All Crypto Wallets Are Not The Same
It is no secret, cryptocurrency theft is on the rise and is currently a real issue in the industry effecting exchanges and individuals alike. From the hacking of the Mt. Gox Bitcoin exchange to Bitconnect and beyond this new space has been unfortunately infiltrated by jerks that want something for nothing and are willing to take from good people to get it.
As much as I would like to tie up all the crypto thieves and force them watch “Keeping Up With the Kardashians” until they scream for mercy; I think that would be morally frowned upon (and could also be considered as kidnapping in some countries).
The fact of the matter is, in the first half of 2018 alone, $1.1 billion worth of cryptocurrency was stolen by increasingly sophisticated cyber criminals. I don’t know about you about that is a lot of money in my neck of the woods.
Faced with the ever present threat of having your crypto taken away by these computer whiz kids (or adults), users and holders should understand their cryptocurrency storage options and should select the safest and best crypto wallet to store their public and private keys; which are used to receive and make cryptocurrency payments.
Cryptocurrency Wallets In a Nutshell
(Cracks knuckles) Okay, let break it down.
The leather wallet you carry with you wherever you go contains physical fiat money (well, actually it is debt…but that for a whole different article). You probably keep your bills and coins in that wallet because you don’t want them to get damaged or lost, and also because it’s convenient to store them all in one place (ever tried keeping your money in your sock? Not a great idea).
When you want to pay for something, you open your wallet, take out the right amount of cash, and complete the transaction. Cryptocurrency wallets are a different beast all together. Instead of storing cryptocurrencies directly like you do with your dollar bills, crypto wallets merely store something called public and private keys.
These two types of keys enable users to send and receive digital currency and interface with various blockchains (i.e. the bitcoin blockchain, litecoin blockchain, etc). More simply, these keys are unique to your wallet and allow you to pay and get paid. Actually, it probably would make more sense if the label “cryptocurrency wallets” were renamed to “cryptocurrency key chains”… get it… because they store keys (I do stand up).
Because public and private keys are nothing but strings consisting of letters and numbers, there are many different ways to store them. While there are many types of crypto storage solutions out there and everyone has thier own opinion regarding what is the best crypto wallet (i.e. paper wallets, hardware wallets, software wallets); there are two main categories that all types of wallets fit into (which are hot and cold).
Hot wallets are the closest thing to the traditional leather wallet we all are used to storing our cash in. They are connected to the internet, typically provided in the form of online service or a mobile application ran on a personal device, and can be withdrawn on demand. Probably the most recognized example of a hot wallet is a Coinbase account. Millions of users access their Coinbase wallet addresses every day using the internet to log in and interact with the blockchain.
Hot wallets are also available as free software applications that can be installed on a personal computer or mobile device. For example, Exodus is a popular hot wallet that encrypts private keys and transaction data locally and requires no account setup (we use it). Click to check out our list of the best software wallets.
Without a doubt, the biggest advantages of using a hot wallet is their ease-of-use and price point. Because hot wallets are by their very nature always connected to the internet, transactions can be made instantaneously. While that is all well and good there is always two sides to a coin; the fact that hot wallets are always connected to the internet is also its weakness. Having a wallet continuously exposed to the internet also means that it is being exposed to hackers and malware.
In addition, local hot wallets are vulnerable to hardware failure and common user errors. Also, having such convenient access to your cryptocurrency makes it very tempting to day trade, panic sell or fomo (which means buying crypto out of the “fear of missing out”). If you are an experienced trader, by all means, do your thing.
However, if you are a regular person like me, perhaps having the ability to instantly access your crypto wallet may not be the best thing to ever happen to you. We recommended, if you do decide to use a hot wallet, to only keep very small amounts of cryptocurrency in hot wallets. But hey, we aren’t your parents so do what you gotta do.
- Provide convenient access to cryptocurrencies.
- User-friendly services that can be access from anywhere and any device.
- Support for multiple currencies.
- Don’t cost anything.
- Can be set up in a couple of minutes.
- Are less secure because they are always connected to the internet.
- Your private key is in the possession of a third party; meaning your funds may be stolen by the provider or developer of your hot wallet.
Cold wallets are typically kept offline, and their purpose is to provide the highest level of security possible, making them perfect for storing larger amounts of cryptocurrency. If hot wallets are the equivalent of a leather wallet then think of cold wallets as a safe. There are many different kinds of cold wallets, including paper wallets and hardware wallets.
Just like the name suggests, paper wallets are physical paper documents that contain all the data you need to generate private and public keys; which are imprinted as QR codes. While this was one of the first ways early Bitcoin owners stored their coins, unless very strict security precautions are undertaken, storing cryptocurrency on paper wallets is not considered to be the safest possible option.
The reason being is that they visibly display your public key for the world to see; therefore, someone can literally snap a picture and your funds and they could potentially take your funds. While these types of wallets are acceptable to simple forms of attacks such as this they serve as great backups as long as they are kept in a dry, fire free and generally safe location.
To paper wallets users’ defense these wallets are absolutely free to create and with some additional security and back up measures taken these can be a viable option for long term crypto storage.
Setting Up a Bitcoin Paper Wallet
Lets get down to the nitty gritty; follow the steps below to randomly generate public and private keys for a paper wallet:
- Remove all the malicious content from your PC/Laptop. Make sure it virus free or else the security of your newly generated keys can be compromised.
- Go to your wallet generator service of choice (if you don’t know of any check out Walletgenerator.net)
- If using walletgenerator.com, download the Walletgenerator site from GitHub and click on the index.html file that was downloaded onto your computer.
- For added security (and preventing any chance for hackers to record your wallet keys) make sure to disconnect your computer from the internet.
- Finally, time to generate your paper wallet. Keep hovering over the text and it will generate more characters; continue to do so until the character countdown comes to zero. If you prefer (and this is not mandatory) you can also insert specific characters of your choice into your keys while generating them.
- Congrats! You have generated your very first paper wallet!
- Don’t forget to print the newly created document (or multiple copies) and store them in different locations.
- You can now reconnect the internet with the peace of mind knowing that your private key was never exposed to the internet!
Cryptocurrency hardware wallets are by far the most popular and secure type of cold wallet used today and is the preferred method used by large crypto holders (be it individuals or large corporations).
Hardware wallets have a number of advantages over standard software hot wallets. Because they store private keys in a protected area of a microcontroller (which means the key is never exposed to the internet or the visible eye at any time), they are immune to computer viruses that steal from software wallets. In addition, most hardware wallets provide an additional layer of security in the form of a PIN code to protect against physical theft.
Here are the top hardware wallets we own and use to protect our cryptocurrency:
Hanging its hat on being the hardware wallet with the most diverse digital asset support portfolio, the simplest user-friendly interface and an innovative proprietary encryption technology; this hardware wallet is an overall solid purchase for someone who want a serious about protecting their wealth but also would like an easy to use cold storage solution. Click here to read our in depth review of the Ledger Nano S wallet.
Fun little fact, this was my first hardware wallet. Branded as “the simple cryptocurrency hardware wallet”, Keepkey claims to be the premier user interface on the market. It has the largest display screen at its current price point and has added integrated ShapeShift support which makes switching between cryptocurrencies a breeze.
This is the only hardware wallet available that supports native storage for ERC20 tokens (coins that are hosted on the Ethereum blockchain). It is important to note that this wallet can store 29 ERC20 tokens naively; it’s competition can currently store zero (how do you like them apples?). Click here to read our in depth review of the Keepkey wallet.
This popular hardware wallet can store over 500 different cryptocurrencies, and it has been audited by security researchers, who verified its every part. With the Trezor Hardware Wallet, there’s no reason to fear hardware loss as the entire wallet is always accessible via a 12 to 24 words long recovery seed. NOTE: We are currently working on our product review for the Trezor wallet at this time.
The biggest downside of hardware wallets is their price; I get it, when compared to the free paper and hot wallets any amount at all looks like a sizable sum. However, you need to ask yourself what level of security you are willing to sacrifice in order to save a few bucks. Some money today can save you from a lot of stress, worry and stolen money tomorrow.
- Highly secure and immune to computer viruses that steal from software wallets.
- Excellent for long-term storage.
- Support multiple currencies.
- Cost money.
- Not convenient for daily transactions; however, it can be done.
Best Practices That Will Keep you Safe
Regardless of which type of cryptocurrency wallet you ultimately decide to go with, there are certain best practices that you should learn and follow if you are going to own and use cryptocurrency.
- Keep your computer clean: malware is behind most cases of cryptocurrency theft, which is why it’s absolutely necessary for anyone who accesses a cryptocurrency wallet from a computer or mobile device to avoid suspicious websites and keep software up to date.
- Have a backup: hot wallets may be unavailable, while cold wallets may get damaged or lost. A safely stored wallet backup can save the day when no other options are left.
- Use a strong password: even the best cryptocurrency wallet is only as secure as the password that is used to access it. Always use the strongest password you can remember and make sure that it’s unique and can’t be guessed by someone who knows you.
- Encrypt everything: in many cases, it’s much easier for criminals to steal someone’s laptop or mobile device than it is to execute a remote hack. By encrypting everything, you make it impossible for criminals to access your cryptocurrency funds, accounts, and personal information even if they physically get hold of your device.
The Final Word on Crypto Wallets
When it comes to cryptocurrency wallets, there are many options to choose from. Each type of cryptocurrency wallet has its pros and cons, and it’s important to be aware of what they are to select a wallet that best fits your needs. If you are anything like me, as you get more comfortable in dealing with cryptocurrency, you will probably be using all the different types of crypto wallets; some for every day transactions, some for back up and others for long term offline storage.
You should feel good that you took the time to read this article because that means you are taking your crypto security seriously; these few minutes of education can save you a world of heart ache and worry! The fact of the matter is that you now know more about crypto storage than 95% of the population and we at BitBarricade applaud you.