How to store your Cryptocurrency
As you might have figured out in your research in cryptocurrencies, storing digital currency like Bitcoin isn't as satisfyingly easy as whipping out your worn leather wallet from a back wallet and cramming a few more notes inside.
No sirs and madams. Keeping your hard-earned cryptocurrency safe from various types of cyber-criminals requires knowledge and planning. Keep reading, and we'll take care of the knowledge part. As for planning, that's up to you.
Defining the Digital Wallet
Generally speaking, cryptocurrency is stored on the blockchain ledger, which is the decentralised, peer-to-peer network that powers each currency.
- decentralised, peer-to-peer network
To access your money requires you to open a digital wallet. Without a digital wallet, you can't own, send, or receive cryptocurrency.
The interesting thing is people assume the currency is stored in the wallet, but that's not the case technically. A digital wallet holds a private key, which is a secure password that only you and the wallet know. This private key connects to a public key that shows how much currency you own on the network. Got it?
Choosing a Cryptocurrency Wallet
For those new to the cryptocurrency arena, it's a good idea to keep things simple.
Let's say you plan to trade Bitcoin. Once you download and install the software or app for a specific currency - like Bitcoin - you'll be offered a chance to open a wallet officially attached to or sanctioned by that currency.
For Bitcoin, you might choose Bitcoin Core Wallet. For Ethereum there's Ethereum Wallet. The same goes for other currencies you might choose to own. For simplicity's sake, in the beginning, we suggest this route. Don't worry. There's plenty of time to complicate matters later.
Unless you like having your money stolen and computer infected, never download and install a wallet from an unofficial or unknown source. There's a very good chance it's malware just waiting for an opportunity to ruin your life.
For now, stick to one of the following methods to get your first digital wallet:
- Download the official or an endorsed wallet from the cryptocurrency website.
- Get a wallet from a cryptocurrency exchange like Coinbase when you open an account.
- Download a well-known universal wallet like HolyTransaction, but only from the official website.
If it feels like we're holding your hand too tightly here, bear with us. Once you understand this whole cryptocurrency thing better, there are a variety of wallet options you can easily migrate to.
Never - and that means never - share your private key with anyone and don't you dare type it into the internet anywhere. To send and receive currency only requires your public key. Anyone that tries to get your private key is probably trying to steal from you. And for any digital wallet, if you lose your private key, you have lost your money. It's as simple as that.
The Universe of Digital Wallets
The beginner digital wallets we've discussed thus far are an example of one kind of wallet, which is an online version, but that's not where the story ends.
You might eventually choose to open one or more of the following different types: desktop, mobile, offline, paper and hardware. The differences are in the medium the wallet is stored on and whether or not that data is stored online. Let's get into more detail.
This type of wallet is downloaded and stored on your computer's desktop. As with anything stored on a desktop (or laptop) computer that is connected to the internet, the risk of your machine becoming infected with a virus or malware is always present. As long as you take appropriate precautions to secure your computer, you should be able to sleep at night.
This is simply the smartphone/mobile device version of the desktop wallet. Download the relevent app, install it, and you're ready to go. There's still the chance your phone could be hacked or stolen, in which case you can wave all those lovely bitcoins goodbye.
We've covered online wallets pretty well already and even recommended them as the best way to get started in cryptocurrencies. Keep in mind these are probably the least secure wallet type of all, so we strongly suggest you don't keep more currency in one than what you need for small transactions.
While it might seem anachronistic to employ the idea of actually printing out a sheet of paper with your public and private keys (which can be stored in the form of QR code), there is one huge advantage - they're not connected to the internet, thus remain safe from hacker theft. The downside is obvious. There is a multitude of ways this precious piece of paper could be destroyed: fire, water, operator error. If you choose to go this route, better invest in a good fireproof safe.
Also referred to as "cold storage," a hardware wallet is the most convenient and secure place to store your digital wallet. We're referring to USB devices, separate hard drives - anything that can be unplugged from your computer and rendered unreachable by cyber thieves. The idea is you can easily plug it in to do transactions or update data but then unplug it for security the rest of the time.
A Final Thought
Hopefully, by now you've figured out the supreme importance of the concept that the security of your digital wallet goes hand-in-hand with the presence of an internet connection. To use industry terminology, your wallet is "hot" if it's connected to the internet and "cold" if it's not. As we mentioned, it's fine to keep small amounts of currency that you might use for daily trades or purchases online but put larger amounts in "cold storage," which means in a hardware wallet, unplugged, and inside a safe for maximum protection. Trezor is a respected name in the hardware wallet business. Though a good one might set you back a few hundred dollars, there's no better way to keep your cryptocurrency out of the bad guys' hands.