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Types of Cryptocurrency Wallets
Just like paper money is stored in a wallet, digitial currencies (cryptocurrencies) are stored in digital wallets. The form of a wallet is very similar to that of any online account which is secured by means of an username and password. In the case of a wallet, they comprise of a public address and a private key. The public address can be shared with anyone and they can send you the cryptocurrency to this address. All funds at this address can be controlled with the private key. Anyone who has access to the private key can use the funds stored in that account. This is a very simplified non technical description of how a wallet works. More details are available here.
Each cryptocurrency has its own blockchain. This means that the same address on one cryptocurrency (and hence its blockchain) WILL be different from the same address on another cryptocurrency. This has two important implications:
- If you hold the private key for one address on one currency, you cannot control the same account for other currencies.
- If you send your cryptocurrency to an account on another cryptocurrency's chain by mistake, you will permanently lose those funds.
There are various types of wallets one can use, including desktop, mobile, online, offline and hardware, and paper. A Hot Wallet refers to any form of wallet that is connected to the internet. Although hot wallets are the most common type of wallets, they are the least secure since they are connected to the internet and vulnerable to hacks (i.e., you losing the private key). Almost every cryptocurrency has its proprietary wallet which can be used to store that cryptocurrency. One common safety rule that should be followed is that you cannot use private keys of one cryptocurrency to manage funds of a different cryptocurrency. Also, sending funds of one cryptocurrency to a public address of a different cryptocurrency will lead to a permanent loss of funds.
These wallets are applications that store your private keys on your computer and connect directly to a coin’s client. Private keys stored on desktop wallets are safe as long as the computer is free from malware. However, it is almost impossible to be fully protected from malware, and this makes desktop wallets a possible target for hackers. For example - Exodus and Mist are two of the most commonly used desktop wallets. Exodus is compatible with over 20 types of cryptocurrencies while Mist is exclusively for Ethereum.
Hardware wallets are physical devices that are exclusively built to secure cryptocurrencies and private keys. These wallets can be connected to the internet through computers to make transactions and can be taken offline for security and transportation. Hardware wallets offer the optimal mix between ease of use and security. Most hardware wallets come with a backup feature to retrieve the private keys in the event where the device is lost or tampered. For example - Ledger and Trezor are two of the most commonly used hardware wallets. Ledger and Trezor support a wide range of most popular cryptocurrencies
Paper wallets are sheets of paper with private and public keys printed on them. Paper wallets offer the highest level of security as they are always offline, and only someone with access to the papers on which the private keys are printed can steal the currency. It is advisable to retain multiple copies of private keys as paper wallets can be easily destroyed.
Detailed Steps to Set Up a Paper Wallet for Bitcoin:
- Use BitAddress.org to generate a new bitcoin address.
- BitAddress will ask you to create some randomness by either randomly typing characters into the form or moving your cursor around
- You will be presented with public and private keys and their respective QR codes. Please do not scan these
- Click on the ‘Paper wallet’ tab
- Choose the number of addresses to generate
- Click on the ‘Generate’ button to create new wallets
- Click the ‘Print’ button once the wallets are generated
- Your browser will ask you to select the printer you wish to use. It is recommended to use a printer that is not connected to internet
- After the paper wallets are printed, take a note of the public addresses or scan the QR code using the bitcoin app
- It is recommended to print multiple copies of paper wallets and store them at different locations
To know more about how to create an Ethereum Wallet in a secure manner click here
In the past 24 hours, 8 of the 10 top currencies are in the red, with only Bitcoin and Stellar clocking gains. BTC, at $6,418 gained 1.1% while ETH, at $316.78, lost 3.11%. Tezos was the worst performing currency by far, losing over 10%.
Data sourced from OnChainFX.com.
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