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Tuesday, October 4, 2022

Different Types of Crypto Wallets | How to Store Your Bitcoins

Don’t lose your private keys, or bad things will happen. Keep your private keys safe! Not your keys, not your bitcoin!

Hi, Ante here! You probably don’t want to be the person who will look back in a few years realizing that their ancient investment finally bore some fruit and is now 50 times more valuable than it used to be, but then one of the following happens: a) You lost your private keys b) You forgot the password of the device that stores your private keys c) You lost the hard drive that stores your private keys Although I can’t really help you with the potential loss of a hard drive, I might shed some light on the common denominator of the three scenarios, and that is ways you can store your private keys, so you don’t kick yourself for the rest of your life like some people.

Today we talk about Wallets. There are multiple ways we can categorize wallets, but first, we’ll separate them into two groups, Hot and Cold wallets. And before we define them, it’s important to emphasize that you don’t really store your bitcoins anywhere, even though we usually use that particular phrase.

Bitcoins are on the blockchain, and we only store, we’ll call them, locations to your funds within the blockchain, but anyway… Hot wallets include all wallets that require to be connected to the Internet.

Such wallets are easy to set up and you can access them from basically anywhere, so they’re convenient for traders and such, but that convenience comes with the price of security, as that type of wallet is vulnerable to hacks.

Cold wallets, on the other hand, provide offline token storage, and therefore, have increased security, but are less convenient for day-to-day use. Now for the main categories, there are three types of wallets: software, hardware, and paper wallets. First, software wallets they’re mostly within the category of hot wallets and they include desktop, mobile, and web wallets, depending on the platform where they’re used. They’re basically software programs that store your private keys, and for that category of wallets, you’d usually set up your own password, which saves you the effort of storing or memorizing 64 characters of your private key. Web wallets are probably the most convenient type of them all, as they’re easily accessible, but for the most part, that comes with a trade-off.

Namely, if you have a wallet on some exchange, that means that you’re not the actual owner of your private keys, and when you send your funds to your account, you’re actually sending them to the exchange’s hot wallet. Most of us use such wallets on a daily basis, but you should never hold your entire portfolio on somebody else’s hot wallet. Desktop and mobile wallets are highly convenient as well, and they give you full control of your private keys, but they are prone to virus and malware attacks, so you should always make sure your device is clean and healthy before any use. Second, hardware wallets are electronic devices that use a random number generator to generate public and private key pairs and then safely store them. Hardware wallets are usually within the cold wallet category, and therefore are not connected to the Internet, so they provide a high level of security.

They’re a bit more complicated to set up than, for example, a web wallet, but nothing too bad.

The most well-known hardware wallet manufacturers are Ledger, Trezor, and KeepKey and there’s a lot to choose from, as they offer several versions, differing in price range, amount of different coins you can store, build quality, and so on. Their security comes out of the fact that you have to plug in your device into a computer in order to make a transaction from the device itself, but meanwhile, your PIN code, that you use to access it, or the wallet’s display is never shown on the computer itself, so it doesn’t matter if your computer’s security has been compromised, your crypto can not be hacked, and only you can access it. And in case your device gets stolen or broken, you can use your Recovery Seed Phrase to log into another device, and retrieve your funds. And how you get your RSP is during device setup, where you have to write down 24 words in a specific order, which represents your RSP.

So make sure you write it down several times and keep the copies in different locations, just in case. More links and details in the description.

And finally, paper wallets this category includes all instances where private keys are printed or written out, either in form of characters or QR codes. How you use them is simple, you can, for example, generate your key pair, send funds to your address, print out the key pair, and physically store it somewhere. Then, when you want to send your funds further, you just scan your private key QR code with your wallet app, and when the funds are within your wallet just make another transaction.

This category of wallets is extremely safe, but if you lose that piece of paper, a hard drive, or a T-shirt that contains either characters or a QR code of your private key, you can never, ever retrieve it. So, which one should you use? If I had to choose only one, I’d go with a hardware wallet, as it offers a sweet spot between security and convenience, but the thing is, you don’t need to restrict yourself to a single category, and also, I repeat, you should never keep your portfolio in one place and in one wallet, just in case it gets compromised.

And there is one last thing I can’t stress enough, and that is backups. Always make sure all your passwords, recovery seed phrases, and PIN codes are backed up and stored safely.

Don’t share their locations, unless you completely trust the person you’re sharing them with, and just to reiterate DON’T LOSE YOUR PRIVATE KEYS. Thanks for watching and I’ll see you in Another Block..

Read More: How To Use Wrapped Bitcoin To Build Wealth in 2020

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