Cryptocurrency Wallets: All You Need To Know To Keep Crypto Safe
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A cryptocurrency wallet is the best way to keep your cryptocurrency secure.
Every cryptocurrency trader should have one unless they are trading cryptocurrency as a CFD.
If you don’t use a cryptocurrency wallet and you leave your cryptocurrency on an exchange, you run the risk of getting ‘goxxed’.
Before you even think about buying cryptocurrency, get yourself a cryptocurrency wallet!
In this article, we’ll explain exactly what a cryptocurrency wallet does, the different types of cryptocurrency wallets and how to keep your cryptocurrency wallet safe.
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What is a cryptocurrency wallet?
In short, a cryptocurrency wallet is where you store your public and private keys which give you access to your cryptocurrency.
Your public key is the one you share so people can send you money.
And your private key is what you need to send cryptocurrency. You must keep this safe as if people get hold of it, they can steal your cryptocurrency.
You do not store your cryptocurrency in your cryptocurrency wallet. In most cases, it is stored on a decentralised blockchain.
There are several things to consider before getting a cryptocurrency wallet. Here are some of the most important:
- How regularly do you use cryptocurrency? Are you looking for a safe space to hold your cryptocurrency and not use it very frequently, if at all, or do you regularly use cryptocurrency to pay for things?
- How do you want to access your wallet? Some wallets can only be accessed via a computer or a mobile.
- How many cryptocurrencies do you want your cryptocurrency wallet to hold? Do you only want to hold one or many?
- What security features do they offer?
How private are cryptocurrency wallets?
Most cryptocurrency wallets are pseudonymous, which means that they are not necessarily tied to the identity of a user.
Your details, such as your name and address will not be shown but in most cases, people will be able to view public address and may be able to trace your transactions.
This may mean that people can figure out what it is you are sending.
Some cryptocurrency wallets may ask you for KYC (know your customer) documents. Depending on if you feel comfortable giving away such information, you may like or dislike this.
One upside to having submitted KYC documents is that if something does happen and you lose access to your wallet, you may be able to recover it.
It is also possible to create multi-signature wallets.
This is where multiple individuals are needed to sign off transactions, this can add another layer of security to your cryptocurrency wallet and is a great option for businesses.
Different types of cryptocurrency wallets
There are a variety of different types of cryptocurrency wallet that exist in many different forms.
Some wallets are only created to store certain cryptocurrencies, not every single type. Many can store the most popular cryptocurrency tokens.
Some more obscure cryptocurrencies might only be supported by wallets that have been created by the same developers.
Cryptocurrency wallets that are capable of storing Ethereum may also be able to accept other ERC20 tokens.
Similarly, cryptocurrencies that are a fork of Bitcoin may be able accepted by wallets that accept Bitcoin as they are technologically similar.
And some cryptocurrency wallets may also be able to store fiat currencies as well.
These kinds of wallets work online via a browser.
Many online wallets are ‘hot wallets’ which means they are connected to the internet.
While this makes them easier to use, it does mean that they are less secure. Being connected to the internet may mean that hackers are more likely to steal some of your cryptocurrency.
This option is better for people who only make online transactions and is not so easy or safe to use when you are not at home.
Every time you want to access your cryptocurrency you need to be online.
Desktop wallets are cryptocurrency wallets that you can install on your computer or laptop.
Because of this, they can work as both a hot wallet when it is connected to the internet and a cold wallet when it isn’t.
However, like the online wallet above, as they can only be used on a computer, they are best for those who mainly make online transactions.
Before you sign up to any desktop cryptocurrency wallet, you need to know if it will support your system.
As you can probably guess, mobile cryptocurrency wallets are essentially apps that you can download on your phone.
Just like desktop wallets, they can act as both a hot wallet and cold wallet.
Many come with the ability to scan QR codes to make payments.
Mobile wallets are more practical than most other types of cryptocurrency wallets because you can take them anywhere.
This means that it is easier to go out and purchase items on the street with cryptocurrency. Other options largely rely on you being near a computer.
If you decide to use a mobile cryptocurrency wallet, you need to be extra careful with what you do with your phone.
If you lose your phone, you lose your wallet and access to all your cryptocurrency. This is also true if you break your phone.
A great way to keep your mobile wallet safe is to have a phone with a fingerprint scanner.
A paper wallet is a form of ‘cold storage’.
What this means is that it is stored offline and cannot be taken by anyone.
Most paper wallets consist of little more than two QR codes, one for your private keys and one for your public keys which are printed onto a piece of paper.
Once you take your wallet offline, you should then find somewhere within your home to store it, such as a safe.
This option will be inconvenient for someone who regularly uses cryptocurrency and is more suitable for someone who wants to hold it for a long time.
Hardware wallets have become very popular with several being released in the last few years.
They are wallets that usually take the form of a USB or other hardware device that can be plugged into a computer.
Using them is relatively simple. In most cases, you will just need to plug them into a PC, enter a pin and then you can send cryptocurrency.
This option is useful for those who want to carry their cryptocurrency wallet around with them, however, in most cases, you’ll need to plug them into a computer to use them.
That said, you can also store them in safe as you would with a paper wallet.
You should also make sure that your hardware wallet cannot get infected with malware or viruses.
How to keep your cryptocurrency wallet safe
The safest option to many is to keep your cryptocurrency wallet offline in cold storage, however, this does make using your cryptocurrency a little more complicated.
Perhaps the best way to keep your cryptocurrency secure is to use both cold storage and another wallet.
Put most of your cryptocurrency in cold storage while keeping a smaller amount that you intend to use in an online wallet.
You can also add more layers of security to your wallet to keep it more secure, such as long and complex passwords with a good variety of alphanumeric and non-alphanumeric characters.
You can also look out for wallets that require or give you the option for two-factor authentication, and wallets that require a password prompt every time you make a transaction.
And as a general practice, don’t leave your wallet open on any device - mobile or desktop - always close it when you do not need it.
You should always be on the lookout for updates for your wallet as well. Hackers will always try to steal from you and so you always need to be up to date.
Another vitally important thing you can do is never boast about your cryptocurrency holdings. This is highly risky. There have been cases of people being attacked for their cryptocurrency.
In September 2019, a Bitcoin investor from Oslo, Norway, escaped a robbery for his cryptocurrency assets.
The case is a reminder of how careful you need to be when telling others about how much cryptocurrency you own.
If you remember anything about this article, make it these key points.
- A cryptocurrency wallet is where you store your public and private keys. You do not store your cryptocurrency there.
- There are many ways to store your cryptocurrency. Your choice depends on your preferences.
- Hardware wallets are becoming more popular. Many brands have been launched in the last few years.
- It is wise to store most of your cryptocurrency offline in cold storage and some online in a hot wallet. This way you can only spend what you need.
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