s Bitcoin quickly gained popularity in mainstream culture, it has become much easier to access for the average person. This means learning how to securely store it, is an important topic that should not be taken lightly. Unlike cash, you cannot directly deposit their cryptocurrency in a bank where they can be responsible for it.
Similarly, with credit cards, if a credit card is lost or compromised, the owner can simply call the credit card company to seize and reverse all transactions. However, with cryptocurrency the owner is 100% responsible for the safety of their assets and once a transaction is confirmed with cryptocurrency it is irreversible.
Typically, the first time someone will own any cryptocurrency will be on an exchange. Exchanges are online platforms in which people buy and sell cryptocurrency.
There are many notable options and for the most part, they do their job in giving people access to cryptocurrency. However, if you are planning on buying large amounts with the intention of holding it for a long period of time, you should not leave it on an exchange.
When someone buys bitcoin on an exchange, it is under the buyer’s ownership, but the security of the Bitcoin is not in their control. The “wallet” (which will be explained further) is held by the exchange and is constantly connected to the internet, making it susceptible to hackers.
The most notable hacking scandal was with the Mt. Gox exchange in 2011. On June 2011, a hacker was able to use administrative credentials to transfer an estimated value of $8,750,000 Bitcoins to himself. This event taught everyone the valuable lesson that in order to keep your Bitcoin safe you must be in control of its storage.
So, once someone buys cryptocurrency from exchange what can be done to keep them safe? The first thing that should be done would be to withdraw your assets from the exchange and store it into a “wallet”.
Cryptocurrency wallets are different than traditional wallets because they don’t store the coins. Instead they contain codes called a “Public Address” and “Private Key” which allow access to the network where the coins are held.
The Public address is meant to be shared, as it allows people to send crypto to your wallet. However, a Private Key SHOULD NEVER BE SHARED. If someone else has access to it, they can send/withdraw your crypto whenever they please. Many types of wallets exist, each with varying levels of security and ease of use.
The first type of wallet is called a Paper Wallet which is free to use and is provided by several sites. Once you are on a site, it is recommended to download the website and use it while you are not connected to the internet, in order to maximize security.
The site will then generate your Public Address and Private Key which you can print out and store cryptocurrency on it. Arguably, this is the safest crypto wallet because if executed correctly, your Private Key would have no exposure to the internet or any 3rd party source at any point in the process.
This makes a Paper Wallet the perfect place to hold crypto if you never intend to send/withdraw from it. If you wanted to send or withdraw from a Paper Wallet, it would require you to import your Private Key into a web-based wallet then complete your transaction on the browser which is inconvenient for frequent use.
The second type of wallet would be a Mobile Wallet which are apps that can be downloaded on smartphones and are the easiest to use. Once you download a Mobile Wallet, you will be prompted to write down a special 24-word phrase.
This phrase allows access to the wallet’s Private Key, so ensure you write down the phrase as many times as you can and keep it safe in multiple locations, and of course, NEVER SHARE IT.
In the event of getting a new phone, the 24-word phrase can be used to backup your funds, so they are accessible on your new device. Mobile wallets act like typical mobile payment systems as a transaction can be made by scanning the Wallet’s QR code, making them very practical for sending and receiving crypto.
Mobile wallets aren’t as safe as Paper wallets because they’re used on smartphones. If the smartphone is compromised with screen recording malware, someone can easily access your Private Key. Mobile wallets are effective for keeping modest amounts of crypto for day to day use. Since Mobile wallets are typically connected to the internet or downloaded on a device, it can easily be compromised so it is not advised to keep all your crypto on it.
The final type of wallet is a Hardware wallet which are like USB devices that can be used by connecting to a computer. These devices are extremely safe even when connected to a computer because they are specifically designed so the Private Key can never be accessed through malware or hackers.
As with Mobile wallets, Hardware wallets prompt the user to write down a 24-word phrase so that their funds can be accessed if the device were to be lost or damaged. Unlike Paper and Mobile Wallets, Hardware wallets are not free and have an average cost of $80.
When purchasing a Hardware wallet make sure you are buying from a verified vendor. Once you purchase it, follow the instructions to check if the device has been tampered with. Even though they are not free, the price for security and ease of use, make Hardware Wallets a good investment, especially if you are looking to hold a lot of cryptocurrency.
As a personal note, I have two mobile wallets and use both for receiving small amounts of crypto. I own a Ledger Nano S Hardware wallet and haven’t had any issues with it.
I keep all my 24-word phrases in separate places and I never share them with ANYONE. There are many options out there for wallets and prior to buying any cryptocurrency please do your research to ensure you are keeping it as safe as possible.