What’s the best crypto wallet to use, a nano or a ledger?
Do I have to get a paper wallet to keep my crypto in cold storage?
One of the most intimidating aspects of diving into cryptocurrency is how foreign the process feels. While billions of people in the world are considered unbanked and haven’t yet been able to graft themselves into the banking system, for most of us in the western world it’s all we know.
Although we’ve transitioned from an analog banking system to a digital banking system, we’ve always been able to rely on the bank to handle everything for us.
Banks may have taken complete advantage of that and manipulated every conceivable aspect of the system to their favor while making us operate wholly on their terms, but we could count on them to do that. Whether it was the financial collapse of 2008, the manipulation of markets, or keeping banking branches open during the hours we were at work, we could count on that.
Yet with the birth of Bitcoin in 2009, and cryptocurrency in general, a whole new banking paradigm opened to us. We no longer need middlemen to tell us what we can and can’t do with our money. We are not at the mercy of our local banks’ hours and fees. Now we have an opportunity to be our own masters.
But with each increase in freedom comes an increase in personal responsibility.
Unless your first crypto purchase was through an ATM, you’ve probably created an account on an exchange and have a wallet, or wallets, on that exchange (We have an article on the top cryptocurrency exchanges if you are still researching your options). Congratulations on making it this far – most have yet to do so.
We can’t afford to pat ourselves on our backs too long, though. Even though exchanges invest heavily in security measures, they are still naturally a large target for hackers because the payoff, no matter how unlikely, is often in the millions of dollars.
It’s time to learn how to store your funds more securely.
Let’s take a look at the different types of options.
Just as you can store your currency of choice in a bank, purse, wallet, safe, shoebox, mattress, or ammo can be buried in the backyard, there are a number of ways to store your cryptocurrency of choice.
The basic ways to store your cryptocurrency include keeping it in one of the following:
- an exchange wallet
- a web wallet
- a desktop wallet
- a mobile wallet
- a paper wallet
- a hardware wallet
Wallet Pros & Cons
An exchange wallet is both risky and safe for a number of reasons, but even the safest bitcoin exchange still ends up being the least secure option.
As mentioned above, exchanges are not infallible. Hacks can happen and exchanges have gone out of business. People have also been locked out of exchange accounts for varying reasons, which include identity issues, suspicious trading activity, and more.
If you can’t access your exchange account, you can’t access your exchange wallet, because the exchange holds the private keys for your wallet.
As blockchain expert Andreas Antonopoulos says, “Your keys, your Bitcoin. Not your keys, not your Bitcoin.”
Also, sometimes holding a cryptocurrency entitles the holder to certain benefits, like dividends or airdrops, which are essentially distributions of other currencies. Sometimes a cryptocurrency will fork, resulting in multiple currencies. Not all exchanges will pass these benefits on to you! However, if they do, everything necessary to accommodate the benefit is done for you. To receive the benefits using the other wallets below may require software updates and/or other adjustments.
Exchange wallets are not all bad though, and they do have a couple perks.
If you’re new to cryptocurrency and not yet comfortable sending a transaction or do not feel like you have the technological savvy to do so, an exchange wallet can serve as an okay storage solution.
Some exchanges have cold storage wallets, which are more secure, but take longer to move whenever you decide you want to send your crypto elsewhere.
For future reference, a cold wallet is not connected to the internet, while a hot wallet is connected to the internet.
If you plan on trading, keeping your crypto in an exchange wallet allows you to execute your trade much more quickly than if you have to send crypto in from a wallet outside the exchange. This benefit is magnified when significant events happen that trigger a spike in cryptocurrency network usage and/or price, causing transactions to slow or to be more expensive to expedite.
If you are going to keep your crypto on an exchange, make sure the exchange has a rock solid track record and is taking steps to become more secure and maybe even insured.
As you might have guessed, this type of wallet is hosted through a web browser.
It is a hot wallet, meaning it’s always connected to the internet. Web wallets offer little by way of security, but there isn’t an entity between you and your crypto like with an exchange wallet.
While an individual’s wallet is less lucrative of a target than an exchange’s, one still needs to do their due diligence when choosing a web wallet. Many scams have been perpetrated via web wallet, taking advantage of multiple, easier targets.
Mobile or Phone Wallets
Mobile wallets are very popular.
First, there’s the obvious benefit of being able to take your crypto with you wherever you go. Mobile wallets also generally carry the benefit of being easier to use, and typically offer a greater level of security than a web wallet as well.
Just like you probably don’t keep your life savings in your purse or the wallet in your pants pocket, it’s probably not wise to keep large amounts of crypto in a phone that can be lost, stolen, broken, etc. Being a hot wallet, mobile wallets are also susceptible to security flaws.
Desktop wallets are a more secure option.
It’s fairly easy to find recommended desktop wallets direct from the website associated with the cryptocurrency of your choice.
The risk with running a desktop wallet is that computers can be hacked. However, making sure that your security suite is up to date goes a long way. Using a computer that stays away from questionable sites also works wonders.
Paper wallets are among the safest, if not the safest option available.
If a paper wallet is available for your cryptocurrency of choice, you can generate a wallet with a public address, private keys, associated QR codes, and then print it out (and possibly laminate it).
As the names imply, a public address is something you can share with the public. Private keys are something you keep secret and safe.
Paper wallets are cold storage options that you can keep in the aforementioned bank, safe, shoebox, mattress, or ammo can be buried in the backyard. Paper wallets have even been handed out at conferences as a means to introduce people to cryptocurrency.
Hardware wallets are very safe. They are pieces of hardware that often connect to a computer’s USB port.
When not connected, they are cold storage. When connected to a computer with internet access, they are a convenient way to send and receive transactions.
Crypto hardware wallets are backed up with seed phrases, which are written on paper, so finding a safe place to store that paper is a must. If the hardware wallet is lost, the seed phrase can be used to import your funds to a replacement device.
It may not make sense to invest in one of these if you don’t have much invested in cryptocurrency. That said, my hardware wallet has provided many restful nights knowing that my funds are secure. If a hardware wallet is for you, I recommend buying directly through the company so you have the peace of mind knowing that it shipped from the factory and has not been tampered with. Try here, or buy from Ledger on Amazon.
Whichever routes (intentionally plural) you ultimately choose, I recommend sending a small test transaction and getting a feel for the wallet before sending the whole transaction. Cryptocurrency relies on networks and confirmations, of which both vary in operating speed.
If you’re not in a hurry, a small test transaction can give you an idea of how long a transaction might take, if higher fees are necessary to expedite the transaction, or if you are sending your crypto to the right address to begin with.
It can be frustrating waiting for the small test transaction to come through, but it can be downright nerve-racking to send tens of thousands of dollars worth of cryptocurrency – especially if you didn’t do a small test transaction.
With great freedom comes great responsibility. The future of money and monetary freedom looks promising because of the emergence of cryptocurrency.
Whether we are intimidated or empowered is up to us.