What is a cryptocurrency wallet?
A cryptocurrency wallet is simply a place or device where a user can store their cryptocurrencies or tokens. Think of it as the wallet you have in your pocket, within this wallet you have cash, this can be equated to coins or tokens, and you have cards, which can be equated to private and public keys.
It is of the utmost importance to keep your cryptocurrency wallet safe, never share your private keys and never write it down anywhere on a digital device. If possible, try to remember your private keys and if you can’t do that write them down on paper and store them in a safety deposit box. It is also advised to use two-factor authentication (2FA) when logging in to your wallet, as this adds an additional layer of security.
Upon setting up a cryptocurrency wallet you will be given a private key and a public key. A public key is used to send, receive or verify transactions, think of this as your account number and sort code. A private key is essential to accessing your account, you will also need this to send funds – think of this as the long card number on your bank card.
Arguably the safest way to hold your cryptocurrency is on a hardware wallet, with the most reputable brands being the Nano Ledger, KeepKey and Trezor. The benefit of using a hardware wallet is that the private keys stay rooted in the device, meaning they can’t be exported into plaintext thus making it almost impossible to hack.
To access funds or transfer crypto on a hardware wallet users need to input a pin, this can only be reset with a 24 word seed, which will be written down, and stored securely, upon the initiation of the wallet.
Hardware wallets are also immune to malware and viruses, which in the past have caused issues for users of regular desktop or online wallets.
Leading cryptocurrency exchange Coinbase offer one of the most established wallets in the market, one key advantage over other wallets is that crypto stored in the Coinbase wallet is insured, meaning that if the wallet was to be hacked a user would receive their funds back from the exchange.
Jaxx and Electrum are two notable software wallets that store private keys on secure software, allowing users to send and receive cryptocurrency with additional layers of security. Electrum enables multi-sig support and it’s not pegged to a centralised server, so server downtime would not be an issue. Jaxx, meanwhile, uses a seed similar to hardware wallets, they also have Shapeshift integration meaning that users can exchange their crypto seamlessly within the site.
A cryptocurrency paper wallet is a way of storing crypto offline in cold storage. To have a paper wallet users must print out their public address and private keys on a piece of paper then store it securely where nobody has access. The reason many cryptocurrency holders use a paper wallet is because they don’t need to worry about a piece of hardware, or a piece of software failing, all they need to take care of is a piece of paper.
Users can create a Bitcoin paper wallet easily on Wallet Generator, as soon as the setup process is complete all trace will be deleted from the website. The most reputable Ethereum wallet, with paper wallet facilities, is undoubtedly MyEtherWallet as it can hold every single erc-20 token as well as Ethereum. The benefit of MEW is that users can transfer, receive or check balances of their crypto even when the website is offline. It rose to prominence in 2017 as the ICO revolution was well underway, with many ICOs being launched as erc-20 tokens on the Ethereum blockchain.
Cryptocurrency wallets and the technology behind them are advancing rapidly. Hardware wallets offer the most security while software based wallets like JAXX and Electrum offer speed and efficiency. Regardless of which wallet is eventually chosen for use, users must consider the importance of safely storing their cryptocurrency.
While the space is still in its infancy there is still a dark side to cryptocurrency where entities will try to hack, scam and steal from others. Users can protect themselves by this with rigorous storage of coins and tokens, users are advised not to leave funds on an exchange and never to share their private keys with anyone.