Crypto in an Hour: Part 13 – Wallets

by | Dec 10, 2019

Let’s say that you have decided you want to buy bitcoin or some other altcoin. Great, now where do you keep it? How do you store and secure a digital asset? Cryptocurrency holders refer to the place they store their digital assets as a wallet. However, there are many kinds of wallets. It’s a good idea to know what is available so that you can choose the wallet is best for you.

The first option you have when you purchase a cryptocurrency from an exchange is to leave it on the exchange. You don’t own the wallet; the exchange holds the currency for you. For a consumer, this is the simplest way to hold cryptocurrency, but that simplicity comes with risks. Someone could hack the exchange, the people running the exchange could take your cryptocurrency, or the exchange could close. Historically, all these things have happened. A common phrase in the cryptocurrency space is, “If you don’t control your keys, you don’t control your coins.”

A digital wallet is a piece of software that manages your keys and allows you to transfer cryptocurrency to and from the software. There are thousands of wallets that offer access to different cryptocurrencies, security options, and ease of use. Some drawbacks to using a digital wallet is that it is still open to attack, although less risky than holding it on an exchange. If someone can hack into your computer, they can gain access to your wallet. Another possible risk is that your could computer crash and you’d lose access to your cryptocurrency that way.

Another type of wallet is called a hardware wallet. A hardware wallet is a physical device, much like a jump drive. Just like a digital wallet, a hardware wallet stores your keys, but because it can be removed from your computer, it offers more protection from cyberattack. Of course, that also means that you could lose your wallet, or someone could physically steal it.

There are ways to back up your keys of course. Backing up your hard drive or software would work. Also, you could use what is called a paper wallet. To create a paper wallet, you simply write down your keys. Many people do this and keep the paper in a safe deposit box. Obviously, a piece of paper is easily lost, stolen, or destroyed. One more option is to simply memorize your keys. While that is easier said than done, if you can remember your keys, you can gain access to your money at any computer. This is called a brain wallet.

Whatever you choose, it is crucial to understand that it is your responsibility to look after the safety of your money. Bitcoin doesn’t have a help desk or a forgot-your-password button. When it comes to storing and securing your cryptocurrency, there are many options. Each one has pros and cons, so it is important to do your own research and find what works best for you.