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When deciding how to secure your cryptocurrency, it is important you do research before getting started. Different users will have varying needs and not every solution works for every user.
This post is a guide for newcomers on all of the wallet solutions, from temporary to long-term storage. Below we’ll explain hot and cold wallets, software and hardware wallets, online exchanges in general, and the best options for you to safely and securely store your crypto.
Before trading cryptocurrency on an exchange, or buying from a broker, you’ll need to know about the different types of wallets and how they function.
Simply put, a crypto wallet consists of two elements:
Private keys grant you access to your wallets. The private key is all that is needed for you (or anybody else for that matter) to access your wallet, so it is vital you take all the steps necessary to prevent your private key from being lost or stolen.
Your public key, or address, which is typically provided as text or a QR code, is how you receive funds.
Cryptocurrency wallets aim to function in a way that “turns users into their own banks”.This can be both advantageous and disadvantageous, as becoming your own bank makes you and only you responsible for the security of your holdings.
To help you avoid any pitfalls, we have written this guide to explain how these wallets function and to provide some easy and safe solutions for storing your crypto, from Bitcoin to Ethereum to other cryptocurrencies.
You will want to use a combination of hot and cold wallets when trading and securing your assets, and getting started is fairly straightforward.
The distinction between these two types of wallets is that hot wallets are wallets which are online and in some way connected to the internet, whereas cold wallets are wallets which are not connected / can be disconnected from the internet. Storing your assets in cold storage is ultimately the safest way to store your crypto when not trading. Hardware wallets are prime examples of cold storage, but more on these later.
Regarding hot wallets and how they function, it is important to note that online exchange platforms manage your private key, so you are actually trusting the security of your wallet to your online exchange (wallet provider). If something were to happen and this provider lost your key or it was hacked, you could potentially lose your private key, and thus everything in that wallet. For this reason, it is advisable and best-practice to store your cryptocurrency in cold wallets when not trading on an exchange.
Cold wallets come in the form of either software wallets, which can be installed to computer desktops or operate in mobile apps, or removable hardware wallets, which we will touch on further below.
Cold wallets add an extra layer of security to your funds as these wallets can be disconnected from the internet to guard against potential hacking attempts, and further, because you do not have to rely on the security practices of an online exchange who manages your private key and thus controls your capital. We always recommend getting a good hardware wallet, either the Nano S or Trezor, to safely store your cryptocurrency.
In general, the majority of online exchanges offer Bitcoin Wallets, and while they are easy to set up and get started with, they vary in form and in function. Exchanges such as Coinbase and GDAX among others act as “hot” wallets, so this is where you will do your trading.
Other options for your Bitcoin wallets come in the form of software wallets such as Mycelium, which currently ranks as the most popular software wallet in the world. Mycelium can be installed on any Android or iOS device, but do not forget that your Mycelium wallet is only as safe as your phone. If your smartphone is jeopardized, or lost in a taxi, so too are your holdings in that specific wallet.
Another option rapidly increasing in popularity for Bitcoin wallets is Exodus, a newer desktop multi-asset wallet solution. Exodus gives users a multi-level breakdown of their holdings at a glance and an aesthetically-pleasing UI. The multi-asset functionality supports a number of cryptocurrencies, such as Bitcoin, Ethereum, Litecoin, Dash, EOS and more.
As of the time of writing, MyEtherWallet is one of the most widely-used and recognized Ether wallets in use today. This platform is a free, open-source client-side interface which allows users to interact directly with the blockchain. MyEtherWallet is user-friendly, with a number of how-to videos to get beginners started, and it is compatible with many hardware wallets.
User wallets are accessible through the web but stored on the user’s computer, mitigating some of the risks of storing funds online. Due to this fact, wallet security is solely the user’s responsibility. This means users must exercise online vigilance against phishing and hacking attacks to avoid losing their funds.
Another option available is MyCrypto, which functions and looks very similar to MyEtherWallet. MyCrypto is likewise easy to use and has a clean, beginner-friendly interface. And like MyEtherWallet, it has a number of user features such as hardware wallet integration, shapeshift token swap, buy widgets and more.
Ultimately, hardware wallets are the most secure wallet solution to store your crypto when not trading. Hardware wallets can be disconnected to the internet and thus are less vulnerable to hacking.
Private keys are kept in these wallets and never revealed – even to the user. If you lose your device, you have what is known as a “paper” wallet, a list of “seed words”, which you can use to recreate your wallet. Note: these “seed words” should be kept in a very safe place because if you lose these you will not be able to transfer your wallet onto your new device.
As of writing, there are two major names for you to consider when choosing your hardware wallet – the Ledger Nano S, and the Trezor. While there are other options available, these two have dominated the market and are currently the two most well-known and widely used.
The Ledger Nano S (LNS) is complete with an OLED screen and two hardware buttons to confirm transactions and view balances.
The Trezor is similar to the LNS, but the Trezor has a slightly larger screen and reportedly boasts a more complex security architecture.
Ultimately, the safest way to store your crypto is on a hardware wallet like the Trezor or the Ledger Nano S. You want control over your crypto, so never keep your assets on an exchange for long.
Beware of online phishing scams and wallet-seeking Trojans and viruses. And, most importantly, do not lose that 24-word seed backup for your hardware wallet in case your device is stolen, lost, or damaged. If you lose that seed, you cannot recreate your wallet.
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