Sooner or later, every market participant faces a dilemma - “Where to store your crypto assets?”. There are many choices. We will talk more about them in this article.
What is a crypto wallet?
At the first request in the search window, we get the answer: Crypto wallet is software that allows you to send and receive cryptocurrencies, such as bitcoin, lightcoin and others.
Each crypto wallet contains public and private cryptographic keys.
A cryptographic key is a secret sequence of characters used by cryptographic algorithms to decrypt data.
These keys enable their owner to work with the blockchain of the selected cryptocurrency and carry out transactions on his behalf.
Let's continue. The public key is a kind of address for your wallet. It looks something like this: 1C5dJ6E8wpw2ZdUn7nKB3DzPjgoRgHUGX9. If someone wants to send you money, the person making the transfer will need to indicate your public key as the address for receiving the transfer. And vice versa. If you need to make a transfer, you will need to indicate the public key of the person receiving the transfer in the receiving address. However, for you to complete this transfer, you need a private key. The private key consists, like the public key, of the letters of the Latin alphabet and Arabic numerals, however it is always longer than the public key.
We will not talk about which formats have private keys in this article. the meaning of their use is unchanged, only the key length and character set differ.
In essence, the public key is “your mailbox”, “cyber safe”, “account in a Swiss bank”, and the private key is your password that unlocks your “mailbox”, “cyber safe”, and the password that allows access to your "Swiss bank account".
Therefore, it is very important to keep your private keys safe. If they are lost, you will lose access to your account and will no longer be able to use your crypto assets.
It is very important that you understand that a crypto wallet is not the same as money in your pocket or money in an envelope lying at home under a mattress. All the power of your wallet is in your two keys. The wallet itself does not contain any money. The assets that you own are on the blockchain and have never left this blockchain, and never will. When a transfer is made from one participant to another on the blockchain, only a block is added to the blockchain with a description of this transaction, which in essence means a change of ownership.
Back to the wallets.
Wallets come in many types, and each of them has its own advantages and disadvantages.
Today there are:
- Hot (cloudy) wallet;
- Warm wallet;
- Cold (hardware) wallet.
- A paper wallet. Pros: easy to create, protected from equipment breakdown. Cons: the probability of theft of a leaf with keys, paper is not a durable material, a banal opportunity to lose a leaf.
The convenience of storing assets in paper format is manifested in the use of a QR code, which provides quick identification.
The creation process is intuitively simple. You need to move the mouse cursor over the monitor to generate random keys. After the service generates a public and private key, we get a paper wallet, which we can then print. And after that, store your assets on it.
In order to transfer funds to a paper wallet, it is enough to transfer crypto assets using a public key located on paper.
In order to withdraw funds from a paper wallet, you must use third-party services such as Blockchain (can be downloaded to a smartphone). It is necessary to register in this service and scan the QR codes data on paper. This will give you access to the crypto assets located in your wallet.
Important! You should not withdraw money from the paper storage in parts, because this is fraught with the loss of the remaining part of the money.
- Hot (cloudy) wallet. Pros: easy to create, convenience, affordability, many cryptocurrencies in one wallet. Cons: third party addiction.
A hot wallet is the easiest to use. This type of wallet is served by various online services. It is called hot or cloudy because it can be used from any device. You only need to have an internet connection. In order to become the owner of a hot wallet, it is enough to register on the website of the cryptocurrency storage service.
You can create a hot crypto wallet on the sites of such services as: https://www.blockchain.com/en/wallet, https://www.exodus.io. In fact, there are a lot of such services, and this makes it possible to make a choice in favor of one or another wallet.
A hot wallet is very convenient to use. All your actions are limited only by registration on the service and careful storage of the private key. At the same time, you must understand that you keep your assets with a third party, and if something happens to him (he is hacked, or to the commonplace, the owner wants to buy a lamborghini and go to sunset), there is a great chance that you will lose your assets .
Hot wallets are good for storing small amounts.
- Warm wallet. Pros: control over your assets. Cons: tied to a separate device, you will have to install a wallet for each cryptocurrency.
Warm wallets (software or mobile) are installed on your device - a computer or smartphone. These wallets process your transactions and store private keys. Such wallets are well suited both for storing crypto assets and for making transactions.
Software or mobile wallets are also classified as thick and thin.
Thick wallets store the entire blockchain in the memory of your device, and thin wallets use third-party resources for this.
In practice, for the successful operation of a thick wallet, it is necessary not only to install it on your computer, but also synchronize it with the blockchain of the cryptocurrency of your choice. Say, in order to synchronize your Bitcoin wallet with the network, you will need to download more than 295 GB of memory (download the entire blockchain starting from the first transaction that Satoshi Nakamoto made). Further, if you want to complete a transaction, you need to synchronize again with the blockchain (before copying the blockchain).
Initially, cryptocurrency was stored just like that. Because of this, you and I heard a lot of stories about how, in the early years of Bitcoin's existence, many opened wallets and stored worthless Bitcoin there, without thinking about the safety of storage, and then, as Bitcoin began to demonstrate a significant increase in value, and those who mined it one of the first, became millionaires, right up to the moment when they realized that the hard drive on which the bitcoin wallet was installed either burned out or was already lying somewhere in the trash.
Thick wallets are not dependent on a third party and, by and large, are safer than hot and paper wallets. The installation utility of a thick wallet can be downloaded on the official website of the cryptocurrency of your choice, with Bitcoin it is: https://bitcoin.org/en/download.
As for the thin wallet, its functioning is connected with the functioning of the service that released it. Let's say the cryptocurrency storage service - Blockchain.com, has its own thin wallet that can be installed on your smartphone.
- Cold (hardware) wallet. Pros: the safest type of crypto asset storage, many cryptocurrencies in one wallet. Cons: buying a device.
A cold wallet is a flash drive that connects to a computer. It resembles a simple USB flash drive that can be used to store cryptocurrency. Your public and private keys will be protected by this USB stick with the Secure Element chip.
Cold wallets are safer than any software; Your keys are stored on a device that is not connected to the Internet.
Perhaps the most popular hardware wallet is Ledger Nano: https://www.ledger.com.
By the way, about who and where stores their assets. Binance conducted a survey among crypto asset managers with volumes ranging from ~ 100K to> $ 25 million. It turned out that 92% of respondents store significant amounts of assets on exchanges, and only 33% on cold wallets.
Where and how to store their crypto assets is up to everyone to decide for themselves, and we hope that this article was useful to you.