Although there is a lot of instability and risk in cryptocurrencies, yet there is a lot of interest in it. Cryptocurrencies can feel secure because they decentralize and often anonymize digital transactions. They also validate everything on public, tamper-resistant blockchains. But those measures don’t make cryptocurrencies risk free. Whether it’s a fake wallet set up to trick users, a phishing attempt to steal private cryptographic keys, or even fake cryptocurrency schemes, there’s something to watch out for at every turn.
Before owning any cryptocurrency, you need somewhere to store them. That place is called a “wallet.” A cryptocurrency 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 cryptocurrency wallet.
How Does it Work?
When a person sends you bitcoins or any other type of digital currency, they are essentially signing off ownership of the coins to your wallet’s address. To be able to spend those coins and unlock the funds, the private key stored in your wallet must match the public address the currency is assigned to.
If public and private keys match, the balance in your digital wallet will increase, and the senders will decrease accordingly. There is no actual exchange of real coins. The transaction is signified merely by a transaction record on the blockchain and a change in balance in your cryptocurrency wallet.
Traits to Look For, While Deciding for a Wallet
How to choose an appropriate cryptocurrency wallet? Well, there is no straight answer to this. Convenience may come at the cost of security; additional features may come at the cost of a steeper learning curve. More importantly, what are the traits that, ultimately, you value over the others? Below attributes may help to find an appropriate wallet.
Cost: Is it free? What are the drawbacks of using this wallet?
Security: Does the company have a track record of security excellence?
Mobility: Is it easy to keep and difficult to lose? Is it accessible anytime, anywhere?
User-friendliness: Is the wallet UI intuitively designed? Can I store different cryptocurrencies?
Convenience: Am I able to make a fast purchase when the time calls for it?
You may want a wallet that offers the best combination of the above-mentioned traits.
Type of Cryptocurrency Wallets
Wallets can be categorized according to the platform:
Web Wallet – Web wallets are accessed through a web browser and store the user’s wallet on a server owned by a third party. This is similar to webmail in that it relies entirely on a third-party server. Some of these services operate using client-side code running in the user’s browser, which keeps control of the cryptocurrency keys in the hands of the user. Most, however, present a compromise by taking control of the keys from users in exchange for ease-of-use. It is inadvisable to store large amounts of cryptocurrency on third-party systems.
Mobile Wallet – A mobile wallet is the most common type of wallet. Running on smart-phone operating systems such as Apple iOS and Android, these wallets are often a great choice for new users. Many are designed for simplicity and ease-of-use, but there are also fully featured mobile wallets for power users.
Desktop Wallet – A desktop wallet was the first type of cryptocurrency wallet created as a reference implementation and many users run desktop wallets for the features, autonomy, and control they offer. Running on general-use operating systems such as Windows and Mac OS has certain security disadvantages, however, as these platforms are often insecure and poorly configured.
Paper Wallet – The keys controlling cryptocurrency can also be printed for long-term storage. These are known as paper wallets even though other materials (wood, metal, etc.) can be used. Paper wallets offer a low-tech but highly secure means of storing cryptocurrency long term. Offline storage is also often referred to as cold storage.
Hardware Wallet – Hardware wallets are devices that operate a secure self-contained wallet on special-purpose hardware. They are operated via USB with a desktop web browser or via near-field-communication (NFC) on a mobile device. By handling all cryptocurrency-related operations on the specialized hardware, these wallets are considered very secure and suitable for storing large amounts of cryptocurrencies.
Are These Wallets Safe?
That depends on the version and the format you have chosen, and how you use them.
The safest option is a hardware wallet which you keep offline, in a secure place. That way there is no risk that your account can be hacked, your keys stolen and your cryptocurrency whisked away. But, if you lose the wallet, your cryptocurrency is gone, unless you have created a clone and/or kept reliable backups of the keys.
The least secure option is an online wallet since the keys are held by a third party. It also happens to be the easiest to set up and use, presenting you with an all-too-familiar choice: convenience vs safety.
Many serious cryptocurrency investors use a hybrid approach: they hold a core, long-term amount of cryptocurrency offline while having a “spending balance” for liquidity in a mobile account. Your choice will depend on your strategy, and your willingness to get “technical.”
Whatever option you go for, please be careful. Back up everything, and only tell your nearest and dearest ones, where your backups are stored.