A cryptocurrency wallet is a must-have tool for anyone who would like to safely store their virtual assets. If you also intend to use it, be sure to read our guide. In it, we discuss the operation of individual wallets and also suggest which one may be best for you.
Beginner investors treat cryptocurrency exchanges as a place not only to trade but also to store virtual assets. This is a big mistake, because while exchanges allow you to exchange cryptocurrencies cheaply and conveniently, in the latter role they are already average.
You will learn why in a separate article in which we explained how safe cryptocurrency storage looks like. At this point, we will only remind you that, unlike the stock exchange, the wallet gives you full control over your assets and is associated with a lower risk of losing them.
What Is A Cryptocurrency Wallet And What Is It For?
At the outset, let’s explain that when writing about keeping cryptocurrencies on an exchange or an external wallet, we used a certain simplification. It is popular because it captures the essence of the matter without delving into its difficult technical aspects. However, to better understand the specifics and operation of cryptocurrency wallet, you should take a closer look at these aspects.
You need to know that bitcoins, litecoins, ethers, and other digital assets never leave their blockchain networks and thus are never “physically” transferred to a separate exchange or wallet system. However, private keys are assigned to cryptocurrencies that allow you to access them and, for example, transfer them to another address in the network.
This means that anyone who knows a given private key can use the assets assigned to it. Therefore, when we talk about cryptocurrency storage, we mean private key storage. A cryptocurrency wallet is a storage place not so much for digital assets as for the private keys associated with them.
It usually takes the form of an online application or a physical device that interacts with a computer. In both cases, it also allows you to send and receive crypto.
On the other hand, the private keys themselves are nothing more than long, random strings of numbers and characters. It is practically impossible to remember them, so they are saved in special wallets.
You can also keep such passwords, for example, on ordinary pieces of paper (then we are talking about a paper wallet), which is considered a safe solution, but at the same time not very convenient. Because the keys are complex strings of characters, it can be quite difficult to save them and use them later each time.
Anyone who knows the private key has full access to the cryptocurrencies assigned to it. It is necessary to be able to perform cryptocurrency transactions, so its loss usually means the loss of cryptocurrencies.
Additional Security For Your Cryptocurrency Wallet
If you forget your bank account password or lose your payment card, you can easily solve the problem with the help of your bank. In the case of difficulties with accessing the cryptocurrencies stored in the wallet, the matter seems to be more complicated, because you cannot count on the help of any institution here.
Keep in mind, however, that many cryptocurrency wallets (mainly those that are physical devices) use additional security in the form of the so-called seeds. What is it about? The aforementioned seed is a collection of English words that occur in a specific order and allow, among others, regain access to a lost cryptocurrency wallet.
Specifically, if your computer or hard drive with private keys fails or someone steals your physical hardware wallet, knowing the passphrases, you can still access your cryptocurrencies.
In this situation, it is enough to buy a new wallet or reinstall the necessary software, and then, when starting the application for the first time, enter the seed assigned to the wallet, which will allow you to recover bitcoins or other cryptocurrencies.
Seed is the password to the wallet and its backup at the same time. As long as you have exclusive access to it, you can freely and safely use your cryptocurrencies.
Cryptocurrency Wallets – Basic Types And Their Operation
Cryptocurrencies have been around for a good few years, so they have had a large number of storage methods. Within the basic division, each of them can be classified as a cold wallet or a hot wallet. How are these solutions different?
Cold wallets work offline, meaning they are cut off from the network and therefore highly secure. These have form wallets and hardware wallets, i.e. devices from Ledger or Trezor, which resemble pen drives and connect to a computer via USB.
Physical wallets are more convenient to use, but they involve an expense of several hundred zlotys, which is why they are mainly chosen by investors who invest slightly larger amounts in crypto.
Hot wallets, or hot wallets, work online all the time. This makes them less resistant to hacker attacks and theft, but at the same time, they provide greater convenience of use than hardware wallets or paper wallets. Due to the lower level of security, it is better to keep only small sums on them.
Importantly, there are several varieties of online wallets. We have mobile versions for phones and desktop versions, which come in a light and full version (it involves downloading the entire transaction history from the blockchain network) and are installed on the computer.
There are also browser apps that you can connect to for free from any computer. Individual solutions can be dedicated to only one specific cryptocurrency or many different digital assets.
However, regardless of which online wallet we are talking about, access to the stored private keys is usually protected by a set password and possibly a login. Some mobile solutions also enable biometric login using a fingerprint reader or face scan.
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Hardware Wallets And Other Methods Of Storing Multiple Cryptos At Once
A great convenience would be to use a wallet that allows you to freely store any digital currency. The problem is that there is no such thing and probably won’t be for a long time.
This is because individual types of cryptocurrencies work slightly differently and have separate, autonomous systems.
On the other hand, you don’t need a separate wallet for each cryptocurrency. Hot and cold wallets are available where you can hold hundreds or even thousands of different virtual assets. Among the most popular of them we can include:
- Exodus (desktop and mobile),
- Atomic Wallet (desktop and mobile),
- Coinomi (desktop and mobile),
- Enjin (mobile),
- Ledger Nano S (hardware),
- Trezor (hardware).
The listed wallets differ in terms of the cryptocurrencies that can be stored, the method of logging in, or the available additional functions.
To choose the best solution for you, visit the website of the creators or manufacturers and familiarize yourself with the functionality of individual wallets.
If you want to invest exclusively in Bitcoin, then you have the largest number of storage options to choose from.
The most important cryptocurrency is supported by every universal wallet, as well as some other solutions designed exclusively for it. Among the latter are e.g. Wasabi, Green Address, Wirex, or Bitcoin Core.
Ledger And Trezor Hardware Wallets
The highest security of cryptocurrency storage, next to paper wallets, is provided by hardware wallets.
Their market is dominated by two big companies, Ledger and Trezor, which offer several models of their devices. The latter differ primarily in price, supported cryptocurrencies, or material (usually steel or plastic).
Trezor and Ledger have many things in common. They support over 1,000 cryptocurrencies, including all ERC20 tokens on the Ethereum network, and have small LCD screens and two buttons each to manage the interface of their software.
In addition, they are compatible with both computers and smartphones with Android and macOS.
Trezor is an older company than Ledger, it also has a more established market position, which is why its products are more expensive and cost from around EUR 70 to even EUR 500.
The cheapest and most popular competitor’s model, the Ledger Nano S, is available as standard for around EUR 60, and on sale for EUR 40-50.
Both manufacturers offer equally good equipment that is easy and convenient to use, so when choosing an option for yourself, focus mainly on your needs and the functionality of individual models.
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How To Set Up A Cryptocurrency Wallet?
Since there are different types of cryptocurrency wallets, there is no single way to set them up either. In the case of hot wallets, the matter is usually solved by installing the appropriate software and then setting the access data. Depending on the type of online wallet, you will log in to it, for example, via a mobile application, a browser extension, or a program on your computer.
Individual solutions look a bit different, so if you want to set up a specific wallet, it’s best to follow the instructions displayed on its official website or in the application.
In the case of hardware wallets, you start the procedure by configuring the device. If it is, for example, a Ledger wallet (you can order it safely here ), then in the first step you have to connect it to the computer via a USB cable, and then set a PIN code that you will enter each time you log into the wallet.
The first time you run Ledger, it will generate 24 random English words that you must write in the order shown. This will be your wallet password, thanks to which you will keep access to it even if you lose your device. However, you do not enter it every time you want to open your crypto wallet – the PIN itself is enough to log in.
To be able to use Ledger, you still need to install the appropriate application from the manufacturer’s official website. You run the Ledger Live software each time you connect the wallet to your computer and want to perform some operation on it, e.g. check the balance or transfer cryptocurrencies.
When it comes to setting up a paper wallet, the activities are limited to generating and saving the private key. You can generate the key when the Internet is turned off, but keep in mind that even this does not ensure 100% security.
You can never be sure that your computer is not infected, so downloading and keeping the key on the disk, or even just printing it (it is enough that the printer was online) involves minimal risk of data loss.
Summary
No cryptocurrency wallet provides full protection, but keep in mind that funds in a bank account or shares in a brokerage account are never 100% safe either. Your behavior has a large impact on the level of security of stored assets, i.e. how you handle access passwords and whether you take all precautions when using the computer and the Internet.
The fact is, however, that in the case of cryptocurrencies, the choice of how to store them is crucial. Therefore, if you want to invest a large amount in them for a longer period, it is better to choose one of the hardware wallets that will provide you with the highest level of security and, at the same time, great convenience of use.
However, if you intend to invest a small sum in crypto, and at the same time you do not know yet whether you want to stay in this market for longer, then choosing one of the free online wallets will not be a bad solution.