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So you’ve decided to buy Bitcoin (BTC), Ethereum (ETH), or some other crypto asset, or maybe you already have some. Your own wallet is certainly one of those basics that a crypto user needs to be familiar with from the start. The problem most often is that getting to know each other stems from superficial knowledge of how to get a wallet, a wallet, and how to get coins in it.
But as the industry players showed in an interview with Cryptonews.com, there is much more to it than that. While it may sound complicated and at times daunting to newbies, time to do your research, select a crypto wallet, and keep your funds safe are important elements of this entire crypto journey.
What does a wallet do?
Wallets must at least allow the customer to send and receive crypto, buy and store it, make online payments and convert crypto to fiat (via gift cards, debit cards or directly). to make purchases online and in stores with good conversation rates and low fees.
Additionally, a wallet for power blockchain users should support a number of options, not just with fully functional non-bank financial services.
“For the blockchain to be mainstream, wallets have to be shared and offer multisig addresses in order to split the payment authorization across multiple devices or trustworthy co-payers. This makes wallets a viable alternative for families and companies that share accounts, ”said Bill Zielke, Chief Marketing Officer of a large crypto payment provider BitPaysaid Cryptonews.com.
Hot or cold: main choice 1
This is pretty much the first thing you come across when choosing a wallet. And every step to get and secure your money is no less important than the previous one.
So you have the choice whether you want to store your cryptocurrency in a “hot” or a “cold” wallet, or perhaps a combination of both.
- The core of a hot wallet – be it web-based, mobile or desktop – is that it is connected to the internet. The advantage of this is that this wallet is often fast, while this connection makes it more convenient: trading and using crypto is easier. But – it is also more prone to attack. A hacker can use the same connection to steal your money.
- Cold wallets are therefore the exact opposite: they are usually not connected to the Internet, so they are more secure, but at the same time a little less convenient. Most hardware wallets are cold wallets, so physical access to them is already a step that potential thieves must take.
Other cold wallet options also include paper wallets – which contain a public and private key for performing transactions, which are usually created with a key generator program and printed on paper as two strings and two QR codes. However, investing in a good quality hardware wallet is probably the best option.
In addition, many hot wallets are free, while high-quality cold storage options are not. However, many people choose to combine hot and cold options in the way that best suits their personal needs.
Whichever you choose, make sure that you don’t keep large amounts of money in your hot wallet, just what you need for transactions.
Even crypto exchanges – at least the big and reputable ones – will keep some of the money in a hot wallet for use by users and the rest in a cold wallet. But more about exchange wallets in the next part.
Safekeeping or not: main choice 2
There is a related decision to be made here – not so much a separate one, but a second part of the first.
There is a massive difference between a depot and a non-depot wallet and it depends:
- With a depot wallet, there is another party that controls the private keys; This requires trust, and in general it means trusting the exchange that is offering the custody wallet. However, these are often more convenient and require less personal responsibility.
- With an unprotected wallet, you have full control over your own keys, which allows you to prove that the money in that wallet is indeed yours. But it also means that you and only you are responsible for whatever happens to your keys and money, and if you lose your password – or ban Satoshi, your seed phrase – your crypto could be fatal. More on this in the ‘Security’ section.
Since most web-based wallets are depot wallets, this means that you will likely see your first cryptocurrency in the wallet of an exchange through which you bought it. Make sure you check that the exchange keeps the majority of customer funds in cold storage hardware wallets before buying. You then decide whether you want to keep your cryptocurrency in this wallet or move it to another – be it a more secure depot wallet or a non-custodial wallet.
The latter option is often offered in the form of a hardware wallet or software installed on desktops or mobile phones, or even browser-based. However, a hardware wallet is again probably the best option among these.
All of the industry players who spoke to Cryptonews.com are staunch supporters of unsecured wallets.
Bill Zielke points out that an unprotected wallet offers private key encryption, PINs, and biometric authentication for increased security. You give the consumer responsibility where he has both keys and the multi-word passphrase – and where the wallet provider has no access.
Josef Tětek, brand ambassador at Satoshi Labs, the maker of the Secure Hardware Wallet, argued that “Users should always choose an unprotected wallet” where they are the sole owners of the private keys. “An exception can be small amounts in the Lightning Network of Bitcoin, where deposits like the Wallet from Satoshi do a good job introducing users to a world of instant micropayments via Bitcoin’s second layer, ”he said.
Tětek named the on-chain wallet among some potentially good decisions green and on-chain and Lightning wallet miscellaneous for smaller amounts. But for higher amounts, in his opinion, the best option is to go straight to an open source hardware wallet.
Meanwhile, Business Development Manager at Mycelium Wallet, Alexei Omni, stressed that “most people don’t realize they don’t actually own their coins”. After the project Checking the wallet and Mycel’s in-house research estimates that only about 8% of Bitcoin owners keep their coins in complete safety and privacy, he said.
There are now hundreds of Bitcoin wallet apps, most of which are stored, “therefore – not secure, not private and not independent”.
Where you keep your money “is very important because once USD hyperinflation begins (which is now inevitable), many providers will prefer to grab and run bitcoins,” Omni said.
While hyperinflation could spare the industrialized countries this time, inflation rates are now picking up around the world.
Who is in control?
So it’s all about control as the starting point of your crypto journey: how much of it do you want to keep and how much are you willing to give up in exchange for less responsibility?
Or as Tětek says: “The most important thing is who the keys to the coins stored in a wallet belong to.”
For him, there is no doubt that “no custodial” is the answer.
Similarly, Zielke says that BitPay believes that crypto wallets must give the owner control over their digital assets.
“Wallets should also allow users to check the price, store, secure and spend crypto – without compromising security or ease of use – and allow users to take control of their crypto through daily spending, safer storage and management to take over funds across platforms, ”said Zielke.
According to Omni, a good wallet is never a custodian of its users’ funds, just an emotionless safe. In contrast to “normal pseudo-crypto wallets and traditional banks”, the funds are available in real, non-custody wallets whenever the user needs them – at any time when the Internet is available.
Security, safety and security
“Security is the key. Make sure that you save the recovery words and never pass on your password, ”emphasized Zielke.
For Tětek, too, “the safe storage of the recovery seeds is crucial”. He advises users never to keep their startup words on a phone or computer – not in text, photo, email, or any other format. Instead, write your convalescence seeds on a piece of paper or stamp / engrave the words on a seed plate, he says. For an additional layer of protection, he suggests using the Shamir backup – a method of dividing the seed into several unique shares that must be combined to recreate the wallet and cannot be individually abused.
Omni told Cryptonews.com that almost all mycelium support requests come from people who “don’t understand the concept that owners of the money MUST generate and protect their cryptographic keys themselves.”
Just because the wallet isn’t on hold doesn’t automatically mean it’s safe. “Only reproducible wallets are absolutely secure,” he said.
In addition, as Zielke noted, users must always keep in mind that websites and exchanges are hacked. It happened and it will definitely happen again.
If you pile up regularly or hold for a long time, Tětek believes you may find that your holdings now have considerable value.
With holdings of more than $ 1,000, “there is no good reason to keep these coins in a software wallet – or, God forbid – on an exchange.”
The safer option is to invest in a hardware wallet, set it up yourself and use a strong passphrase.
At the same time, Omni adds, one shouldn’t overestimate the power of hardware wallets or underestimate the power of single-address accounts, as many cautious users do. According to him, many devices run on simple microcontrollers that are vulnerable to physical attack on a budget.
Other relevant aspects here are transparency and trust, added Zielke from BitPay. For their part, wallet providers need to listen to customer feedback and understand and respond to posts and bug reports from users and engineers around the world.
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