Good day everybody,
Welcome to CryptoGod-1's blog on all things crypto. Today we are going to look at a selection of the various Wallets available for storing crypto, and a quick overview on the difference between cold and hot wallet storage. I will try to cover the basics of what wallets are, how they work, and the best way to choose the right wallet for your needs.
What is a Crypto Wallet
Basically a cryptocurrency wallet is a software program. It allows a user to send, receive, and store a variety of digital currencies. Crypto Wallets are paramount to maintaining crypto assets. While many people purchase crypto directly from exchanges and are satisfied with leaving their financial assets there, seasoned crypto users understand the need to secure your crypto off the exchanges. As commonly said, "Not your keys, not your Crypto." Users of NFT's will be well aware of the requirements of having your own Wallet to sign up to a marketplace, as well as those who like to manage their own coins. For those who are not as sure or savvy when it comes to crypto, I will try to break it down as simply as possible.
Cryptocurrencies do not exist in any real physical form, instead they are digitally stored as transactions on the blockchain. Wallets do not store any of your currency, instead the data and keys associated with your crypto. There are different wallets for different cryptos, with some wallets capable of storing multiple different currencies. This can require a user to have multiple different wallets to store their different coins, for example, you’ll need to send bitcoin to a bitcoin wallet address and Ethereum to an Ethereum wallet address.
How Do Crypto Wallets Work
As mentioned above, wallets do not hold any physical coins, but instead a wallet operates via the use of a public key and a private key.
- Public key. This is a long sequence of letters and numbers that is also known as the wallet address. This is public because the owner needs to share it with other people to receive coins into their wallet. It is similar to a bank account in sharing your account info to receive a payment.
- Private key. This key is used to gain access to the account and the funds stored in the wallet. It is known as private because it should never be shared, similar to a PIN number, you’ll need to keep your private key secret and safe. Some wallets use passphrases, which can be a sequence of up to 24 words, and they are required to restore access to the account or even to log in at times.
Each crypto generally has it own blockchain or works on another blockchain. These blockchains contain public records of all transactions made on the blockchain since it was first created. It is known as the ledger and will be a permeant record of every transaction ever made. Your wallet address keeps a record of all your transactions, and thus can be used to keep track of your crypto balance. By following the chain to today, a wallet can figure out how many coins you have sent or received. This means that anyone can user the blockchain to see how much coins you have gotten or sent, but it does not give them access to your coins.
Difference Between Cold, Hot and Paper Wallets
Cold Wallet Storage:
A cold wallet is also known as a hardware wallet, as in it is a physical device which manages your coins in a completely offline manner. While they come in different shapes and forms, many like like a simple USB drive. The benefit of cold wallets are the simplicity of protection; with your coins stored offline they are less likely to be hacked or stolen. There is also a risk attached, as if you loose your passphrase you are at risk of loosing your coins permanently, similar to formatting a USB drive. While hacks are still possible it is much less likely, and always recommended to purchase them from a reputable wholesaler instead of second hand. Cold wallets are good for long term holders, and come at a cost compared to hot wallet storage, but long term can be worth the investment. Long term holders are usually people who want to hold their crypto for months if not years in hopes of sustantial gains. If you are one of those users then cold wallet storage is a must.
Hot Wallet Storage:
A hot wallet is also known as a software wallet, as it can be accessed via a computer or phone and is a form of digital storage. The drawback with a hot wallet is that an internet connection is required to access it, meaning it can be compromised from the likes of hackers. Many are free and are considered safer than leaving your coins in an exchange, as you are officially the holder of your own keys once your have the crypto in your hot wallet. Having your coins on an exchange can lead to loss if the exchange goes dead, just look up Mt. Gox for reference, but hot wallets are not completely safe either. Many are connected with exchanges or created by exchanges, and as they are an online way of storage, they will always come with risk. It is an option of convenience for most, as they have instant access to their funds on their phones or computers, meaning they are more likely to be day to day users or spenders of their coins. They also generally have very friendly user interfaces which makes them popular amongst users.
Paper Wallet Storage:
Paper wallets are considered one of the most secure way of storing your cryptos. They can be created for free and make you the master of your coins, although come with the risk of being lost forever if you loose your private keys. Basically, they are pieces of paper printed out with a key or QR code which the user scans to gain access to their funds. The main benefit is that you do not need to worry about the well-being of a piece of hardware, or have to worry about hackers. All you to do is take care of a piece of paper. Paper wallets are created through the use a computer program which randomly generates a public and private key. These keys are unique, and the program that generates them is open source. The beauty of it is that the keys are created offline, removing any online threat of being hacked when they are created. Simply deleting the program after use will destroy any trace of them, although make sure there are no threats on your computer or device before you create them. The main drawback is people physically threatening you to reveal and expose the location of your paper wallets so they can hack and gain access to your funds, but it is also possible to make decoy and fake wallets with minimal crypto in them to deter any would be attackers. Besides attackers, the fact it is a piece of paper which can be damaged or destroyed is also a risk, so laminating and/or maintaining them in fireproof boxes is also recommended. Also don't let yourself forget where you put them, or you may never find your funds again.
Below is a quick list outlining some of the more common and popular wallets available. Each wallet is available for certain types of crypto, some can only store one kind and others can stores a multitude of different currencies. It is far from a definitive list, but a good starting point when choosing which wallet is best for your needs.
- Ledger Nano X
- Trezor Model T
- Ledger Nano S
- Litecoin Core Wallet
- Algorand Wallet
Choosing A Wallet
There are a few things to consider when choosing the right wallet for you. Some of the main things to consider and compare when choosing a wallet are:
- Type of wallet you want, namely Cold or Hot.
- How easy it is to use the wallet.
- The Security features.
- Other features and supported cryptocurrencies of the wallet.
- The development team who created the wallet.
- The costs associated with using the wallet.
Taking all these points into consideration can really ensure you make the best possible choice when picking a wallet. Most people have multiple wallets, although the more you have the more you need to secure. Investing in a dedicated wallet for all your currencies can be one of the best investments any investor and long term Hodler ever makes. Always make sure to secure your wallet no matter if its Cold or Hot, keep it up to date, and one of the safest things can be enabling two factor authentication to add that extra layer of security.
I hope you enjoyed the read, have a wonderful day.
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