After another jump in the price of major cryptocurrencies at the end of 2020, crypto enthusiasts began to mine, sell and buy currencies with renewed energy – which means that the topic of cryptocurricane storage is more important than ever today. But unlike previous bullish waves, this time many users are also interested in how to protect their assets.
The blockchain industry is evolving and merchants are noticeably smarter, but fraudsters and thieves are also much more agile. This is also indicated by the period appearance of reports related to exploits and carpet removals, not only for ordinary users, but also big stock exchange, decentralized financial projects and even malfunctioning chips.
Scammers use a variety of tools, from hacking accounts to creating malware. Even well-known projects cannot avoid this fate. For example, Vault recently Fake apps detected on Google Play, which affected some users. And at the end of December 2020, more than 270,000 clients of the popular Ledger wallet faced threats personal data was revealed by a hacker.
All this suggests that cryptocurrency enthusiasts should be extremely careful when choosing how to store their assets.
The purchase of cryptocurrency goes into the mainstream
In 2021, bitcoins (BTC) has firmly established itself as a commonly accepted investment instrument and store of value and is now compared to gold. This was especially evident when institutional investors began researching and investing hundreds of millions of dollars – sometimes billions – to BTC.
OF Jack Dorsey Square recently spent another $ 170 million on the registration of documents BTC to M31 with the United States Securities and Exchange Commission by launch a new bitcoin hedge fund, the crypto goes into the mainstream. In addition, now the credibility of bitcoins at Grayscale Investment manages more than $ 37 billion in BTC, indicating that institutional investors feel confident in the instrument. All of these examples work on cryptocurrency cementation as a viable investment option even for retail investors.
In addition to the mere purchase of cryptocurrencies, new ways of making money have also appeared on the market, such as decentralized financial protocols, which offer various blockchain-based financial services. In fact, it is a very good way to get a fixed income in cryptocurrency with relatively high annual interest rates.
The rise of decentralized exchanges has further simplified the process of owning and exchanging cryptocurrencies. This way of dealing with cryptocurrencies has recently gained rapid popularity.
Exchanges such as Uniswap allow users to make transactions directly between wallets. This method means that users must know how to properly store cryptocurrencies and perform third-party transactions.
Users may also have access to centralized exchanges; however, there are certain risks associated with depositing funds. For centralized exchanges, this means that the crypto on the platform’s accounts automatically falls under the management of the exchange, which means that users do not have full control over their assets. Most crypto commentators therefore recommend storing cryptocurrencies in external wallets.
Examples of crypto wallets in 2021
Each user should remember some basic security rules that are not related to the cryptocurrencies themselves or the equipment used. Most importantly, users must remember their password. It would seem obvious, but users regularly lose huge amounts simply because they have forgotten their passwords.
Blockchains do not have a password reset function and no support service is available. It is also a mistake to forget the 12-word introductory phrase of the wallet or write it on a medium that is easily lost. The most effective recipe for cryptoactive protection is the responsibility for storing passwords and creating passwords for the key.
In the case of online wallets, this is a bit easier and the consequences of losing your password can be avoided because the keys are held by a trusted third party. The wallet owner does not check the keys, he simply logs in with a username and password. Therefore, if the password is lost, they can contact support services, confirm their identity, and reset the password. However, from a decentralization point of view, this is not the perfect choice, as the user delegates control of his keys to a third party.
It is up to the user to decide what is more important to him and whether he really trusts the company that hosts the gateway to their cryptocurrencies. In addition, each user should be responsible for their own capital, as no crypto wallet or blockchain is responsible for forgetfulness or inattention.
There are several prominent types of wallets:
Hardware wallets are a more complicated way to have a wallet and store currencies on external offline devices. The most popular solutions include Vault, Ledger Nano X and KeepKey. These wallets usually come in the form of small flash drives and can support thousands of cryptocurrencies.
For example, Vault offers two types of wallets, Vault One and Vault Model T, which can be purchased for $ 60 and $ 193, respectively. The Vault One wallet has two control buttons and the newly developed Vault Model T has a touch screen.
The device is connected to the user’s computer with a cable. Security is provided by a device that stores a secret key and logs off for offline transactions on the device itself. If viruses are present on a user’s computer, it does not mean that they have access to their wallet. Naturally, to prevent money loss and fraud, users should only purchase such a wallet through the official website and ensure that the device is packaged according to the manufacturer’s instructions.
The process of connecting a wallet is relatively simple: Users must go to the official website, download the application and set up a new wallet. The main requirement is to write and save a mnemonic phrase of 24 words, then create and confirm a password.
Local wallets are the most popular type because they can be downloaded or installed on your device. Users can access these wallets only from the device on which they are installed. When using a local wallet, the owner has full control over their resources because private keys are stored locally on the device without third parties having access to this information.
Today, some of the most popular local wallets are Jaxx, Exodus and Edge, which are examples of free multi-currency wallets that support a huge list of cryptocurrencies. In addition to the desktop version, these wallets usually also have a mobile version. Most of these platforms have been integrated into forms such as ShapeShift and Changelly, where currency conversion is performed directly in the application without going to the cryptocurrency exchange.
Private keys are stored exclusively on the owner’s device and protection is provided by a PIN code with the possibility of copying private keys for offline storage.
Web wallets work with cloud storage and users can access them from any device. Such wallets are only applications on mobile phones or can be accessed through websites, which is very convenient. For example, Matbea, Coinbase and BitGo are all online wallets and exchanges in one service. Matbea supports only seven major cryptocurrencies, which by today’s standards is not a wide range, but in terms of security, this wallet has an advantage.
Most of these services use two-factor authentication: a code sent via SMS or e-mail and a separate password. Even if the virus settles on the user’s PC, it will never be able to read the code from their mobile device to gain access to the wallet. And if the virus settles on the smartphone, it will not be able to read the password or email code. Files are backed up regularly, so even in the event of an accident or hard drive failure, users’ currency will be restored immediately.
Finally, paper wallets are quite reliable, but since their public and private keys are printed on paper, they are not used very often. But such wallets seem to be the most interesting way to use cryptocurrency. In fact, a paper crypto wallet is just a sheet of paper with a printed QR code that contains an encrypted address for storing cryptocurrency funds. In order to perform cryptocurrency transactions, QR codes must first be scanned.
This method of storing cryptocurrencies is relatively safe because the cryptocurrency is completely protected from fraudulent attacks. Along with hardware wallets, paper wallets are often referred to as “cold stores” because they are completely isolated from the Internet and cannot be attacked from the outside.
To create a paper wallet for cryptocurrencies, users need special software, such as Bitaddress.org, which is open source. This service creates a cold wallet using randomly generated numbers directly in the browser. Secret keys remain with users and are not stored on Bitaddress.org servers.
WalletGenerator also works like Bitaddress.org, where users need to move the mouse to increase the randomness of key generation. After downloading the archive from GitHub, the developers also recommend turning off the Internet and running the generator from a local HTML file.
There are wallets that combine several of the above methods. For example, Casa, developed in mid-2020, combines the functions of a local and mobile wallet with a description of developers security as the main ultimate goal.
When creating a wallet, the user does not have to enter and save the initial phrase or personal data, only the e-mail and name. In addition, the wallet does not track location or transmitted data and lacks third-party analytics tools. The user is prompted to create a key to be stored on the device, and the backups will be split between Casa’s own storage and Google or Apple cloud storage. Only a user who requires two-factor authentication has access to the key.
Another wallet that provides a combined experience is Savl, a mobile wallet for Android and iOS that combines a peer-to-peer platform, a crypto wallet, a messenger and a cryptocurrency payment service. The wallet has been operating since 2020 and, as in the case of Casa, developers claim that special attention has been paid to security and privacy.
When a user registers, the application generates a unique string of 12 words, which is stored on the user’s device. No one but the user has access to it, not even the developers. Access to the application is protected by a six-digit PIN code set by the user.
Can the wallet be completely secure?
All crypto wallets are safe in a way if one chooses them carefully and understands why they are needed. Which wallet to choose depends on the individual, but the main thing here is security and the ability to store private keys or initial phrases.
If the user needs to store a large amount of cryptocurrency, it is better to buy a hardware wallet. For those who are constantly trading on exchanges, users can deposit funds into wallets created on these exchanges so that they can make transactions quickly and not have to pay a transfer fee. However, if the stock market is hacked and no insurance fund is in place, the cryptocurrency may be lost. Web wallets are more suitable for everyday use. The popularity of this type of wallet is due to the ability to quickly and easily sell various cryptocurrencies and make transfers directly to the stock exchange.
Overall, cryptocurrencies were created on the basis of decentralization, which means that each user controls his own resources instead of a centralized entity. Regardless of which cryptocurrency storage method the user chooses, he must therefore be responsible for his resources.
Cointelegraph does not endorse any of the products listed in this article. Each user should do their own research to choose the product that suits them best.