crypto wallet
Cold wallets have the highest degree of security. This category includes hardware wallets that store private keys without access to the Internet.
A hardware wallet is a separate physical device designed exclusively for the reliable storage of cryptocurrencies. The private key in such a wallet is stored in the device’s memory and never leaves it.
Additionally, hardware wallets are protected with a password and a secret SEED phrase. With the help of the set PIN code, the owner of the wallet makes a quick connection, and the SEED phrase will be required to resume access and additional protection in case of loss of the wallet.
For transactions, the hardware wallet is connected to the computer using a USB cable. At this moment, work with the private key is carried out remotely in the protective environment of the hardware device. Even if the PC is infected with a virus, this will not affect the security of storage, since it is impossible to extract the private key from the device.
Often, these types of wallets are used by exchanges and large investors to store large savings. Their only drawback is the provision on a fee basis.
Today, the most popular hardware wallets are:
- Ledger Nano S;
Crypto wallet online
Online cryptocurrency wallets are essentially an account on a special service that takes responsibility for the storage and use of users’ private keys. This is the most convenient way to store, providing quick access, but not increased reliability.
Opening a crypto wallet on such services is as simple as registering on the site. In fact, even registering on any cryptocurrency exchange opens hot wallets for storing assets for the user.
To use the online wallet, you only need to remember your username and password. With their help, you can log in from any device and get instant access to savings and transactions.
This is a simple and convenient way to store, but it is not recommended for large amounts. Firstly, because Internet services are vulnerable to hackers and DDOS attacks. In addition, the user is often not the owner of the private key, and accordingly it cannot be fully called the owner of the savings stored there.
Time-tested online wallets include:
- Coinbase – a secure, time-tested and user-friendly multi-currency online wallet;
- Blockchain – a crypto wallet with a minimum commission, which the user sets independently at his discretion;
Mobile Crypto Wallet
With the increase in the popularity of smartphones, mobile wallets have become in great demand – special applications that allow you to store and make cryptocurrency transactions directly from mobile devices.
To open such a crypto wallet on a smartphone, you need to install a special application and register in it. Using mobile versions of wallets has almost the same advantages and disadvantages as online wallets. True, some applications provide users with private keys. It is also worth noting that in the event of a loss of a mobile device, the owner also risks losing his savings, especially if two-step authentication has not been installed in the mobile cryptocurrency wallet.
Popular mobile apps:
- Jaxx – a mobile version of the popular local wallet;
- Coinomi – a mobile crypto wallet in Russian that supports more than 100 types of currencies;
- Blockchain is one of the most popular online wallets with a good reputation.
Offline Crypto Wallet
Offline wallets can be software that can work without access to the Internet after installing on a local device. Such programs are also called desktop wallets and they are almost a free analogue of hardware wallets.
Such programs can be divided into two groups:
- Full-fledged ones are one of the first wallets that download the entire blockchain history on the user’s computer;
- Thin – desktop programs that can work without loading the blockchain, scooping information on it from trusted sites.
When creating such a crypto wallet, a configuration file with a private key will be downloaded to the computer, which the program will access to confirm access and transactions. The main disadvantage of such storage is the probability of a PC becoming infected with viruses that can transmit information from it to hackers. Having decided to use such software for storage, you should definitely take care of updating the anti-virus system.
Popular crypto wallets for PC:
- Exodus – a multi-currency wallet for cold storage of keys on a PC, has a bright and convenient interface, but significant fees;
- Electrum – a local crypto wallet that will be useful for those who need increased security, since it works without problems through TOR networks, and is also suitable for storing anonymous Verge currency;
- MyEtherWallet – an official wallet that allows you to store exclusively Ether;
- Hideez Wallet – the first Ukrainian crypto wallet developed in the desktop and mobile version;
- Bitcoin Core – the oldest wallet for Bitcoin;
- NEO GUI is one of the official Neo cryptocurrency wallets.
Paper cryptocurrency wallet
As stated earlier, cryptocurrency wallets are a set of digital keys that are interconnected. Everything else is just a convenient shell for users. The easiest way to create a crypto wallet is to generate a public and private key, and then write them on paper. To do this, just visit one of the special services that will generate a key pair and prepare them for printing, and then delete data about them. For convenience, the services also offer registration of addresses in QR codes.
From the point of view of computer security, this is a reliable way to store savings, since hackers will definitely not be able to use the private key. With such storage, one should not expect threats from the virtual world, but new difficulties arise in storage. Paper is not a durable material that can tear, get wet, or burn. Also, an attacker, having taken possession of such a leaf, will be able to get trouble-free access to the wallet, and the owner will not be able to recover data.
To use such a wallet, keys should be integrated into any convenient program, but it should be understood that after that they are no longer stored without access to the Internet, which means that if you want to keep your savings in cold storage, you will need to create a new wallet. For easy integration, a backup copy of the keys can be saved on a USB flash drive, which allows you to create a prototype hardware wallet, but you need to understand that the USB flash drive does not have similar protection against viruses and information theft.
It should also be noted that paper wallets cannot be multi-currency and are generated separately for each digital currency. You can usually get a pair of keys for a certain type of cryptocurrency on the official website.
Services for generating keys:
- Bitcoin bitaddress.org;
- Litecoin liteaddress.org;
- DASH paper.dash.org.
There are a lot of options for storing cryptocurrency and the number of offers on the market is constantly growing. Before finally deciding on a choice, you should think about how exactly you plan to use your savings and how often you will need to access them.
With small amounts and the need for private operations, it is rational to turn to special services and applications, but if your coins need reliable savings, it is recommended to pay attention to cold storage methods. Among offline storage, hardware wallets are rightfully considered the most convenient and reliable.
In conclusion, it is worth noting that whichever option is chosen, the user must take care of the keys themselves. The measures to prevent theft and loss include regular updating of the anti-virus system, creating backup copies of keys and connecting additional security levels.