In our last post, we went over the best way to purchase Bitcoin and we’ve established why it’s never a good idea to leave your cryptocurrency on an exchange.
The best place to store your cryptocurrency is on your own personal hardware wallet but you should also know about the many different types of wallets.
What is a Bitcoin Wallet?
A bitcoin wallet is any place bitcoin can be stored. The same is true for cryptocurrency in general. A cryptocurrency wallets as any place cryptocurrency can be stored.
The three different types of cryptocurrency wallets are:
A paper wallet, just like it sounds, is a piece of paper that allows you to store and spend your bitcoin. You can generate your own bitcoin paper wallet using a website like bitcoinpaperwallet.com.
The photo above shows two QR codes. The code on the left is to send bitcoin the wallet. The code on the right is how you spend your bitcoin. That’s what’s known as a private key. You don’t want anyone but yourself to have access to your private key. If you give that away or someone discovers it, your bitcoin can be stolen.
Paper Wallet Pros
- Easy to use
Paper Wallet Risks
Personally, I don’t use paper wallets because they are easily prone to damage and I much prefer a hardware wallet. However, if you choose to go the paper wallet route, I highly recommend purchasing a safe as well as keeping a copy of your private key in a safety deposit box at the bank.
Software wallets come in the form of an application that can be installed on either your personal computer or smartphone. Software wallets are great because they are widely accessible thanks to widespread adoption of smartphones and personal computers.
For desktop users, I recommend Exodus which is known for its great UI and wonderful customer support.
For smartphones, I recommend the Blockchain Wallet App.
Software Wallet Pros
- Free (most are)
- Ease of use
Software Wallet Risks
Anything digital regarding personal/private information runs the risk of being hacked. The same is true for software wallets. While Exodus, and Blockfolio have both demonstrated to be trustworthy wallets, it cannot be guaranteed with 100% certainty that your crypto will be safe from hackers. In particular, be wary of phishing emails/links.
Phishing is a fraudulent act in which an attacker impersonates a company or person in order to get you to reveal personal information about yourself. If you’re someone who receives a lot of spam emails you most definitely have seen a phishing attempt.
The best way to mitigate your crypto getting stolen via phishing is through the use of a hardware wallet, because it significantly decreases the ways in which an attacker can access your funds.
Hardware wallets (aka cold wallet/ cold storage) is a type of cryptocurrency wallet in which the private key is stored on a physical device. This is why hardware wallets are often referred as the safest form of cryptocurrency storage. You can’t hack a hardware wallet in the traditional sense since you need physical access to the device to even access your crypto.
My personal favorite hardware wallet is the Ledger Nano S.
The way the Ledger Nano S works is you must plug it into your computer to power it on, and only after you input your 4-8 digit pin number (which you set) can you actually access and send your cryptocurrency. A complete overview of your cryptocurrency portfolio as well as sending/receiving crypto is done through their computer software ledger live.
Pretty neat huh? The tradeoff is that a hardware wallet like the Ledger Nano S will cost some $$$, but I highly recommend the purchase especially if you plan on purchasing large sums of cryptocurrency, and for peace of mind knowing that your cryptocurrency is safe.
But what if I lose the device or it gets destroyed?
No worries, while setting up the Ledger Nano S, 12-24 words are randomly generated. You are instructed to write these down on your passphrase recovery sheet.
Now if your device were to ever get lost, damaged (or maybe you just forgot your PIN), you can always recover your crypto so long as you have the passphrase recovery sheet.
I also recommend you put this in a safety deposit box at the bank.
Be sure to check out my Ledger Nano S Review and Unboxing!
Ledger Nano S Risks
No piece of technology is every 100% secure. While the Ledger Nano S is arguably one of the safest forms of cryptocurrency storage, a fatal flaw in the hardware could prove otherwise. The same could also be said for any piece of technology.
Final Thoughts, Conclusions
Personally, I believe the biggest risk to our crypto is ourselves. Social engineering schemes and phishing scams are rampant within this space, and it’s a lot easier to be fooled by these schemes then it may seem.
The best way to combat this is through education. I’d even say it’s essential. As a rule of thumb (1) NEVER leave large sums of crypto on an exchange we’ve already established why this is never a good idea. (2) If possible store your crypto on a hardware wallet. (3) Question everything. Receive a mysterious email? Probably best to trash that. How about a text message that says you received a compliment along with a nice link to click. Please don’t click that link… And for God sake, download an Adblock if you haven’t already.
Thanks for reading!