Storing your cryptocurrency
Cryptocurrencies have the unique feature that they remove the necessity of third parties having to hold and guard your funds. This is a good thing, however, this also means that you are essentially yourown bank.
You, and you alone, are responsible for safekeeping your cryptocurrencies.
While there are different ways of storing your cryptocurrency, we will highlight the most secure ways in this article.
First off, let’s explain what a wallet actually is because the name ‘wallet’ often causes a couple of misconceptions. Your cryptocurrencies never leave the blockchain, meaning that they will never physically enter a wallet. All the wallet does is make it possible for parties to monitor, receive and send funds.
Your wallet is simply software designed to interact with the blockchain, and it stores addresses instead of crypto coins or tokens. For example, a Bitcoin wallet interacts with the Bitcoin blockchain, allowing Bitcoins to be moved between addresses by the owners of those addresses, and allowing users to see the balances associated with an address, but the actual Bitcoin never leaves the Bitcoin blockchain.
Hopefully, you didn’t get confused because the differences between normal wallets and crypto wallets are going to expand.
Crypto wallets exist out of a public address and a private address.
The public address can be seen as your account number, they can be used to receive cryptocurrencies and can be shared publicly, the only thing that happens when someone tries to do something with your public key will result in you receiving crypto, the public key alone is not enough to send anything.
The private key, however, is yours, and yours alone. The private key proves that you are the owner of that public address and should NEVER be shared with anyone. The owner will be able to send any cryptocurrencies stored on the public address it corresponds to.
Luckily with time the private key, which used to exist out of a 256-bit number that was shown in hexadecimal, has evolved into a mnemonic code of 24 random words in a particular order. Whenever you set up a new wallet you HAVE TO store the words in their shown order somewhere offline. If in any case, you lose access to your wallet this mnemonic code will grant you access to your funds.
- show your mnemonic phrase to anyone
- lose your mnemonic code
- store your mnemonic code online or on your desktop for hackers to find
- write down your mnemonic code
- Store your mnemonic code somewhere securely offline
For extra security, you could split up your code on 2 different pieces of paper, laminate it fireproof and store these on 2 separate locations.
4 types of wallets
There are 4 types of different wallets you can use. The wallets that are easier to use have the drawback of being less secure. It’s important to also note that there’s a difference between ‘hot’ and ‘cold’ wallets.
The big difference between the two is that hot wallets are connected to the internet, and cold wallets are not. This also means that hot wallets are more accessible than cold wallets, which is handy for day to day use, but it also makes it easier for other people to get access to your funds.
We recommend using a cold wallet for storing the largest part of your funds, and a hot wallet for your everyday use of crypto.
Hot wallets can be further dissected into web wallets and mobile wallets. An example of online wallets are the exchanges we recommended, Coinbase, Binance, and Litebite.eu. There are also services that solely provide storing capabilities.
Mobile wallets are software that you download on your smartphone, it has the same advantages and disadvantages as web wallets. Easy to use at the cost of security. Whenever you choose to use a mobile hot wallet please make absolutely sure that you download the right application in your AppStore.
We highly recommend that you purchase a hardware wallet. While they aren’t cheap (ranging around 100$) they are essential for keeping your cryptocurrency secure. Hardware wallets are designed in such a wat that they make it very difficult to be hacked.
Hardware wallets store your private keys offline, but still make it possible for you to send, receive and manage your cryptocurrencies.
The 2 most well-known wallets are the Ledger Nano X/S and the Trezor wallet. In general, they are easy enough to setup. Just make sure you write down your mnemonic phrase and store it somewhere safe.
The latest Ledger wallet available is the Ledger Nano X. It’s an upgraded version of the Ledger Nano S. Ledger has been around since 2014 producing secure hardware wallets and has been one of the industry leaders setting the standard.
Both the Ledger Nano S and X are good choices for safely storing your cryptocurrencies. The X version has the possibility to connect to your phone via Bluetooth. The Ledger Nano S is the cheapest model (59$ inc. shipping), and has the most basic functions to handle cryptocurrencies. It’s perfect if you are just starting out.
The setup process is pretty straight forward. Make sure you safely store your mnemonic phrase and only buy your Ledger from the Ledger store, or via one of the official retailers. Do not buy one from a random vendor on Amazon!
Another very common, and secure, hardware wallet is made by Trezor. It works in a similar way as the Ledger Nano S/X. Both store your private keys offline, and both need the user to push 2 buttons physically, which means hackers can’t automatically transfer any funds.
The Trezor also lets you recover your wallet with a mnemonic phrase, so always make sure you safely store your personal 24 words (we just can’t emphasize this enough).
Trezors’ basic model ‘Trezor One’ is comparable to the Ledger Nano S (even the price is the same at 59$), but there is also a more expensive Model T version which comes with a color LED touchscreen making handling it a bit more convenient. It has a price tag of $170,-. If you are just starting out and are not yet looking for the newest shiniest wallets, we recommend going with the basic version.
Again make sure you buy your wallet from the official site, or from an official retailer and avoid sites like eBay and Amazon to buy one!
It might seem overwhelming at first how to safely store, send and receive cryptocurrencies, and it does take a bit of learning to figure out how to use the different types of wallets. However, this comes with the freedom of being your own private bank. You and you alone are in control of your funds. You never have to be afraid of bail-ins, bail-outs or bank runs. You will always be in full control of your funds.
It is revolutionary and, in our view, makes it well worth the time investment to learn how to properly use cryptocurrencies.
If you are ever unsure of what the best wallet is for you, how to manage your funds or if you have any security questions feel free to send us a message or hit us up via one of our social media accounts. We are more than happy to help you on your way!