With the growth of cryptocurrency, both as an investment vehicle and as a consumer purchasing medium, the number of scams and phishing attempts has risen at a similar rate.
One way of keeping your cryptocurrency secure is by storing them in a safe place.
Since cryptocurrencies consist of keys that essentially give you access to the said asset, it’s very important you store those keys in a safe place. Now, storing them in a simple notepad isn’t the very best idea; however, you can store them in crypto wallets.
These crypto wallets can either be hardware-based, web-based, or software-based. You can store your assets on your PC, phone, or a standalone device specifically made for securing your assets. In this guide, we’ll discuss the numerous ways you can safely store your assets through different types of wallets.
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How do crypto wallets work?
When it comes to digital assets, a crypto wallet is like a bank account. Crypto wallets are programs that store your public and private keys.
Before we go further into how wallets work, we need to understand the composition of a cryptocurrency token.
A cryptocurrency token is composed of a private key and a public key. The public key allows you to receive transactions from other users on the network. It’s a set of encrypted characters that is paired to your private key. Anyone can transact with the public key and send tokens; however, you need your private key to unlock the transaction and access the tokens sent.
Private keys are what helps you prove ownership and allows you to spend the assets associated with your public address. If you lose your private key or it is compromised, you could lose access to your assets. And since blockchain transactions are immutable, you are definitely going to lose your assets forever, which is why wallets have been introduced to keep them secure.
What’s more, is that wallets also act as an interface and have been used by millions of people to interact with cryptocurrencies. Dealing with private keys and public keys can be quite a hassle. Hence, wallets help you ease the process by providing an interactive and immersive interface to monitor your balance, send money, and conduct other important operations.
Wallets come in many forms; however, they’re often classified into three types. With the rising number of investors, users, and developers joining the cryptocurrency market, we could see a surge in the number of crypto wallets, each with its own set of functionalities and features.
Here are the most common variations of crypto wallets that you’re going to encounter
Software wallets, online wallets, hosted wallets, or hot wallets are wallets that run on internet-connected devices like your computer, phone, or tablet. They’re not the most secure option; however, they have their advantages over other types of wallets.
Hot wallets can be very convenient in providing an interface for you to interact, access, and use your assets; however, they can be vulnerable when it comes to security.
Hot wallets are perfect for storing small amounts of cryptocurrencies. Most investors use hot wallets as a checking account. Hot wallets are some of the most commonly used crypto wallets because of the wide variety of free options available in the market.
Although they’re much easier to interact with and use in contrast to cold wallets, they’re still vulnerable to attacks. Users can rely on hot wallets to make quick and easy payments; however, we wouldn’t advise you to store all of your assets on them.
Electrum is a cutting-edge, reliable, and lightweight cryptocurrency wallet that runs on macOS, Linux, and Windows. Released in late 2011, Electrum is a pioneer in the crypto wallet space.
Since Electrum is suited for advanced users, it has impressive features such as customizable transaction fees and customizable security features. It’s easily one of the most secure hot wallets in the market. However, it only supports Bitcoin.
The Edge wallet is yet another impressive mobile-based wallet. Compatible with both iOS and Android, the Edge wallet is free to use and can be readily downloaded from the respective app stores.
It’s rich with features, supports numerous currencies, is highly secure, and has some of the most intuitive user interfaces in the market. It’s perfect for new users who want a simple and straightforward cryptocurrency wallet.
Hardware wallets or cold wallets are undoubtedly the safest options for storing your cryptocurrencies. A
A cold crypto wallet is essentially a wallet that is not connected to the internet, therefore mitigating a considerable amount of risk from being compromised. Cold wallets often come as small, portable, standalone devices that allow you to download and carry your assets and store them.
Cold wallets come in many forms. The most secure way to store your cryptocurrency in cold storage (offline) is through paper wallets. Paper wallets are pieces of paper, magnetic discs, or capsules that store both your public and private key. These wallets have no corresponding user interface other than the blockchain itself. People utilize paper wallets to HODL ( Hold to dear life) tokens that could potentially be worth quite a lot in the future.
On the other hand, hardware wallets are also a form of a cold wallet. Hardware wallets are easily the most popular form of cold wallets. They’re basically portable, small, and standalone devices that store a user’s private key. They’re unaffected by viruses or any malicious interference, which is why they’re the most common type of cold wallets you’re going to see.
Unlike paper wallets, some hardware wallets even have interfaces that allow you to send or receive transactions or interact with hot wallets.
Ledger Nano X
Ledger is a pioneer in the hardware wallet space. Ledger’s first product, the Ledger Nano S, was the first hardware wallet on the market. Interestingly, Ledger Nano X is the new and improved second-generation hardware wallet from Ledger that outclasses its predecessor.
The Nano X looks like a USB drive and connects to your phone or tablet through USB or Bluetooth. It accepts over 1,800 different cryptocurrencies, allows users to manage their portfolios, and adds new wallets for different cryptocurrencies to their devices, along with a number of other impressive features.
Trezor, like Ledger, is a household name when it comes to cold wallets. The Trezor Model T is similar to the Ledger, except it also allows users to use third-party exchanges such as Changelly and CoinSwitch straight from Trezor’s online interface.
The Model T has a touch screen, which is easier for beginners to use than the buttons on the prior model. The Trezor also has a MicroSD card port, which allows you to encrypt the PIN and further protects your device from attacks using MicroSD cards.
The Trezor Model T currently supports over 1,600 different coins. Interestingly, many people consider the Model T to be more secure than the Nano X because of Nano X’s Bluetooth connectivity.
Exchange crypto wallets
Another popular form of wallet is an exchange crypto wallet, also known as a hosted wallet. Exchange wallets are a convenient way to access your cryptocurrencies without the hassles of carrying a hardware wallet or having access to your PC.
Users with an internet connection and a smartphone can access their assets from anywhere in the world. While users tend to take custody of their own assets via hot or cold wallets, exchange crypto wallets are different. Unlike hot or cold wallets, your assets are in the custody of the exchange, which is why we don’t recommend this option at all.
Taking a brief look at the history of cryptocurrencies shows why it is dangerous to leave your assets in exchange wallets. Since 2011, over $2 billion worth of cryptocurrencies have been stolen from exchanges, and the number gets bigger every year.
Exchange wallets are the most vulnerable forms of digital wallets because they’re enticing hacker targets since they have billions of dollars worth of cryptocurrency. While leading exchanges like Nexo tend to store your assets in cold storage; however, it’s important to note that not every asset is stored in cold storage.
Earning interest with staking
Another way you can safely store your cryptocurrency is by staking and earning interest. While cold crypto wallets and hot wallets are some of the best options for you to store your assets, they’re not as rewarding. With crypto staking, investors and asset holders can put their holdings to work and earn interest and rewards.
If you’re familiar with banks, crypto staking is a similar concept where you lock up your asset, and in exchange, earn rewards or interest. Thanks to the advent of Decentralized Finance (DeFi) and the shift from the Proof of Work model to the Proof of Stake model, there has been a rise in staking platforms and services.
Ethereum, Cardano, and Solana are some of the most popular staking platforms in the industry. Staking is easily one of the most rewarding and beneficial ways to safely store your assets and earn rewards.
However, as with any type of investment, staking comes with its risks.