Crypto storage has never been more important than now when Bitcoin (BTC), Ethereum (ETH), Dogecoin (DOGE) and other cryptocurrencies are hogging the headlines on a daily basis. Therefore, it is highly important for cryptocurrency enthusiasts, investors, merchants, and users alike to learn how to store their digital currencies using a private wallet.
The hard truth you must understand is that storing your coins and tokens on an exchange or other public platforms is not safe but highly risky. In reality, cryptocurrencies were solely designed to be decentralized, giving you the power to control your own money.
Now, you need to understand what a cryptocurrency wallet is and how it functions. This is essential before you consider the option of trading cryptocurrency on an exchange, or even buying digital currency from a broker. These are the wallet features that will ensure you will safely store your cryptocurrency.
Elements of Cryptocurrency Wallets
A cryptocurrency consists of two elements; namely, a private key and a public address.
Private Key – A cryptocurrency user accesses their wallet using their private key. This is the only requirement for accessing a wallet. So, you can guess what will happen if this private key eventually enters the wrong hand; your assets are gone forever. A private key will serve the purpose of storing, sending, and receiving digital currencies. Liken it to your banking PIN.
Private keys must be kept secret. They combine with the public key to create a lasting special message signature when performing transactions.
Public Address (Key) – This is provided to a cryptocurrency holder as a text or as a Quick Response (QR) code. It is the address by which other people can transfer money to your wallet as well as view the source of funds they receive. Therefore, it is quite safe to share your public address with other people in order to complete a transaction.
A public address can be thought of as your bank account number. The public and private keys are connected when performing certain functions such as when validating signatures, signing messages, and creating identities.
Cryptocurrency wallets are unique in the sense that they are specific to the particular currency or coin stored in them. This means that a cryptocurrency wallet allows the holder or user to take responsibility for the security of their own funds.
Exchange Wallets are Least Secure to Store Money
Have you ever wondered why you don’t need to enter your private key when executing a transaction on an exchange? This is because the exchange has the private key of your wallet instead of you. Therefore, they own the wallet as well as the funds in them. Now you know why this is exceedingly vulnerable. However, there are two types of exchange wallets.
Hot Wallets – These are wallets used by online exchange platforms and they control private keys on behalf of their users. The perfect example of a hot wallet is just like carrying fiat money in your physical wallet on a daily bases. They are quicker and easier for exchanges to use such as bringing out fiat notes from your wallet.
For fast withdrawals and transfers, exchanges keep a certain amount of their user’s currency in hot wallets. These hot wallets are connected online and can be used to transfer funds fast. Your hot wallet provider bears the security of your wallet but keeping a large number of funds in your hot wallet is not recommended.
Cold Wallets – These wallets are not connected online. Rather, they work in the offline mode. Generally speaking, these wallets come in the form of either a software program – which can be installed on a computer or smartphone, or hardware wallet solutions, or paper wallets – which are customized secure devices for cryptocurrency storage.
They are the most secure wallets to store cryptocurrencies. Cold storage is like your savings in the bank. Unlike the convenient but vulnerable hot wallets, cold storage is for long-term holdings and would require extra steps before transferring funds.
They are the safest way to store your Bitcoin. Here are some products which will provide you with the highest level of security you need.
- Bitcoin Wallets
Software wallets are the best way to store your Bitcoin. The most popular amongst them is Mycelium. You can download and install it on your Android or iOS device. This wallet is as secure as your smartphone.
Exodus is a new cryptocurrency software wallet designed for desktop computers and its popularity is growing by the day. It delivers a smart and appealing user interface and presents cryptocurrency holders with an adequate breakdown of their cryptocurrency earnings at a glance.
- Ethereum Wallets
The most popular Ethereum wallet online at the moment is MyCrypto. It is a fork from the original MyEtherWallet. It works on an interface that allows cryptocurrency holders to work with the Ethereum blockchain. Interestingly, users handle the private keys by themselves, thus giving them full control over all the funds at all times.
The Exodus wallet helps to store Ethereum as well.
Warning: Do not click on any link to a wallet website. Instead, carefully type it into the browser and bookmark it to avoid phishing scams.
Hardware cryptocurrency wallets are among the safest means of storing cryptocurrencies. They keep private keys secure on a customized device while maintaining utmost secrecy, instead of storing private keys on a smartphone or computer where they are prone to hacking attacks.
We will look at two major hardware wallets currently dominating the cryptosphere.
- Ledger Nano S
It is the most cost-friendly hardware wallet in the market at the moment to store your assets. It comes with a built-in small OLED screen which it uses to confirm transactions and see balances. Additionally, it has two hardware buttons that serve the purpose of transaction confirmations.
Though similar to Ledger Nano S, Trezor has a larger screen and enough security architecture coupled with two hardware buttons for added security.
Why Are Private Wallets So Important?
Hacking activities and stealing of wallets are intensifying owing to the rising popularity of cryptocurrencies. It is no longer news that many exchanges have fallen victim to stolen funds even in the recent past.
Why does this happen? You do not own your cryptocurrencies when they remain at the exchange.
So, it is of utmost importance that you ensure the safety and security of your money personally, just like with fiat money. Therefore, opting for cold storage solutions (offline method) is the best form of security for your cryptocurrency. You can have a private wallet based on the cryptocurrency in your possession.
Here are some of the reasons why a private wallet is very important to store your cryptocurrencies:
- They grant you access to your funds anytime and at any location you need them.
- Private wallets are user-friendly.
- With cold storage, only you have complete control over the private keys.
- They shield your wallets from hacking attacks.
The Best Option for Storing Cryptocurrencies
Although there are many issues and risks associated when you store and trade cryptocurrencies, the best option is to combine hot wallets and hardware wallets. All you have to do is to transfer your cryptocurrency from your hardware wallet to a hot exchange wallet during trading and move it back afterward – when not in use. Remember, cryptocurrency is here to give you total control of your money. Don’t trade security for a modicum of convenience.
This article should not be taken as, and is not intended to provide, investment advice. Users are ultimately responsible for the investment decisions he/she/it makes based on this information. It is your responsibility to review, analyze and verify any content/information before relying on it. Trading is a highly risky activity. Do consult your financial adviser before making any decision. Please conduct your thorough research before investing in or creating any cryptocurrencies and read our full disclaimer.
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