You’ve got your first cryptocurrency, that you’ve bought from over on an exchange, but now you’ve heard you shouldn’t keep it there because it’s not safe, so where do you store it now? The following post gives you a beginner’s guide to the crypto wallet types to safely and securely storing your cryptocurrency assets. As well as provide important information you need factor in when making your choice.
What are Private Keys?
First up though let’s talk about what your private keys are, as this is an important part of the story here. A private key is a sophisticated form of cryptography that allows you to access your cryptocurrency. It’s an integral aspect of Bitcoin and Altcoins and helps you to protect yourself from theft and unauthorized access to funds. Essentially, when you have access to the private key you have access to the funds.
Some wallets let you control your private keys, however, some are custodial, and don’t. If you are keeping your crypto assets over on an exchange they are custodial, therefore you are entrusting a third party with these private keys and mandating them to serve as a safeguard. Owning and having access to your private keys gives you much more power and control. But you’ll also need to take care of their security and ensure that you keep these keys somewhere really safe, offline and away from any potential harm.
What is a Cryptocurrency Wallet?
In order to use cryptocurrency, you’ll need to use a cryptocurrency wallet. A wallet is a secure digital wallet used to store, send, and receive digital currency like Bitcoin. Although I mention “store” cryptocurrency itself is not actually “stored” in a wallet, it is stored on a coin’s blockchain. Your wallet is just the software designed to interact with the blockchain.
Instead, your wallet stores address´, not the actual crypto tokens. Bitcoin wallets interact with the Bitcoin blockchain, allowing Bitcoins to be moved between addresses by the owners of those addresses, and allowing users to see the balances associated with an address.
A blockchain address is similar to an email address and is used to receive and send funds on the blockchain network. Similar to how you would use your email address to send and receive messages and it represents a destination for a cryptocurrency payment.
Each blockchain address contains a string of numbers and letters, but can also be shown as a scannable QR code. These addresses may have specific identifiers depending on the type of cryptocurrency. Different types of cryptocurrency will have different types of addresses and cannot accept other forms of cryptocurrency. This is an important factor to remember. For example, you cannot send Bitcoin to an Ethereum address and if you were to do so, the transaction is non returnable and you will lose your funds.
There are 4 different types of wallets you could use to manage your assets; Hardware, Online, Software and Paper Wallets.
Hardware wallets are considered the most secure way to store your crypto. And they are offline storage options for private keys. They are physical, dedicated hardware that is specifically built to hold cryptocurrency and keep it secure. These devices can go online to make transactions and get data and then can be taken offline for transportation and security.
They also store your private keys offline and on your device. Plus you can also use the device to verify transactions too so that funds never leave your wallet without your confirmation. With your hardware wallet stored offline, it is kept away from any potential hackers, who would need to physically hold the device (and know the pin) to be able to steal your funds.
There are a few different hardware wallets available, which are Ledger, Trezor, and KeepKey and these are all purchasable devices but range from $59 to $180. The two devices I personally use are the Ledger and the Trezor. I don’t have a clear preferred device as they both have their advantages and disadvantages. Please ensure that you always purchase these new and sealed (so that they haven’t been tampered with) and from reputable sources.
Online wallets are online services that enable you to access your crypto assets from any browser that’s connected to the internet. With an online wallet you don’t download an app, but rather data is hosted on a real or virtual server.
Some wallets let you control your private keys and some are custodial where you don’t. When you leave your crypto assets on a cryptocurrency exchange platform, you’re actually using the platform’s online wallet and most exchange wallets are custodial wallets.
Recommended (and non-custodial) Online wallets include the likes of Blockchain.com and MyEtherWallet. Custodial online wallets (where you don’t control your private keys directly) include the likes of the Coinbase or Binance Exchanges although these are not an advisable place to store your funds.
The biggest advantage of online wallets is that they are easily accessible from any computer or other device with an internet connection and they’re mostly free. However, this is also their biggest disadvantage as they can become targets for hackers.
Software wallets are applications for managing cryptocurrencies that can be installed on your computer or smartphone. You remain in control of your private keys which are not shared to nor controlled by a third-party.
There are many types of software wallets available, desktop wallets will include the likes of Exodus or Atomic Wallet. There are browser extensions such as Metamask and Mobile apps might include Crypto.com, Trust, Digifox, and Coinbase also have their own mobile wallet app too which is separate from the exchange.
Phones are a great way to access your crypto on the go, but as a software wallet is installed on your PC or smartphone, it is still connected to the internet which could potentially expose your private keys to hackers. Also as phones are regularly taken outside the home they could potentially be lost.
Next up we have our paper wallets, which is another offline option for storing your crypto assets. As the name suggests the process involves printing the private keys and its corresponding public address onto a piece of sheet and storing
This is a nice and simple way to store your cryptocurrency keys offline. But it will require you to pay a lot of attention and care to this paper. If your paper wallet gets lost or destroyed, you will permanently lose access to your crypto assets. Also, processing a transaction with a paper wallet can be long-winded and possibly unsafe.
In this method, you will need to manually enter your keys in a transaction tool, typically by using your computer’s internet browser which could expose the keys to a cyber attack.