So, you finally decided to take a leap and invest in cryptocurrency? That is going to be one of the smartest investment decisions that you can make today! However, there are some things that you need to know about the safety & storage of your digital currency – before you go ‘all in’ with this venture.
Ever since cryptocurrency appeared some years ago, its value has been on a rise, and it has become embedded deeply into our current global economy. From the moment cryptocurrency appeared on the market, it was clear that it would be an important factor in the modern global economy. People who invested in this digital money have seen value of their investment multiplied several times, and if experts are to be trusted, this trend will continue in the years to come.
For example: In the first quarter of 2017 , the value of Bitcoin surpassed the value of gold for the first time in history, and analysts now estimate that people make transfers with this currency in the approximate value of $50 million – daily. In the last month of 2017, Bitcoin has reached the $10,000.00 mark, and shows no sign of stopping or regressing its growth!
So why is cryptocurrency so great?
Cryptocurrency is decentralized and separated from any governmental state, unlike the US dollar or the European Euro. Because of this decentralization, it doesn’t depend on politicians, banks, inflation, deflation, or government regulations. Also, it brings another great quality to the table – it is encrypted! Hence the name “CRYPTO-currency”.
This means that this entire system is built on strong cryptography, so it isn’t secured by governments, trust, banks, or even people, it’s secured by mathematics. This means that no one can manipulate the public ledger or counterfeit any cryptocurrency without an astronomical investment in technology – far above that of any return they would receive. Beyond that, all of the cryptocurrency market is publicly accessible and impossible to manipulate, without everyone noticing. So essentially, nobody can just “crack the code” and produce unlimited amounts of this digital money, which means that its value will not see a sudden plummet due to criminal actions.
Sure, when the currency you use is global, you can expect global changes to influence it, but, even though a coin can gain 10 percent one day, and then lose 8 percent the next, you will never lose with digital money, since its value is on a constant rise.
For instance, Bitcoin was worth nothing when it appeared in 2009. Then, in 2010, its value was $0.39 to rise to $2200 in 2015 and $4500 in the beginning of 2017. By December of 2017, it has risen to over $10,000.00 and is still going strong! When you look at the yearly graphs, you can see that there were fluctuations, but the rising trend is easily apparent. And, experts predict the value of digital currencies will keep rising.
So, yes, investing in this currency is a great financial decision, but you need to be careful. If you plan to use a cryptocurrency, you will need a secure digital wallet. It will make your transactions significantly simpler, safer and more efficient.
If you do a quick Google search, you will see that there are dozens of digital wallets out there, but you need something that is safe, with multi-level authentication and enhanced encryption, something that can keep your valuable cryptocurrency safe. In order to find something that suits your needs, you have to understand what cryptocurrency wallets are, how they work, how safe they are, and which ones are the best. Keep reading.
Cryptocurrency Wallets?
Cryptocurrency wallet – what is it actually? When you break it down, it is a software that stores your public and private keys, communicates with various blockchain and allows you to send and receive digital cash, and lets you control your balance. Basically, if you want to use any cryptocurrency, you will have no other choice but to get one of these wallets.
How do cryptocurrency wallets work?
Even though there are millions of people who use these wallets, there are many misconceptions about how they actually function. Unlike a physical wallet that you keep in your pocket, digital wallets are not filled with your currency. Actually, your digital cash isn’t stored in any specific location, and it doesn’t exist in a physical form anywhere in the world. What does exist are records of your transactions stored in the blockchain.
So, these wallets are actually programs that store your keys – both private and public, that communicate with blockchain and enable the use and monitoring of your funds.
When someone decides to send you bitcoins or any other digital currency, they are actually signing ownership over those coins off to you, or, to be more specific, to your wallet’s address. Once the funds are sent, the private key you have stored in your digital wallet has to match the public address that the currency was sent to in order for you to start spending that currency. If these two keys match, the amount of currency in your sender’s wallet will decrease and yours will rise accordingly.
There is no physical exchange of money or coins in this case. The only thing that signifies your cash exchange is a transaction record that exists on the blockchain, and a change in your digital wallet.
Are there different types of cryptocurrency wallets?
Yes, and they all give you different ways to access and store your cryptocurrency. There are three categories of these wallets – paper, hardware, and software.
A paper wallet is a physical copy of your private and public keys, either written down manually, or by software that you used to safely generate public and private keys which then get printed. If you want the most secure wallet possible, paper is the easiest and safest way to go. Just make sure to have multiple copies made, and keep them in a safe place. Preferably one that is water and fire proof!
When you want to transfer any currency to the paper wallet, it is done by a simple transfer from any software wallet to the public address that is shown on your paper wallet. This works simply, and it can be done manually – you enter your private keys, or by scanning the QR code that is on your paper wallet. Just make sure to have enough public keys made for your paper wallet prior to use, or you will have to open up some other form of wallet to generate more at some point.
Hardware:
The main advantage of hardware wallets is the fact that they store your private keys on a physical piece of hardware. Even though these make transactions on-line, they have an increased level of security because (much like paper wallets) they are stored off-line. These wallets can support multiple currencies, and they can interact with different web interfaces. You make a transaction by simply plugging your device into any device that has an internet connection, entering a PIN, and sending the currency.
These wallets are for those who don’t fully trust an on-line wallet, or those who want an added layer of security. They are also for people who want their transactions to be simple, and their currency to stay off-line, away from danger. The best feature of such wallets, is that their pin codes are only accessible from viewing the physical device itself. They ensure that nobody can simply “hack” their way into the wallet, making them the most popular choice for safety.
Software wallets come as three different types; on-line, mobile, and desktop.
- Online: These wallets are on the cloud, and you can access them from any location and from any device. Even though they are more convenient in the terms of usage and access, they store the private keys online, and they are controlled by third parties, so they are more susceptible to theft and hackers.
- Mobile: This type of wallet runs on an app, within your mobile device, and they are mostly useful because of their mobility, as they can be utilized in retail stores, or wherever else you want to spend. These are a lot simpler than their online versions, however, they are the least secure wallet choice.
- Desktop: You need to download and install these on your computer. They can only be accessed from that one computer where they are downloaded. When security is in question, these particular software wallets are the safest, but if your computer gets a virus, or someone hacks it, you can still lose all of your cryptocurrency.
Cryptocoin Wallets FAQ
How safe are cryptocoin wallets?
It all depends on the type of wallet you decide to use, and on your service provider, safety will vary depending on what you choose. An online server is innately less safe for currency storing when compared to an offline version.
Online wallets have that flaw that they can expose you to vulnerabilities in the platform itself, as every one of those can be used by hackers to steal your currency. On the other side, we have offline wallets that can’t be hacked, simply because they don’t rely on a third party, and they are not connected to any online network.
When safety is in question, online wallets are the least safe and most prone to hacks, but, whichever digital wallet you decide to use, you need to be careful and exercise every precaution when you use it. Also, no matter which wallet you use, if you lose your private key, you lose your funds.
Another matter that you should be aware of is the fact that if you are a victim of a hacker, or you send currency to a scam artist, there is no way to reverse the transaction or get that money back. No matter how safe your wallet is, be careful with your transactions!
How can I add to the security of my wallet?
Software updates
If you want to have the newest security enhancements, you need to update your software regularly. This doesn’t mean that you should update just your wallet software, but also the software on your mobile device, and on your PC and laptop. Security flaws are constantly being patched in new updates to all software, and even hardware. Don’t neglect this critical practice for any reason!
Backup
Only keep small amounts of your cryptocurrency online or on your mobile & computer, and keep the rest somewhere extremely safe. Offline storage options like paper or hardware USB will protect you from some of the greatest risks that come with cryptocurrency wallets – computer failures, wallet theft or loss. Unfortunately, not even this method can keep you safe from capable hackers. But, to be honest, just like with a physical wallet, there are certain risks that are inevitably present when you decide to use online wallets, and you can never be 100% safe from those.
Additional security layers
The more layers you add, the safer your money is. Start with setting up long and very complex passwords. Then, ensure that every transaction requires a password. Use digital wallets that are in high regard, and have extra security such as an additional pin code requirement for every time you open the app, and a two-factor authentication. You might also want to take into consideration wallets that offer multi-signature transactions (Copay, Armory) – these demand a permission of another user or users before allowing a transaction to be made.
Should I use my wallet for one currency or many? As more and more cryptocurrencies emerge, encouraged by the success of Bitcoin, it might be simpler to use a digital wallet that can support several currencies. That is, if you are interested in using any of the many altcoins at all. As safety goes, there’s no need to set up a different wallet for every currency, it’s okay to keep them together.
Will I pay transaction fees?
This differs from one wallet to another, and from one transaction to another. When you make transactions via your bank account, you need to pay a fee that is a fraction of the transaction value. Compared to those fees, these are minuscule, or non-existent.
In some wallets, you can set your own transaction fee, but be careful, if you choose a fee that is too low, your transaction might be rated as low priority, resulting in a very slow transaction that might take hours or days to get confirmed. If you need a swift transaction, set a bigger fee.
But, whichever wallet you decide to use, fees are your last concern. If there are fees, they are insignificant, and that is definitely better than what you have to give to the bank.
Is my privacy safe?
Cryptocurrency wallets are not really anonymous, they are pseudonymous. They are not connected to your identity, but every transaction is stored on the blockchain, meaning that it is public and permanent. So your name and address will not be in your wallet, but your wallet address can be traced to you in many ways. At the moment, efforts are being made in order to secure complete privacy and anonymity, but if you think about it, that might have some serious downsides as well.
How do I choose the best wallet for my needs?
The list of cryptocurrency wallets is growing by the day, and before you make your choice, you should bear in mind the use you plan for it. Are you looking for a wallet that can ensure everyday purchases? Or do you want to store cryptocurrency as an investment? Are you looking for a wallet that can hold different currencies? Do you need to be able to access your wallet from anywhere, or is it okay if you can use it from your home only?
Still wondering which wallet is best for you?
Here’s a list of some of the most popular wallets that are on the market at the moment, together with their pros and cons. Hopefully this list helps you to make an informed decision and take a step in the right direction.
1. Trezor
This is a hardware wallet for Bitcoin, great for storing large amounts of this currency. Can’t be malware infected, never shows your private keys, so it’s safe as any wallet can be. It is OS X, Linux and Windows friendly. The only problem with it is the fact that if you want to send funds, this device has to be with you. This is perfect if you want to invest in Bitcoin, and keep it safe with little worry.
- Pros – Very good privacy and security, offline storage, simple to use, a screen built in, open source software.
- Cons – You must have the physical device in order to send bitcoins, Need two or more for backup, Pricey – ranges from $99.00 to $120.00
2. Armory
Great for advanced users who appreciate high security, as it offers multiple options like key sweeping, one-time backups that you can print, wallet encryption that is GPU resistant and many others. It is a bit complicated but offers great value to people who want their cryptocurrency safe.
- Pros – Free, great security, decent privacy, offline storage options, multisig options.
- Cons – Best for advanced users only, accessible solely through desktop client, only used for Bitcoin.
3. Ledger Nano
A hardware device that looks and weighs like a USB stick, but has a screen for confirming transactions. Like the Trezor, it eliminates the common security threats that come with storing funds online. It is a quick and safe way to manage your cryptocurrency.
- Pros – Not expensive, device is protected by a metal cover, supports multiple currencies, support U2F, ability to run 3rd party apps from the device, the entire process of wallet recovery from seed can be done without a computer connection.
- Cons – Small number of features, no advanced software for the wallet, can’t create hidden accounts, can’t manage passwords easily.
4. Jaxx
Jaxx supports currencies like Ether, Dash, Litecoin, Zcash, DAO, REP, Rootstock, and Bitcoin. It was made to be simple, and it is available on every device and platform you might want to use – Linux, OS X, Windows, Firefox, Chrome, iOS, and Android. It also allows in wallet conversions between different cryptocurrencies. Since they constantly add new currencies, Jaxx is great for those who need a wallet that supports multiple options.
- Pros – Free, decent security and privacy, simple to use, supports multiple currencies, multiple platform accessibility, a choice of features, amazing user support.
- Cons – The code isn’t open source, loads slowly from time to time.
5. Green Address
A Bitcoin wallet that is a great choice for those who are just starting with digital wallets. It is accessible from every device that can use Chrome, Android or iOS, making it great for mobile users, as well as those who utilize desktop and laptop. It offers many features when it comes to safety, as well as momentary confirmation of transaction. The only serious flaw is the fact that they have to approve every coin you spend, so you have a feeling like your funds aren’t at your full disposal.
- Pros – Free, great security, good for beginners, accessible through multiple devices and platforms, multiple-signature transactions, open source software.
- Cons – Privacy could be better, third-party trust necessary, hot wallet.
6. Blockchain
This is among the most popular Bitcoin wallets for a reason. It can be accessed from any smartphone or browser, it provides additional safety layers, and they have no private key access. They are well established, and if the word of mouth is to be trusted, they are among the best wallets for your funds.
- Pros – Free, great for beginners, very good security, simple to use, available online and via mobile, trusted company.
- Cons – Poor privacy, hot wallet, experienced several outages, third party approval.
7. Copay
If you are looking for the best, and most convenient, this wallet created by Bitpay should be on your list. It has something for every user – it’s easy to use, so beginners won’t experience difficulties, and it has many interesting features, so advanced users can enjoy it as well. One of the options people seem to love the most about this wallet is the fact that it is a multisig wallet, so business partners, friends or family members can share funds.
- Pros – Free, great for beginners, decent security and privacy, accessible through multiple devices and platforms, multiple-signature transactions, storage available for multiple wallets, open source software.
- Cons – Poor user support, occasionally slow and unresponsive.
8. Bread Wallet
A simple wallet that makes sending cryptocurrency as easy as sending a text. You can download the app both from Google Play and from the App Store. Simple design, ease of use and constant security improvement makes it a great choice for everyone.
- Pros – Free, simple, great for beginners, decent privacy and security, open source software.
- Cons – Hot wallet, has no desktop or online interface, small amount of features.
9. Mycelium
Absolutely perfect for advanced users who are looking for a new Bitcoin wallet. You have complete control over your funds, you can use it on Android phones as well as on iPhone to receive or send cryptocurrency safely. It offers offline storage, PDF backups and it has a QR scanner, so its popularity is understandable.
- Pros – Free, decent privacy, great security, many different features, open source software.
- Cons – Not beginner friendly, hot wallet, no desktop or online interface.
10. Exodus
Desktop available only, this new digital wallet lets you trade and store Bitcoin, Litecoins, Ether, Dash, and more through a simple and well-designed interface. If you decide to use, it also offers a backup guide that is rather simple. Another great thing about this wallet is the fact that it was made in shapeshift, so you can exchange your funds without actually leaving the wallet.
- Pros – Free, good for beginners, decent security and privacy, simple to use, multiple currency support, intuitive, open source software.
- Cons – No mobile or online interface, hot wallet.