If you are interested in the cryptocurrency industry, you cannot ignore the topic of wallets. But what exactly are they? How do they work? And most importantly - which option is the safest?
The topic of cryptocurrency wallets is the foundation in this industry. Every owner of tokens or coins must store them somewhere. Theoretically, you can keep your crypto on the stock exchange, but unless it's absolutely necessary for ongoing operations, it's a rather bad idea. In this article we will learn about the types of wallets and look at security issues. At the beginning, however, we should learn a few basic concepts - but these will not be encyclopedic definitions, but rather a pictorial representation of functions - so that these concepts are understandable.
Public key - when comparing a wallet to a bank account, this is our account number. We can securely share it, because it is simply a series of numbers and letters that the person sending us a "transfer" should enter in the "recipient" field.
Private key - remaining analogous to banking, you can compare to the data of our payment card. Each holder of this data may freely dispose of funds accumulated on the account assigned to this card. Of course, this means that we should keep private keys in a safe place and never share them with unauthorized persons.
Seed - phrase allowing regaining access to the wallet - private keys - funds accumulated in a given wallet. As with the private key - anyone who has access to this phrase has full access to the funds accumulated in the wallet. However, there is a difference. Our wallet can have many addresses, and thus many private keys. if someone acquires only one private key, they gain access to funds assigned (accumulated) to only one public key (address), while if someone acquires seed, they will gain full control.
The wallet stores private keys that allow you to send cryptocurrencies, not just cryptocurrencies. Just for the sake of simple simplification, talk and write about storing cryptocurrencies in your wallet.
The most popular, the most convenient, incredibly useful. Unfortunately, they also have an incredibly significant disadvantage, they are not the safest choice. Hot wallets are - very simplified - wallets installed on devices with internet access, such as smartphones or computers. They are convenient to use and provide very easy and quick access to stored cryptocurrencies. Unfortunately, continuous internet connectivity and the fact that they are simply programs or applications mean that such wallets are not very secure. Of course, the proper use of devices on which such wallets are installed increases the level of security, but it is not recommended to keep too large amounts in this way. Hot wallets are ideal for a "daily" wallet for regular expenses or transfers, and keeping small amounts there to have easy access to some amount of cryptocurrencies.
Mobile applications Smartphone applications are the most popular wallets. Among them, wallets supporting many cryptocurrencies, such as Jaxx or Coinomi, which is often used in this training, are very popular.
Jaxx Liberty Available on virtually all platforms - Android, iOS, Mac OS X, Windows, Linux and Google Chrome. Currently, this wallet supports over 80 tokens and coins. One of the additional advantages of Jaxx is cooperation with ShapeShift, which allows you to immediately exchange one cryptocurrency for another. Such exchange is associated with quite high costs, but it is worth having such a tool at hand.
Coinomi It offers support for over 100 coins and nearly 400 tokens. Unfortunately, it is currently only available as a mobile application for Android and iOS.
The most important thing is to have access to private keys. If the wallet does not give us this opportunity, it means that we do not really have full access to the cryptocurrencies stored on it.
Here, Jaxx and Exodus are very popular as wallets supporting various cryptocurrencies. In the case of personal computers, we usually also deal with programs dedicated to specific cryptocurrencies provided directly by developers working on a given project. Most often, such wallets are delivered for both Windows, OSX and Linux.
Exodus A popular wallet available for personal computers with Windows, OSx and linux. It supports nearly 100 tokens and coins. Exodus, like Jaxx, allows you to quickly exchange cryptocurrencies for other integration with ShapeShift. Ardor, Waves - dedicated wallets Until now, we have been dealing with the so-called multi wallets - wallets on which we can store various coins and / or tokens. Developers of individual projects, however, usually provide us with dedicated software. For example, Waves provides a wallet where we can store not only Waves coins and all tokens created on this platform, but also BTC, ETH, XMR and several other coins.
Another example is Ardor, which supports side chain technology, so we can store an Ardor coin on it, other coins (functioning on side chains) and tokens operating in this ecosystem.
Such wallets not only allow you to store cryptocurrencies, but also have built-in decentralized token exchanges or the ability to create your own surveys. Browser wallets Here we are dealing with two types of wallets - either those that are add-ons to the browser (such as MEW) storing data locally on our device, or those that are web applications. I completely skip the latter ones for security reasons because it means storing private keys in someone's database - just like in a bank. MyEtherWallet The most known wallet acting as an add-on to the browser is MEW - My Ether Wallet - a wallet created to support ETH and tokens running on the Ethereum Platform.
Wallets not connected to the internet. That is why they are safer. Much better compared to hot wallets, they are suitable for storing larger amounts in the long run. Access to funds is slightly more difficult, which unfortunately reduces the convenience of use.
Paper wallets The simplest type of wallet - a sheet of paper with a private and public key recorded. This wallet is used to store one cryptocurrency. In the case of paper wallets, there is no seed because it consists of only one pair of keys. One of the generators of such wallets is walletgenerator.net. For security reasons, download the generating script and generate the wallet on your computer offline. To deposit into such a cryptocurrency wallet, all you have to do is make a regular transfer using the public key. To withdraw funds from such wallet, simply import the private key into a hot wallet. Most mobile applications have the option of importing using a QR code, which makes withdrawing funds from such a wallet relatively convenient.
Cryptosteel - steel version of the paper wallet. Compared to ordinary paper wallets, it has several advantages, it is resistant to e.g. water, thanks to the ability to change the arrangement of plates with letters and numbers, you can save a different wallet after using the old one - it is reusable.
Hardware wallets Hardware wallets are small devices used to store private keys. Due to the fact that they operate completely ofline and have appropriate security, storing cryptocurrencies on it is by definition very secure. To make a transaction, simply connect the wallet to the computer and use the appropriate application to make a transaction on it, which you then confirm directly on the hardware wallet, e.g. by entering a defined code. At present, Trezor and Ledger are the two most popular producers of this type of device trezor Wallet and password manager in one. Currently, you can store about 50 different coins on it. Trezor also has full support for ERC20 tokens (tokens on the Ethereum blockchain). Ledger
Brain Wallet Another way to securely store cryptocurrencies is brainwallet. It is simply remembering a special password (invented by ourselves) that allows you to recover your wallet. In one of the many generators, just enter a phrase that will be easy to remember. On its basis, public and private keys will be generated.
If we generate such a wallet on a secure computer, cut off from the Internet and save only the public key for payments, it will probably be the safest method of storing cryptocurrencies as long as we remember the phrase used to generate such a wallet. The script generating such wallets can always be with us, e.g. on a USB stick, and simply use it to regenerate the keys when we need them. As you can see in the above screenshots, regardless of what service we use, the keys generated based on the same phrase will always be identical. This is because each of them uses the same encryption.