If you bought Bitcoin or some altcoins you might be wondering:
“What do I do with them?”
The best practice for storing digital assets is moving them to a secure wallet, an encrypted file of your private keys. They can be online or offline, desktop or mobile, digital or even paper. The number of available wallets is almost on par with the actual coins they hold. It is important to note: Wallets are very particular on the coins they can hold. Always make sure you are moving your currency into the proper wallet.
Inside each wallet are “addresses.” These are specific locations you can transfer coins to, known as public keys, each wallet can have multiple addresses and it’s a good idea to generate a new one for each transaction. If you want to move your currency from Coinbase to your wallet, you would copy and paste this address into the withdraw form on Coinbase. If you wanted to send a friend some cryptocurrency, they would have to provide you with their public key. Wallets also have private keys, which should never be shared with anyone as these are used to signify ownership of the digital asset.
Desktop wallets install to your computer and hold your private keys in a folder. This is one of the least secure methods of keeping your coins but enables you to transfer funds to an exchange much more quickly. Online merchants are increasingly adopting Bitcoin or other altcoins as a method of payment, and having a desktop wallet is a convenient way to store spending money in the short term. Always use 2-Factor Authentication if it is offered, and if it isn’t, consider using a different platform.
Mobile wallets are much like desktop wallets for your phone. The mobility of having a digital wallet on your phone gives cryptocurrencies the flexibility for everyday use. Not as many brick and mortar stores have adopted the blockchain, but those numbers will continue to rise with Bitcoins market cap. Several desktop wallets have mobile applications, making the platform even more useful. There are some inherent risks with mobile storage. On average, the security features on your phone are less effective than your computer. With wi-fi and bluetooth connections, mobile hacking is quite prevalent and very difficult to track.
Hardware wallets are devices that can store digital information offline. Old computers, USB drives and memory cards can hold your keys with the highest security. With no internet connection, they can’t be hacked or stolen online. Physical security is another concern, but fireproof safes and multiple copies can guard against nearly every misfortune. There are a number of companies that offer special wallet devices. I mentioned one such tool in a previous blog post; the Ledger Nano S is like a USB drive that can store your assets offline. As an added measure of security, it has an internal passcode that must be entered when plugged into a computer. It must also be entered again to transfer any funds. This security comes at a disadvantage to anyone looking to frequently move assets to and from exchanges, as it takes multiple steps and several additional seconds.
Paper wallets use QR codes associated with your wallets address, which can be printed out on paper. This is not a great way to store your private keys, but before the crypto-industry built itself up around Bitcoin, there were few other secure storage methods. Today, desktop and mobile wallets abound, making paper obsolete once again.
Exchange wallets exist on trading sites. You will likely have to move your cryptocurrencies into these wallets if you want to trade or cash out into fiat. These wallets belong to the exchange. Once you put a coin in an exchange wallet, they hold the private keys until transferred out. Mt. Gox, one of the leading exchanges at the dawn of the digital revolution had nearly a half-billion dollar worth of assets hacked. Their example has increased awareness and security on the exchanges, but the risk is still there. The most reputable sites have better protection for their exchange wallets than some companies have for their desktop and mobile apps.
Coinbase has 2FA, which is good enough security for me. So if you want to get into the crypto-sphere use my referral link and we can both get $10