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As you have no doubt realized by now cryptocurrencies are not stored or maintained like your normal fiat (cash) currencies. No banks involved. Cryptocurrencies are stored on secure digital wallets that store public and private keys and interact with various blockchains. That means if you want use Bitcoin or any other cryptocurrency you will need a wallet.
These wallets allow you to store, send and receive digital currencies such as Bitcoin, Litecoin, or Ripple. That may sounds easy enough, Ill just download a wallet and Im in the game. Its not that easy, so Im here to help you understand the differences and even compare a few.
Let us start with how a wallet works:
There are lots of misconception and misunderstanding about cryptocurrency wallets even though their use is prevalent. Crypto wallets are similar to your home safe. You have a key (or code), and you had better not lose that key as you could lose ownership of your valuables. Instead of a physical box crypto wallets are software programs that store your public and private keys. See, similar. Dont lose your effing key! 😉
Private keys are essential. If you do not own your private key, you technically do not control your cryptocurrency. Again Dont lose or share your key! Your private key looks something like this (This is not a valid key):
So do you remember we said wallets store, send and receive digital currencies, right? When a person sends you Ethereum (or whatever) you will need your private key to access the funds transferred and access your assets. This movement of assets from wallet to wallet, or wallet to cryptocurrency exchange is recorded on the blockchain and your wallet balance will reflect that.
How do you send and recieve?
Your wallet will have a public and private key/address. The public key is used to send and receive cryptocurrency and can be disseminated with others. If you wish to send cryptocurrency from your wallet to another address, or exchange, you will have to be provided an address to send to. It is very important you copy and paste the address correctly. Verify before you send.
Your private key is used with the public key to create a signature that cannot be forged. Your private kry must be kept a secret. Varys like secret. Eunuch like secret.
What type of cryptocurrency wallets are there?
You can download a wallet to your smartphone, you can create one online via a web browser, you can download a wallet and store it on your PC or you can buy a physical wallet. Wallets all come down to three categories: hardware, software or paper.
- Mobile: A mobile wallet will run on your smartphone. Much like your PC security is high as only you control your smartphone. Same setbacks apply though: Hacked, virus or a stolen phone compromises your wallet. MyCelium is arguably one of the best mobile crypto wallets
- Desktop: These wallets are downloaded and installed on your PC or laptop. Because the wallet installed on your pc or laptop, it can only be accessed from them. Desktop wallets offer a high level of security but if your computer gets a virus or is hacked your wallet could be compromised too. Bitcoin core is an example of a Bitcoin desktop wallet.
- Online: Wallets that are on the cloud, web based. These are by far the most convenient wallets as it gives you the ability to access your funds it from anywhere. There are two main drawbacks to online wallets. If you recall from the beginning of this article I said If you do not own your private key, you technically do not control your cryptocurrency?Online wallets store your keys online and are therefore not controlled by you. This makes them vulnerable to attach and theft. *IMPORTANT: Be certain to double check the URL for your online wallet (bookmark it) before entering passwords. There are a lot of phishing scams out there.
- Hardware: By far the most secure method of storing your crypto loot. In this case your private keys are stored on physical device, not unlike a USB drive. While your HW wallet has to connect online to send and receive currency, they are stored offline which provide added security.***Important: We recommend you always purchase your hardware wallet directly from the manufacturer. Better to be safe than sorry. Also always record your written backups of your keys.
- Paper: A paper wallet is a piece of paper that contains copies of the public and private keys that make up a wallet. Will generally also have a QR code for a quick scan. The benefit of a paper wallet? Simple: The keys are not stored digitally anywhere
Cryptocurrency Wallet Safety:
|Wallet Type||Security Level||Example wallet|
|Desktop||Medium||Bitcoin Core, breadwallet|
|Hardware||High||Ledger or Trezor|
|Paper||Highest||Paper, you fool|
Ultimately its up to you to decide how comfortable you are with which type of wallet. I know many people who use a combination of two or three wallets. Do your research and review the products you plan to use. In a way selecting a cryptocurrency wallet is like selecting a bank to store your cash. You want: Security, peace of mind and confidence in the product.
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