I thought most people understood the basics of personal crypto security but I was wrong. I am constantly hearing new stories about average Joe losing his wallet. Time to explain the basics I guess.
Storing your Cryptocurrencies 101
When you are ready to purchase a currency it’s important to figure out how to store it safely. If you are not sure what cryptocurrency to pick check out my Top 5 Cryptocurrencies to Invest in 2018 guide. There are various types of digital wallets to help save your private and public keys, with some of them being a bit more prone to successful hacking attempts than others. The two main options are:
Use an Exchange to Store Them
This is a recommended solution provided that some critical conditions are met. It all has to do with how trustworthy the exchange you are using is. Usually, there is no way around keeping cryptos on an exchange if you have invested in cryptocurrency, because it involves a lengthy and tedious list of tasks to be performed on your side. For example, you will need to install, compile, check for malware, use synch and update the software for each digital currency you invest in, which is quite a lot of trouble. And, considering the long history of bankruptcies and hacks in crypto markets (i.e. see the Mt. Gox hack that caused consumers to lose hundreds of millions of dollars), it is probably safer to avoid using an exchange to store your cryptocurrencies.
Nevertheless, if you do wish to use an exchange, make sure you gather key information that will help you tell a reliable exchange from one that should not be trusted. So, ensure you get the following details:
- Where is the crypto exchange located?
- Who are its owners? Are they known in their local communities?
- When did it start its operations?
- How does it ensure consumers that all the digital currencies are available?
- Does it provide some audits?
- How are customers’ requests handled?
Some cryptocurrencies are regulated, which gives an added sense of security, while others enjoy a strong trust level due to their operations, like Bitcoin.de in Europe, which operates without any loss of consumer’s funds for 7 consecutive years. That aside, a yearly audit by an external company checks the availability of all coins.
Plus, its owners are very well known not only in Germany but also across the entire EU community.
Take note, though, that it will be very difficult to achieve such level of trust from a crypto exchange when you hold a lot of altcoins. This is probably a risk that you will be called to take.
Store Your Coins By Yourself
In this case, you will need to download a free and open software, which can be used to store, as well as receive and send cryptocurrencies, be it bitcoin or any other. In search of the best digital wallet to store your coins, consider the following questions:
- Is it free?
- What are the cons of using it?
- Does the company behind the wallet implement high-level security measures (it should have a track record of security excellence)?
- How easy it is to keep the wallet?
- Can it be accessed anywhere, anytime?
- Can it store a broad array of altcoins?
- How user-friendly is it?
- Does it provide with fast purchase options?
Types of Crypto Wallets
Paper Crypto Wallets
A paper wallet is a document that contains a public address (you need it to receive crypto coins), and a private key that allows you to transfer or spend your coins at that address. Their majority are printed in a form of QR codes and are generated using services that will allow you to create a totally random address and a private key to it (i.e. BitAddress). Then, you may print the document and store it somewhere safe, preferably in a sealed plastic bag (to protect it from wear and tear, and water) and in a deposit box.
- Wallet is offline; hence, immune to hacker attempts (also keys are not stored digitally).
- You are in full control of the private keys.
- Calls for little investment on the security of your devices so that you protect your cryptocurrency.
- Susceptible to damage (i.e. getting torn or soaked).
- Can be physically possessed by another person.
- The private keys might be exposed during the printing (and generation) if the computer and printer are connected to the internet at that time.
Mobile Crypto Wallets
If you are actively using digital coins daily, a mobile crypto wallet will allow you to store your private keys and trade the currency face-to-face, or pay for goods in shops. They work pretty much like any other app you download on your smartphone. However, there are also apps that enable users to tap their smartphone against the reader without having to disclose any personal details at all. That aside, mobile wallets use SPV (Simplified Payment Verification) technology so you don’t need to assess the entire crypto ledger and its several GB.
- Easy to use when on the go.
- Provide QR scanning options.
- Are easily downloaded (mostly for free).
- Prone to hacker attacks.
- Easy to lose control of the wallet if your mobile device gets stolen or someone gains access to it.
They store your private keys on the server of a company that provides such services and enable you to access your funds from any device that is connected to the internet (pretty much like mobile wallets do). Some credible web wallets are Coinbase, Circle, Srongcoin, and Xapo.
- Easy to use on-the-go.
- Can access your coins from any device.
- The company running the website could gain access to your private keys and consequently to your coins.
- If the organisation decides to shut down, they will run away with your coins.
Desktop Crypto Wallets
You download and install desktop wallets on your computer and keep your private keys on your hard drive. These wallets comprise a great solution if you trade small amounts of crypto coins from your computer and are, by definition, more secure than mobile and online wallets. One of the desktop wallets worth trying out is Jaxx.
- Don’t rely on 3rd parties for their data; hence are more safe to use.
- They are harder to steal.
- There is a variety of options available to choose from, depending on what is most important to you (i.e. security, anonymity, etc.).
- They are inherently insecure as they are still connected to the internet.
Hardware Crypto Wallets
A hardware wallet stores your private keys in a secure hardware device, such as a micro machine or smartcard, which can be easily carried around. It is considered one of the most secure forms of crypto wallets, especially compared to mobile and desktop wallets. Hardware wallets can be used interactively and securely, unlike paper wallets that need to be imported to software at some point. Trezor and Ledger Nano are two great options to consider.
- Immune to computer viruses.
- Software is open source (most of the times).
- Stored funds cannot be transferred out of the device in plaintext.
- Some wallets come with screens that can be used to display and verify important information of the wallet (added level of security).
- Private keys don’t get in touch with the internet.
- If the device is not authentic made by a reliable manufacturer, you run the risk of losing your funds.
Note: As of now, cryptocurrencies were not accepted as viable currencies by any bank. In fact, executive director at Taurus Wealth Advisors, Rainer Preiss, has recently said that all major US banks demonstrate a fear towards Blockchain and cryptocurrencies. He also mentioned that digital coins can present investors with a great alternative, considering the uncertainty from the lack of transparency that rules the banking world. In the light of the banks’ unwillingness to accept or even manage funds obtained via cryptocurrency operations, a Bitcoin Crypto Bank was established, which, of course, is the first of its kind and accepts and manages Bitcoin funds. It claims to be a certified and secure platform with no risk involved whatsoever, and high chances of profiting from bitcoin trades.
Advice to Stay Safe When Using Crypto Wallets
Bear in mind that when you store digital coins by yourself (when using a wallet), you are the only one responsible for the security and safety of your coins. If your computer gets a malware, your crypto assets could be gone. If your smartphone falls in the water, you could lose your cryptocurrency. And so on. Therefore, before you decide to store your coins in a wallet, take into account the following:
- Better use cold storage options, meaning the kinds of wallets that do not requite an internet connection.
- Always double-check and be cautious of everything. Fraudsters employ an impressive range of scams to trick you into disclosing your private keys and/or personal information. For example, you may receive an email that is very similar to one you would expect to get from, say, BlockWallet. Everything will seem to check out in that email. A closer look, though, may reveal that the email is from BlokcWallet (anagram). If you authorise it, you will instantly lose your coins.
- Make a backup. Copy your wallet file on mobile hardware like a USB stick (even better, two or more). Then, print out your private key so you can regain access to your crypto if something happens. If your wallet supports seeds (sentences that comprise of random words – 12 to 24 in total), write them down or print them out to secure every single address ever made to the wallet.
- If you want to store a large variety of altcoins in a wallet, download the client of all the coins, along with its blockchain, and make sure you keep it updated. But, if your portfolio consists of, say, 10 different crypto coins and don’t wish to get involved in such a tedious process, it might be best to use an exchange (or multiple exchanges).
Blockchain, the technology underpinning cryptocurrencies, is expected to lead to the birth of many wonders. Besides allowing financial transactions to be more open and accessible to anybody with internet access, blockchain can cut out the middleman and remove unnecessary complexities which will help change the distribution of wealth as we know it. That is exactly how LockChain has used this technology to provide the world with a more cost-effective and always safe way to rent out your property or book the hotel room or accommodation of your dreams.
Over and out…
~ Albert Murphy