Once you have gotten familiar with the concept of cryptocurrency and the technology associated with it, you will probably want to invest your money into this powerful technology. Cryptocurrencies such as Bitcoin are causing a huge commotion in the financial market today. Virtual currencies can be used to pay for goods in retail stores or online shops. You need a cryptocurrency wallet if you’re going to invest in several coins in the cryptocurrencies market.
In short, this is a wallet which functions similarly to your traditional online bank account. However, it doesn’t store your crypto money, but it does keep a record of your transactions. This guide will show you step-by-step how you can create a cryptocurrency wallet and which platforms are the best ones to use.
What is a cryptocurrency wallet?
Before we go into detail about how you can set your wallet, it’s important to understand what a crypto wallet is all about. For starters, you need to understand that it functions similarly to the physical wallet that you have in the sense that it is a storage of value, but it is much more complicated. In fact, the cryptocurrency wallet has a software program that enables it to interact with the blockchain technology to keep your cryptocurrency assets secure. Using the digital wallet, users can receive, send digital currency, and monitor their balance, similar to a mobile banking application. If you realize it, a lot of the major cryptocurrencies such as Bitcoin and Ethereum have their official wallets. However, if you are holding an alternative coin, you will have to opt for another type of wallet which may not be the official wallet for that alternative coin.
However, it is expected that more wallets will be able to accommodate alternative coins at the popularity of the cryptocurrency space increases.
What’s the function of a cryptocurrency wallet?
There are a lot of people who don’t understand the technology behind a cryptocurrency wallet. Similar to when you are using a phone, you don’t have to understand how the parts of a phone work to enjoy a good browsing experience. This also applies to cryptocurrency wallet users.
One major difference between traditional wallets and digital wallet is that the latter does not store any currency. The main thing about digital currency is that they are not stored anywhere such as in bank vaults. This is because cryptocurrencies are just Bitcoin, which does not have a physical representation.
So, how does a cryptocurrency wallet store virtual assets?
Instead, virtual money is registered on the blockchain. Upon signing up for a cryptocurrency wallet, you will be given both public and private cryptographic keys. First and foremost, your public key is an address which you can give out any members of a cryptocurrency network because this is the main method that you will either receive or send help funds. Other members can easily send funds to you when they know your public address. Secondly, you will have a private key that you need to keep secret at all times. Your private key will help you to unlock where you store your cryptocurrency assets.
Always keep in mind that you have to keep your private key secret. If for some reason you lose it, you won’t be able to gain access to your account which will cause you to lose your cryptocurrency assets. As a prerequisite to unlock your account, the private and public key have to match. Any transfer or transactions you receive will only be reflected in an increase or decrease of the balance. There is no exchange of physical currencies.
Before getting into the cryptocurrency market, you probably heard about the anonymity feature associated with cryptocurrencies. A major misunderstanding people have is that they believe cryptocurrency wallets are entirely anonymous, but that is not always the case. In fact, people can easily track your bacterial identity if there is a loophole in the cryptocurrency wallet. With advanced technology, anyone can track back your IP address to determine the owner of the account.
Is there a fee for using these wallets?
Yes, there is a fee. This is because, in Bitcoin, there are miners who help to maintain the blockchain. These are people who have huge computing power that helps to ensure transactions on the Bitcoin blockchain goes on smoothly. Typically, you will have to pay a normal transaction fee of $0.12, but if you want your transaction to be processed faster, it may be more.
Different type of cryptocurrency wallets
In the cryptocurrency market today, there is already a range of options that you can select as the cryptocurrency wallet. They will be available on different platforms such as mobile, desktop, or online. They can be broken down into three distinct categories which are software, hardware, and paper.
This type of wallet requires you to download it on a PC or a laptop. You can only access it from the desktop that you installed it on. It typically comes in the form of an application. Compared to other online wallets, this wallet is safe as you don’t have to use the browser. Despite this, you will still expose to the risk of hacking, getting a virus, contracting and malware all your wallet file becomes corrupted. As a safety precaution when using your desktop wallets, always back up your wallet.
These wallets are kept online which is usually in a world where you can easily gain access to it. It is how convenient free to access these wallets. However, one thing to keep in mind is that they are controlled by a third party. In other words, you do not have true privacy with online wallets. Therefore, you have always to keep your private key somewhere safe. Online wallets are not so recommended because they are prone to hire resolve hacking and theft.
These are mobile applications that function as cryptocurrency wallets. In short, they’re very similar to the desktop version of a wallet as they have the same features. When using mobile wallets, you are exposed to hacking attacks, especially if you use them via public wifi or open spaces.
With a hardware wallet, you will be typically given a particular device to store your keys. Using this wallet, you can continue making transactions the same way that you do with other wallets, but your funds will be stored offline.
Traders prefer this method because it increases security. The benefits of using this wallet include high portability and keeping the cryptocurrencies away from online danger. If you want to start a cryptocurrency transaction, you have to plug the devices into your computer with a working Internet connection, enter the pin, and set out any cryptocurrency.
Among all of the cryptocurrency wallets that we have listed, paper wallets are typically not a favorite. To use a paper wallet, you must print out your keys. Many people do not prefer to use this because having a printout exposes the risk of making their public and private keys are known. One complication with the paper wallet is that you will still need to get a software wallet to transfer your funds.
You can print out a QR code on a paper wallet so that you easily scan it when you want to make a transaction. This process of transferring files between software and paper wallet is called sweeping.
How secure are cryptocurrency wallets?
Ultimately, the level of security your assets have depends on how you handle your public and private keys. With online wallets, you are exposed to a higher risk of getting hacked because it is connected to the Internet. This is why hardware wallets proved to be more popular because they are more secure and often used by people who have a significant amount of cryptocurrencies.
When using a cryptocurrencies wallet, you should always be careful and take extra precautions. It’s better to be safe than sorry. If you lose your money to cybercrime, it is highly difficult to get your money back.
However, if you decide to go for an online wallet, here are several steps that you need to take when using your cryptocurrency wallet.
- Back up your wallets
You can always get both hardware and online wallets. On your online wallet, you can store a few cryptocurrencies that you regularly use. Meanwhile, you can keep the majority of your funds in your hardware wallet as this is a very safe option. One thing that you have to keep in mind is always back up your wallet.
- Update your software
It is always advisable for you to upgrade your system to the updated version because hackers like to target outdated systems. If you are planning to invest in cryptocurrency, you should always update your software because any loopholes in an updated version can easily be manipulated by hackers. In the cryptocurrency world, the risk of getting hacked is real. Therefore, you should always think of extra steps to provide as much security as possible to store your cryptocurrencies.
- Don’t forget your password
This may be such cliche advice, but make sure that you set a complicated password. People tend to create passwords that they remember better. If you think about it, this is the same reason that traditional banks make it compulsory for users to create a complicated PIN. Hackers are waiting for you to make a mistake. Don’t let them have the opportunity to do so.
Remember to keep your private keys safe. For the choice of a wallet, always go with one that is trusted by the general community and has several ways for you to maintain your security level. For instance, you may want to consider the two-factor authentication system which is available for a lot of cryptocurrency wallets.
This simply means that if you try to sign into your cryptocurrency account, the system will send out a code to your phone and you will have to input the code before anyone can have access to your account. Another more advanced feature is the multi-signature transaction. This method requires permission from another user before in transactions can be made on an account.
Best cryptocurrency wallets to consider
Always do your research before you select a cryptocurrency wallet. The fact that you are reading this article shows that you care about the security of your account. Here are several types of cryptocurrency wallets are you can consider.
Coinbase has a dedicated cryptocurrency exchange. In addition, it is both a Bitcoin and Ethereum wallet. Therefore, it is convenient for you to use as you don’t have to use two separate wallets for major cryptocurrencies. Coinbase is very popular in the cryptocurrency industry. In fact, it is considered an industry leader in this area. It is a great wallet that you can consider as a beginner because they are very easy to use and have relatively low fees.
Some downsides of using this wallet include the fact that it lacks privacy and the corporation behind this cryptocurrency exchange will have total control over your cryptocurrencies.
This platform has ShapeShift which essentially enables you to convert major cryptocurrencies to other alternative coins. All of this is done without needing you to leave your wallet at all. Furthermore, it is known as a multi-asset wallet in which you can store all of your keys in one location. However, you can only use this wallet on a desktop.
For beginners, this wallet is really good because it is beginner friendly and it is highly intuitive to use. It also supports multiple currencies, and the usage of this platform is completely free as it is an open source software. However, the downside of using it is it does not have a web interface or mobile applications.
This is a hardware wallet that looks a lot like a small flash drive. This is well known as one of the more secure hardware wallets that you can get your hands on. It functions based on a smart card, and you can connect it to your advised by using a USB cable.
If you are a diversified portfolio, you will find an external wallet to be highly useful, as it can enable you to treat virtual currencies on your portfolio. However, this platform has been criticised for not being anonymous. The price of this external wallet is $65, and users cannot hide them.
This is yet another wallet that is classified as a hardware wallet. What it offers is the revolutionary security feature which is known as the biometric authentication. This is a great method of protecting your cryptocurrency wallets as it also offers a multifactor authentication device in which requires the re-signatures in order to broadcast the transaction to the blockchain.
This external wallet has an advanced method of authenticating any transactions. Among the three signatures which are required include fingerprint, the company signature, and also a third signature. However, the initial price to use this wallet costs you $199.
If you are a diversified cryptocurrency investor, this wallet can help you to store a lot of your major coins as well as alternative coins. So far, it has never been infected by malware. However, to complete the transaction, you need to have the device with you. Other than that, this device is well known for its high security and privacy and has a web interface which can be utilized by users. It is also a highly beginner friendly external wallet.
Which one is the best?
With the massive popularity of cryptocurrencies, you will be able to get your hands on a number of different wallets. Before you select a wallet for yourself, you must identify the purpose that you are going to use the wallet for. Depending on your priorities, you will find that there are different types of wallet that can cater to your needs. For instance, if you want to use your cryptocurrency wallet regularly, you may want to consider selecting a hardware wallet which is easy for you to bring around.
However, if you are storing a lot of cryptocurrencies in one place, you may want to look at a more high-end external wallet which offers you a greater amount of security. Overall, you should always stick to hardware or desktop wallets because these offer better and higher levels of security. In short, we hope that this guide helps you learn options that you have on cryptocurrency wallets. Remember that you should always research and review the reputation of the one before you finalize a decision.