The issue of storing cryptocurrency is always acute – as the popularity of digital money grows, so does the number of those who want to steal it. Today, the editorial staff of Btcnewsweb.com will consider wallets for cryptocurrencies, which will allow you to be calm about your funds, as well as conveniently manage them.
- 1 What is a cryptocurrency wallet and what is stored in it
- 2 What are the types of cryptocurrency wallets
- 3 What is cold storage (offline)
- 4 What is hot storage (online)
- 5 What are software wallets
- 6 What is online storage (browser)
- 7 Crypto exchange account for storing cryptocurrency
- 8 What are hardware wallets
- 9 What are paper wallets
- 10 What are public and private keys for
- 11 Seed phrase
- 12 Conclusion
What is a cryptocurrency wallet and what is stored in it
A cryptocurrency wallet is an element of an extensive network that stores data on all transactions carried out in it. In such a wallet, there is no money as such – there is only information that someone has transferred funds to you, or you have sent them to another user. On the basis of these transactions of income and expenses, the current balance is formed.
Another difference between crypto wallets from Yandex.Money, WebMoney or other virtual platforms is the absence of a central issuer. There is no single company overseeing translations. At most, there is a company that provides maintenance of the software part, which we see as an interface. All operations, however, take place internally – on the blockchain – and interference is impossible.
Another significant difference between cryptocurrency and fiat wallets is the ability to view the entire history of any user’s transaction. Information is recorded in the blockchain, and special blockchain observers make the transaction history and associated addresses publicly visible. True, it is impossible to determine which particular person the address belongs to.
What are the types of cryptocurrency wallets
Several types of wallets have been developed for storing cryptocurrency:
✅ web versions;
✅ accounts on crypto-exchanges.
All of them inherently can be divided into two broad categories – cold and hot.
What is cold storage (offline)
This method is in demand due to its high reliability. The key feature is that the wallet does not have access to the Internet and, therefore, is less vulnerable to hacker attacks. The cold method is chosen by those who plan to invest in a large amount of cryptocurrency for a long time, without touching the deposit once again.
Any information storage tool that does not require a permanent connection to the network belongs to the “cold-depo” category. In the case of software wallets, the user will also have to download the entire blockchain to their computer in order to ensure the operation of the application. Access to the wallet is carried out only if there is a key – a special encoded file. Simply entering a password is not enough here.
What is hot storage (online)
Hot cryptocurrency wallets are always connected to the network and have access to the blockchain. This category includes crypto exchanges and various online services. The advantage of the method is ease of use. At any time, you can quickly use the wallet, send or receive money.
The downside is lower security compared to the previous version. Services and especially exchanges are often hacked, so it is not recommended to store large amounts “hot”.
Now let’s move on to a more detailed examination of the current types of wallets.
What are software wallets
These include local desktop or mobile applications. Desktop computers are divided into two more subtypes: “thick” and “thin”. Each option has advantages and disadvantages.
For example, thick wallets have a very high level of security. When you install it on a computer, the full blockchain is downloaded (about 300 GB), and in the future, when performing operations, the program only needs to update the chain, making sure that the blocks are authentic. Access to the program is possible only if you have a private key – this is a program file that must be stored in a safe place. Its loss is fraught with the complete loss of funds stored in the account.
Thin wallets do not download the blockchain, but constantly turn to the network while working. Suitable for working on laptops / tablets, have a user-friendly interface. However, to verify transactions, the wallet turns to a third-party resource, as a result of which hacking is possible.
Examples of software wallets:
- “Thick” is primarily Bitcoin Core. Official client that can be downloaded from bitcoin.org. Versions are available for all operating systems.
- Thin is Electrum, a popular and convenient high security wallet. There is a version for storing Bitcoin and its forks.
“Thin” cryptocurrency wallets include: Exodus, JAXX, SatoWallet, etc.
Mobile wallets (applications) are only thin, since it is impossible to download a full-fledged blockchain to a device, and there is no point. Examples of such applications are Coinomi, JAXX, Lumi, Blockchain, Mycelium, Infinito Wallet, Guarda, Kcash, Agama Wallet Mobile, and others.
What is online storage (browser)
Online wallets are services that are owned by a third party and the developers are committed to storing private keys on their servers. Most often, such wallets are multicurrency, and their interface allows you to quickly exchange one currency for another.
The advantages include quick registration, no need to enter personal data, speed and ease of use. The disadvantage is the same hacking threat. No service is 100% insured against hacker attacks. In addition, the site charges an additional commission in its favor for each operation.
Examples of popular online wallets:
- Coinbase – Allows you to work with Bitcoin and Ethereum.
- Blockchain is a site with a user-friendly interface and many functions for comfortable work. Supports working with cryptocurrencies: Bitcoin, Ethereum, Bitcoin Cash, Stellar Lumen.
- MyEtherWallet. Interface for working with Ethereum cryptocurrency and ERC-20 tokens.
Crypto exchange account for storing cryptocurrency
In English, the method of storing cryptocurrency on an exchange is called “custodial wallet”. At the same time, private keys are stored by the service operator – that is, on the exchange servers. The main advantage, because of which this method is chosen, is the constantly available trading opportunity. Relevant for traders who make money buying and selling currency. Finally, there is no need to download any software to the computer, all operations take place in an online environment.
Cons – no cryptocurrency exchange can guarantee one hundred percent safety of money. Almost all sites faced attacks, and this always entailed more or less significant losses for users.
Examples of crypto exchanges that allow you to keep funds in your account for free:
- Binance. One of the most popular trading platforms today, within which you can buy any of the hundreds of cryptocurrencies for BTC, USDT, ETH or BNB.
- EXMO. A fairly reliable platform that is in demand among users from the CIS countries. It also supports fiat currencies in addition to digital.
- Localbitcoins. Online platform for buying or selling Bitcoin. After registration, a wallet is provided for storing cryptocurrency.
What are hardware wallets
A hardware wallet for cryptocurrency is a storage in the form of a physical device the size of a USB flash drive, where you can safely store balance information and private keys, and you can use such a wallet to transfer funds only when it is connected to a computer or other device. This virtually eliminates the possibility of hacking.
The most popular among hardware wallets are two options:
- Trezor. Released in 2013. The cost ranges from 69 to 149 euros, depending on the model.
- Ledger Nano S. Released in 2016. It costs about 80 euros.
Both devices have a display with which you can carry out minimal account management or view the balance.
What are paper wallets
The method of cold offline storage of cryptocurrency, which is suitable for long-term investors, is not very convenient to use money.
The bottom line is that two keys (private and public) are printed on an ordinary sheet of paper in the form of QR codes. The sheet must be stored in a safe place where it cannot be stolen or damaged. The client gets access to his account by scanning the QR code.
A paper wallet is unlikely to be needed for those who are going to often buy and sell cryptocurrency. But for long-term storage, the option is suitable.
One of the programs that are many on the Internet will help to make a paper wallet. It will randomly generate codes, and then give the opportunity to print them. All such programs are open source, so everyone (who is versed in programming) can look and make sure that they do not perform any unnecessary actions.
For example, the online private key generator bitaddress:
What are public and private keys for
Bitcoin and all coins that arose after it are based on pairs of cryptographic keys:
- Public – well-known.
- Private – hidden. They are carefully guarded, because if an intruder gets hold of the private key, then it will not be difficult for him to steal the funds of the wallet owner.
Visually, the keys look like a sequence of letters and numbers; this is the result of converting to WIF format. In the original, these are just very large numbers.
Private keys are generated by a crypto wallet and stored with its help. They are needed to encrypt data and authenticate the user, as well as to generate another key – a public one. A simplified “version” of the public key is the address to which transactions are sent in the cryptocurrency network.
The private key, firstly, gives the user access to his funds, and secondly, it signs the transactions he sends. Despite the fact that transactions in the blockchain are visible to everyone, no one sees the private key, it only serves as a confirmation that the sender has the right to perform such an action.
For example, this is how the private (lower part of the picture) and public keys or addresses of the Bitcoin cryptocurrency (upper part) look in various formats:
Note. Bitcoin wallets use addresses that start with 1 or 3. Bitcoin private keys usually begin with “L” or “K” (WIF format) and are 52 characters long.
In case of loss of access to a cryptocurrency wallet, it can be restored using a seed phrase of 12 (24) unrelated words. This phrase looks something like this:
The sentence does not make any sense, it just needs to be written down or remembered somewhere. Then, no matter what happens to the wallet, there will always be an opportunity to restore access to your funds.
Clients of hierarchical deterministic wallets can take advantage of this advantage – almost all modern wallets work with this technology. The seed phrase is generated simultaneously with the creation of the wallet, it is then that it needs to be recorded or saved somewhere.
The choice of a suitable method of storing cryptocurrency depends on the goals pursued by the owner of the coins. For example, if the priority is to make money quickly and to trade, which depends on momentary changes in the exchange rate, then you can stop at the exchange wallet.
If you plan to store cryptocurrency as a long-term investment, then it is better to choose cold storage options. Usability and personal preferences of the user play a significant role.
The main thing is to choose wallets that have already developed an excellent reputation for a long time and productively working for the benefit of the crypto community.