Most people know what a wallet is, but when dealing with cryptocurrency it is important to know that once you buy your first coin, it is important to send that coin to a crypto wallet. Until you do so, you don’t actually own your coin and it is vulnerable to attack on an exchange. When you send your coin to your wallet, it is like owning both a key and the lock it goes to. If you leave it on an exchange, it is just a lock waiting to be picked by a clever hacker. Hundreds of millions of dollars have been lost due to exchanges being hacked, often with no recourse because of the anonymity built into cryptocurrencies.
You wouldn’t leave your keys in your car or the door to your house unlocked, right?
This is why you want to use a wallet.
A wallet stores the information necessary to transact cryptocurrencies. While wallets are often described as a place to hold or store cryptocurrencies, due to the nature of the system, cryptos are inseparable from the blockchain transaction ledger. A better way to describe a wallet is something that “stores the digital credentials for your bitcoin holdings” and allows one to access (and spend) them. Bitcoin uses public-key cryptography, in which two cryptographic keys, one public and one private, are generated. At its most basic, a wallet is a collection of these keys.
There are 4 main ways to store your cryptocurrency.
Hardware wallets are a great way to store your coins, and considered the safest by many of the notable figures in cryptocurrency. Many different companies are now coming into the crypto market to create affordable and secure wallets. Here are a few to check out.
Cost: About $100
The Bitcoin protocol works by sending signed notes of payment across the Internet. These messages (which are referred to as Transactions) are signed using a special algorithm. In order to sign a Bitcoin transaction, you need to have a special key or password. TREZOR holds that key. Since TREZOR’s job is to help you securely sign Transaction messages, you can think of your TREZOR as a modern day stamp. TREZOR is better than an ordinary mechanical stamping mechanism, however. Each TREZOR has a PIN code. If your TREZOR gets stolen, thieves cannot misuse it to steal your money. Due to TREZOR’s clever design, even if the computer with which you use your TREZOR is hacked, the hackers will never know your PIN.
In contrast to the various pieces of software and web services that allow you to store your Bitcoins TREZOR is secure. Software and web-based solutions keep your Bitcoin signing keys either on your computer or worse, on the Internet! When you use such a service, hackers can easily steal your Bitcoins by hacking your computers or hacking the servers of the services that you use.
Trezor currently supports: Bitcoin, Ethereum (+ all ERC-20 tokens), Ethereum Classic, ZCash, Litecoin, Namecoin, Dogecoin, Dash and Bitcoin Testnet
Cost: About $65
You need: a computer with an USB port (for Nano S, Nano, HW1), Google Chrome or Chromium 50+Windows (not XP), Mac (10.7+) or Linux.
The wallet interfaces with the computer through a Chrome application which you will need to install on your computer. No additional software installation or account creation is needed. Upon installation, you will need to write down a series of random words which will be used as a backup in the case that your ledger gets lost or stolen. You will also create a pin number that will ensure that if it does get lost or stolen, your crypto is safe, providing you haven’t given away the pin to anyone or something silly like that.
Ledger Nano, Ledger Unplugged and Ledger HW.1 support Bitcoin only.
Ledger Nano S and Ledger Blue natively support:
When a new altcoin is added to the Ledger Nano S and Ledger Blue, you will only need to download the last app (free) or update the firmware.
If you want to check if a cryptocurrency is planned to be supported, you can consult their public roadmap.
A new model called Ledger Ble will be coming out on October 30th, 2017 with a touchscreen interface. It can be viewed/purchased at http://www.ledgerwallet.com/products/ledger-blue
I imagine in the coming years, many new companies will begin to offer easy, secure hardware wallets, but these two are very reputable at this point in time.
Mobile wallets are wallets downloaded in the appstore on your phone. Many in the realms of cryptocurrency, including bitcoin evangelist Andre Antonopoulis, consider mobile wallets the second most secure way to store your cryptocurrency. This is due to the passlock on your phone, and the fact that many crypto-wallets have your information password protected. Furthermore, one can add 2-Factor Authentication (you should do this too) downloading the AUTHY APP or Google Authenticator, available in the apple and google play store. This adds another level of security to storing your coins. Simply holding your coins in the exchange, such as bittrex, bitfinex, coinbase, etc. is considered risky because you do not control the entirety of your keys. This makes your coins vulnerable to hacking or issues with the exchange itself.
Rule of thumb, if you can access the keys, you own the coin.
In placing your coins in a mobile, desktop or hardware wallet, you own the keys. Simple as that.
Many cryptos can be held on computer wallets, such as at myetherwallet.com for ETH. Simply use a search engine to locate your coin as well as the word “wallet.” Then download the file, open it and create your wallet. Simply send your currency to your desktop wallet, enable 2-Factor Authentication and then you are in the game.
The gold-standard of ease-of-use getting into the world of digital currencies is Coinbase. Coinbase is easy to use, easy to set up and fun to watch. To set up an account is as simple as downloading the coinbase app in your phone, tablet or computer, connecting your bank account, enabling 2-Factor Authentication via the AUTHY app, sending some Fiat currency and making your first purchase. Congratulations! You are now part of the digital economy.
I love Coinbase, because it was my very first introduction into the world of cryptocurrency. It also serves as a gateway back into your bank account if you want to “cash out” some of your coin.
Coinbase can be used as an entrypoint to crypto, but one should consider sending any cryptocurrency purchased into a hardware wallet such as the ones listed above for maximum security.
For information about GDAX, the exchange associated with Coinbase, see chapter 4.
For anyone seriously interested in taking their coins “off the grid,” one can use a “paper wallet. One can print the keys as well as a digital stamp that functions as a paper version of your digital currency. One might consider doing this on waterproof paper and placing their wallet in a secure location such as a fireproof safe.
For a tutorial on how to make a paper wallet in 10 easy steps, check out http://www.coindesk.com/information/paper-wallet-tutorial/