Cryptocurrency is charging forward into the mainstream. If you’re interested in getting involved, or just want to understand what exactly people are jabbering on about, we have put together a quick guide on the different types of ‘wallets’.
Bitcoin is growing and cryptocurrency is growing along with it. They’re being used for everything from alternative ways of paying for everyday items through to long-term investment holds.
If you’re already converted, a speculative spectator or even just mildly interested – one of the most important aspects of holding any asset is keeping it safe, and we’re going to tell you how to do just that with your cryptocurrency.
How to keep your cryptocurrency safe
The best place for your cryptocurrency is in a ‘wallet’. This functions much like the wallet in your pocket as it’s a place to store your currency that is easily accessible. However, cryptocurrency wallets are (usually) software programs written to keep track of your digital gold, while also keeping it secure.
There are several different types of wallet each with their own benefits and drawbacks and we’ll take you through them so you can decide on the best choice for you.
1. Online Exchanges
While these aren’t technically wallets, they’re a place that many people store their cryptocurrency and they have layers of security – so they share some similarities.
A cryptocurrency exchange is where you can trade your currency for another, be that crypto or fiat. If you’d like to be able to trade your currency for another at short notice to try and take advantage of market fluctuations, then you’ll want to keep some of it here.
There have been some large issues with exchanges in the past, particularly the MtGox debacle that saw millions of dollars vanish into thin air.
However, the times they have a-changed, and while the MtGox event was a catastrophic disaster for anyone involved, it has made other exchanges up their game in terms of security.
Binance and Coinbase are two of the largest exchanges at the moment with both seeing around $1 million per day in trades. You don’t shift this kind of money without some very serious security, so while keeping your crypto on an exchange isn’t the most safe that your coins can be – it’s still very secure, assuming you’re using a reputable one.
2. Online Wallets
Online wallets, or ‘hot’ wallets, are purpose built just to store cryptocurrency.
These can be accessed anywhere with an internet connection so you can always have a link to your funds.
These wallets differ from an exchange as you can’t trade currency directly from your wallet (you’ll have to move it from your wallet to an exchange first), so it’s just a place to hold them. However, they do boast better security than exchanges and they’re also less of a priority for any potential hackers.
These wallets can be accessed online through a browser and a solid example of this variance of wallet would be Blockchain.info
3. Offline Wallets
Offline wallets are applications that you download onto your computer, Electrum being a trusted prime example of this.
While they seem different to online wallets, they function in much the same way – but you’re now in control of your private key, which is the most important part of any wallet. They’re also not always connected to the internet, which adds another later of security.
Electrum is very easy to use, as the interface is slick and intuitive. The app has been long trusted in the community, and is what many people use to store their coins.
4. Hardware Wallets
We’re moving into the hyper-secure solutions now for anyone out there that is very worried about the security of their coins.
Hardware wallets are physical objects that you plug into your computer via USB. They spend the rest of their time somewhere safe, with all your information hidden on the stick so no one can get a hold of it – apart from you.
There are some custom built options for this task, the two most recognisable being the Ledger Nano and Trezor wallets. While these options are certainly not cheap, coming in at £119 and £124 ($129 and $119) respectively, they’re very secure and simple to use – and allow you to bring your wallet with you on the move. For the more serious crypto investor, these are a great option.
While these do still come with risks (plugging your hardware wallet into a computer infected with malware) these ‘cold storage’ solutions give you some of the highest security out there for your coins.
5. Paper Wallets
A paper wallet is, quite literally, a piece of paper with all the information on it that you would need to access your coins. This can be in the form of your private and public key themselves or a QR code.
Storing these somewhere safe (a safety deposit box, or a safe) is the best way to ensure your coins will not be touched by anyone other than you. There will be no record of your information on any device that is connected to the internet, which makes it all but impossible to hack.
The important thing to remember is that if you lose this paper, then you’re in real trouble. You don’t want something to be so secure that you can’t get into it yourself that would be a real disaster.