Cryptocurrencies are of 100% virtual nature – so why would anyone need a cryptocurrency wallet? Such question might be asked by someone unfamiliar with the topic. You can’t put a Bitcoin in a leather purse, but just like files require some storage medium to exist, digital currencies also don’t hover in vacuum: they need to be recorded somewhere.
Cryptocurrency wallet – what is that?
Cryptocurrencies such as bitcoin (BTC) or ether (ETH) aren’t just suspended in vacuum: these are de facto information stored on hard drives or other devices that make it possible to store them. Which makes it obvious that a cryptocurrency wallet has little to do with the kind of wallets we can buy at a fancy boutique. What does this term mean, then?
This metaphorical and elegant term refers to:
- special devices reminiscent in their appearance of pendrives,
- accounts of a kind in online services,
- designated spaces on a hard drive.
The tools listed above all serve the same function: they make it possible to store digital assets. But that’s not where their role ends. A cryptocurrency wallet is also an interface of a kind that allows to make transactions with other users of a particular currency. If statistics are to be trusted, a vast majority of Internet users use online wallets – they are the simplest and least demanding solution. A wallet of this kind usually costs nothing.
One has to admit, though, that it also doesn’t come with advanced security measures that can be found in hardware cryptocurrency wallets from Ledger or Trezor. Is such expense really necessary, though, in order to obtain a good, inexpensive cryptocurrency wallet? Maybe there are some cheaper offers?
Where not to store cryptocurrencies? Hot wallets and cold wallets
The most general classification consists of Two types of cryptocurrency wallets: hot and cold. The hot ones are those that are connected to the web 24/7. The cold ones operate offline. From the security point of view, the more correct choice will be a cold wallet: connection to the Internet poses a threat related to the potential theft of the private key. Although breaches of this kind are rather rare, users in possession of large sums are still advised to use cold wallets (especially the hardware ones).
Hot wallets are easy to configure, and the funds gathered on them are accessible from every device connected to the Internet. That’s exactly why so many people choose to open a hot wallet: it provides the greatest convenience. You can use your funds regardless of whether you’re working on a laptop or have a smartphone or a tablet in your hand. In such case, however, convenience doesn’t go hand in hand with a high level of security.
Hot wallets
Hot wallets can be divided into:
- Software wallets (apps),
- browser wallets,
- desktop wallets.
Below we will characterize all those categories.
A browser (online) wallet
A browser wallet is The simplest and most convenient to use type. It’s a kind of an account in an online service. All you have to do is type in the right address and log in on a website to gain access to your funds. You can do this using a smartphone, PC or tablet – it’s the same thing.
A browser-based cryptocurrency wallet allows to gain access to a blockchain network using any web browser. You don’t need to download anything from the Internet, you don’t need to install any Software. Services of this type are usually provided by companies who have their interest in development of a particular cryptocurrency. One could argue whether trading accounts that also allow to store digital money are wallets.
From the point of view of the available functionalities they most certainly are, but on the other hand it is common knowledge that you don’t store large sums of money in a trading account. Exchanges are to a larger degree vulnerable to hacker attacks, not to mention that sometimes they go bankrupt. Which would therefore be more sensible to open a wallet at any website that offers a service of this kind than to keep one’s assets on an exchange.
A mobile wallet (an app)
A mobile cryptocurrency wallet operates similarly to other types of hot wallets – it also requires Internet connection. But whereas browser wallets are targeted towards users of different types of devices, not just mobile ones, the apps we’re talking about only operate in the Android or iOS environments. They are convenient to use, have a very simple interface and also make it possible to make transactions – by using QR codes, for example.
A mobile wallet proves itself useful in everyday situations when we want to pay for something or react quickly to a fluctuating exchange rate. If cryptocurrencies become commonplace and get recognized as a legitimate legal tender (in some countries this has already come to pass), mobile wallets will possibly be the most popular solution to choose. One example of such wallet is the Trust Wallet recommended by experts.
A desktop wallet
A desktop cryptocurrency wallet is Software that needs to be downloaded from the Internet and installed on the computer. It gives a bigger control over the private keys (we have already explained what private keys are in different articles) and the funds assigned to them. Upon installation, a file named “wallet.dat” can be found on the desktop, it contains information on the private key that the access to the funds is impossible without. It needs to be encrypted as soon as possible – with an access password, for example. In such case, the password will need to be entered each time after opening the file.
From now on the “wallet.dat” file will be your wallet. If you delete it or forget the password, you won’t be able to use your digital money.
That’s why it is necessary to create a backup copy and store it in a safe place, like on a pendrive. Write down the private key on a piece of paper as well. That way you will be able to use your funds in the event of a computer malfunction or other random events that will make you unable to open the file.
A desktop cryptocurrency wallet provides a higher level of security than the browser versions, but it’s still far behind hardware wallets.
A hardware (cold) wallet
A hardware wallet is a physical device (a small one, but still) that is used only to store cryptocurrencies (private keys, to be exact). It has its own operating system and dedicated security measures to protect your funds and private keys from unauthorized access.
It is definitely the safest “cache” for your coins, no matter what currency you own: ethereum, ripple or BTC. A device of this type is connected to the PC or phone using a USB cable. Hardware wallets ensure the highest level of security among all the wallets described here. They are highly Immune to viruses and malware type threats.
The hardware wallet market has two leading manufacturers: Ledger and Trazor. Wallets from these brands are characterized by high quality of workmanship, they have a complicated, effective security system, and each transaction made using them requires authorization. The thing that authorizes transfers of funds is a pre-generated PIN number and obviously the private key.
This makes the risk of losing the funds, like due to the hard drive getting infected with viruses, reduced to the minimum. But remember that certain viruses swap the wallet address when making a transaction! Always make sure that all that data is correct before you click the “OK” button.
What if I lose the wallet? Does it mean the key is lost?
In certain cases, a special code generated after launching the wallet for the first time turns out to be useful. It might happen, for example, that you lose the device or somebody steals it from you. By using the code, you can regain your funds. That’s why it should be written down on a piece of paper (or any other type of storage), in order to be used when needed. That’s the only way to regain access to the wallet. Therefore, losing the device for good doesn’t always mean losing the money.
A BTC wallet: which model to choose?
Cryptocurrency wallets are plentiful on the market – you will definitely find a model that on one hand will suit your needs and on the other won’t put too much strain on your budget. The best devices available at reasonable prices include such models, among others, as Ledger Nano S or Trezor One. When it comes to Data security, they are no match for the latest invention from Ledger (we’re talking about the Ledger Nano X model for the most demanding users).
They are, however, most definitely thousand times more secure than regular online wallets. Not to mention they cost half as much. Both Ledger Nano S and Trezor One are characterized by high quality of workmanship, they also have security measures used by government institutions and banks. On top of that, Trezor has been equipped with A few useful features, like a password manager for example.
Ledger Nano S – why is it worth having?
It’s the first hardware wallet to be launched on the market by the French company Ledger. Ledger Nano S became available for sale by the end of 2014, which is slightly later than Trezor One. Over time, the product started gaining popularity among investors who trade cryptocurrencies. Especially those who invest in bitcoin started purchasing hardware cryptocurrency wallets in masses – the Nano S wallet enjoyed great reviews.
The device is compatible with such currencies as bitcoin (BTC), ethereum (ETH), litecoin (LTC), bitcoin cash (BCH) or ZCash (they’re all based on the blockchain technology). It has a USB port, it operates offline and is easy to use – initiating transfers on it doesn’t cause any problems. You don’t need to use any applications etc. When storing your private key in a hardware wallet of this type, you can be confident in security of your data.
Currently Ledger Nano S costs about 52 euro (add VAT to that). It is not a very high price, taking into account the Brand and quality of the product. The memory of such wallet allows you to store unlimited amounts of cryptocurrencies. The Ledger Nano S wallet is a solution for those who don’t want to spend too much money on a good crypto wallet. So far, the Ledger company has sold more than 140 thousand units of this model.
Trezor One – a bitcoin “cache”
When back in 2013 Trezor One became available on sale, it constituted quite a novelty. It turned out that cryptocurrencies can be stored on a handy, physical device that is reminiscent in appearance to a regular pendrive. Each new wallet of this type to some degree Calls back to the tradition started by Trezor. Its creation is owed to the Czech company SatoshiLabs, which noticed a niche on the market and decided to enter the crypto world with a bang.
Trezor One is an exemplary combination of a “hot wallet” and a “cold storage wallet” – it stores the assets in the offline mode, but at the same time it allows to connect to the Internet when needed and make transactions. It can be used to store more than 700 different cryptocurrencies! It is compatible with such systems as Bitcoin, Ethereum, Litecoin or DASH, among others.
The source code that makes up the Trezora Software is publicly accessible thanks to the open source license. On top of that, the device comes with a password manager, which allows to store logging data for different apps, websites or services in one place. Both Trezor One and its later, slightly more expensive version – Trezor T – enable Safe logging into such services as Google, Github or Twitter.
The device can be connected to the computer using a USB cable. Managing cryptocurrencies has never been this easy.
CONCLUSION
Above we described all the available categories of cryptocurrency wallets, starting from mobile apps, to browser and desktop wallets, and all the way to hardware wallets.
If you don’t have an account on an exchange yet, you’re just starting on your journey with cryptocurrencies and aren’t really planning any major investments, you can use free wallets online.
For those more experienced who operate with significant sums, a better solution will be a hardware cryptocurrency wallet. It doesn’t really have to be a new product – the models from years ago will also work very well.
Currently one of the best models on the market is Ledger Nano X. Not many people can afford buying this beauty – the competitive offers are much cheaper. Those less affluent can always purchase an earlier version of Ledger or Trezor.
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