Understanding Crypto - wallets
A wallet for cryptocurrencies is a tool that helps you access the blockchain and operate with your digital currencies. While the term "storing your coins" is not technically true, it is the best way to explain a wallet without getting into specifics. A wallet holds all your crypto addresses and private keys, so you can send and receive said coins and tokens.
If you plan to trade with cryptocurrency or be a crypto holder, you need to have a wallet. But the type of the wallet depends on what exactly your plans are. Are you going to look at your investments daily, always ready to make a trade? Or are you going to buy the coins only to remember about them after a year? These are the things to take in account when choosing a wallet:
Hot or cold?
All wallets are divided in two groups. Hot and cold wallets. A hot wallet means that it is connected to the internet and is always ready for trading. A cold wallet is not connected to the internet, so safe from viruses and hackers. A good comparison would be that a hot wallet is the one you go to the market with, ready to spend money, while a cold wallet is the money you leave at home where it is safe. Because of that, a lot of people have both types of wallets.
An actual real life item that looks like an USB stick – a hardware wallet. These wallets are exclusively cold wallets. You connect it to your computer, do everything you wanted to and then disconnect it. That way the information is always safe and no hacker can ever even try to steal it. All the private keys are in the device and nowhere else. This is the best option if you want to invest in currencies and then leave them be for months.
A simple wallet you can print yourself. It contains all the keys and gives you true independence. There are no software updates, no computer problems, no nothing. Just a piece of paper that you put in your safe. So if you want to invest small amounts and do not want to spend big money on a cold storage device, this is the option for you. But remember - they have no passwords at all. Anyone who has the paper wallet or just manages to photograph it will have all the contents. So keep them only where others can’t get to them.
There are three main types of software wallets. Desktop wallets are software you download on your computer. Mobile wallet is a downloadable software for your phone. Web wallet is an internet based wallet that you just get access to, similar to your baking account.
Web Based Wallet
A web based wallet is the best if you are a beginner, as it is usually very user friendly and has an active customer support and helpdesk. No need to download anything, just create an account. Sometimes these wallets allow you to be the holder of your own addresses, but a lot of web wallets require you to trust your addresses to the host and let them supervise them. This way, if anything happens to the host, it happens to your coins too. If, for example, their services are down for maintenance, you can not trade with your assets.
A desktop wallet is a software that you install on your computer. This means that the addresses are stored right on your computer and not dependent from the services of a third party. You are the only person responsible for the safety of the addresses, thus for the safety of your computer too. Any viruses or malware that will harm your computer will harm your coins too. One must always have the best anti-virus and firewall. And even then it is important to make frequent backups. You have to be honest to yourself – do you feel that you can ensure such security for your computer that you use for other stuff too, not only trading? If not, a web wallet is better for you.
The third type is a mobile wallet that is versatile and is the best for most active traders on the go. You can transfer funds with the help of QR codes and are generally very agile with a phone wallet. While there are not as many phone viruses as on the desktop, phones are easier to steal, so always make sure you can regain access to your mobile wallet. The usefulness is totally dependent on your own lifestyle. If cryptocurrency is a new investment for you, just get a hardware wallet. But if you plan to mingle where cryptocurrencies are traded on the spot, then go with a mobile or web-based wallet.
Most important part for all wallets?
Safety. Always remember – you are the one who holds the addresses of the currencies just like you would hold real metal coins. When it is lost, it is lost. And if they get stolen, there is no name on a metal coin, just like there is no name on a crypto coin – the owner is the person who has the address and the key in his possession. So take care of your investments. If you have a hardware wallet, put it in a safe or with the rest of your important documents. If it is a desktop computer, be vigilant, don’t use any tools you don’t fully trust.
But, if eventually your computer does break due to a technical issue or you just plain forget your password, you have one last resort. A “Seed phrase”. That is a list of words every reputable wallet will offer you as a last resort to regain access to your assets if it is lost in an accident. It is usually given to you when you create the wallet. Write it down and hide it. Some people put the piece of paper in a safe, some people scribble it in their favorite books.
If your desktop computer breaks and you now have a new one, install the same wallet and navigate to “recovery through seed phrase.” There you will enter the phrase that will look like this “horse plankton figurine book chocolate willow picture” or some other list of randomly chosen words. When this will be done, the software will recognize that it is you and will let you back in your account. But remember – if someone else has this phrase and knows where to use it, you might lose all of your funds.
While we understand that this much stress on safety can make you worry, we just repeat it so much because it is important. For every 10 stories of success in the cryptomarket there is always that one story of someone owning a lot of virtual money, just not being able to access it. So let’s learn from them and keep our own assets safe.