Wallets to keep cryptocurrency: your home address and keys

Maths scare us. Numbers are frightening for most of us. In this respect, cryptography is quite similar in that it boils down to numbers filled with secrets. Fortunately, storing and managing such cryptocurrency as Bitcoins is an easy thing to do. Imagine a public key, like your home address and a private key, like your own home keys. This is the basic principle behind the wallets or cryptocurrency wallets.

Cryptocurrency wallets are the main way to store the codes that each cryptocurrency is made of. In this case, if you lose your private key, you can only retrieve it by using a long string of words. Otherwise, your assets will be lost forever. This is the advantage of blockchain: it is safer and more private but it is more subject to irretrievable losses. There are two main methods to keep cryptocurrencies like Bitcoin, Zcash or Ethereum: Hot Wallets and Cold Wallets.

HOT WALLETS

Hot wallets consist in cryptocurrency storage in online platforms that allow transactions and access at all times. It is like a current account within an internet bank. This method is considered less safe to store your assets as cryptocurrency, despite its easy use and instant transaction. Since the accounts are centralized in the company’s servers, they are vulnerable to cyberattacks like that of Mt.Gox, which resulted in the disappearance of hundreds of millions of bitcoins.

COLD WALLETS

Cold storage of cryptocurrency refers to offline storage methods. This is the safest way to keep significant amounts of cryptocurrency and the best when there is no need to carry out a regular transaction. The most common system is called USB wallets, which consists in keeping your assets in a USB drive and work with native computer apps. If you need maximum security, you can print out the codes of each cryptocurrency on paper and store it in a safebox.

The world of cryptocurrency is always evolving. One of the main trends is the growth of decentralized exchanges. These are systems in the blockchain that allow transferring cryptocurrency in P2P format, that is, from person to person, no intermediaries. These exchanges allow a more efficient cost structure and less legal hassle since they avoid financial regulations applied to exchanges as Coinbase. These are solutions for experts who have the know-how and can add additional security layers to protect their money.  

How can we choose the ideal method for us? If we need to do common transactions, we should keep an online cryptocurrency wallet. If we have a large amount of cryptocurrencies and we do not need to do many transactions, then our best bet is the cold wallet. In order to choose an online wallet we should access the most popular services with no history of successful cyberattacks. These exchanges are Coinbase, Kraken, Bittrex or Binance. To keep our Bitcoins or Ethereum on a long term basis, we can buy a USB wallet as LedgerWallet or Trezor.

Binance announced last year substantial benefits higher than those obtained by Deutsche Bank. Binance has less than 200 employees, while Deutsche Bank has over 97,000. This suggests the potential of a sector that, as some experts indicate, is in an incipient stage just like internet in 1995. Some good advice would be, like with any novelty, one must tread carefully and ensure that one’s savings are in a safe place.