Today, the cryptocurrency industry includes many innovative developments and promising projects, as well as a huge progressive community. But everyone who comes to this market, first of all, should think about how and where to store bitcoins. And only after studying this question in detail, it is possible to start using all the advantages of decentralized technologies.
Peculiarities of cryptocurrency storage
The world’s first cryptocurrency, Bitcoin, appeared in 2009. It was created by an anonymous developer under the pseudonym of Satoshi Nakamoto. He also published the first prototype of a cryptocurrency wallet – Bitcoin-qt. A little later, this wallet was renamed Bitcoin Core, and to this day it remains one of the most popular ways to store bitcoin.
Bitcoin Core is specialized software that allows you to store, receive and send digital currency. To perform such actions, you need a bundle of two special codes:
- A public (public) key (address);
- A private (private) key.
The wallet itself was created specifically to work with bitcoin and to use it you need to download the entire blockchain.
Also in Bitcoin Core were initially integrated and the basic principles of working with the cryptocurrency:
- All transactions are done directly between two users.
- You can only receive cryptocurrency by transferring it to a public address.
- To send cryptocurrency, it is mandatory to sign the transaction with a private key.
Anyone can download a wallet to their computer and use it at their discretion.
Blockchain acts as a secure, decentralized space where bitcoins are stored. And they can be accessed from anywhere in the world. All you need to have is a private key.
A successful transaction cannot be undone.
If you want, you can see information about all accounts and transactions in a public registry.
These same features of working with cryptocurrency are preserved in modern wallets. At the same time, different developers released many other wallets for bitcoin and other cryptocurrencies. Most have implemented new features and capabilities. Due to the characteristics of specific wallets, they have become more convenient to use for certain tasks.
Types of cryptocurrency wallets
Before you buy cryptocurrency, you need to think about how it will be stored and choose an appropriate wallet.
Cold and hot wallets
All cryptocurrency wallets can be roughly divided into two main categories:
Hot Wallets. These are wallets that are frequently used to send and receive funds. Accordingly, they are constantly connected to the Internet, which increases the risk of loss or theft of assets. Therefore, you should not keep large amounts of money in hot wallets.
Cold
These wallets are distinguished by the fact that they are used very infrequently and are permanently disconnected from the Internet. Accordingly, they provide a safe place to store large amounts of bitcoins.
At the same time, the same wallet can be used as hot and cold storage. For example:
If you download Bitcoin Core to your computer and turn it off for a long time, such a wallet can be considered cold.
If the computer with Bitcoin Core installed is constantly connected to the Internet and is often used for transactions, it will be considered a hot wallet.
However, there are already different wallets that initially have a certain set of characteristics that make them better to use as only hot or only cold storage.
Light and heavy wallets
This is a classification based on the size of the space the wallet takes up on the user’s device:
A light wallet involves only installing a simple app to receive and send transactions.
A heavy wallet requires downloading the entire blockchain, which can take up quite a bit of space. For example, the size of a bitcoin blockchain is up to 400 gigabytes.
The second option is most often chosen by those who, in addition to sending and receiving coins, need additional features. For example, mining, development of smart contracts, etc.
Hot use of cryptocurrencies
The main advantage of hot wallets is their convenience. There is no need to download the entire blockchain when using such a wallet. Also, hot wallets often have additional features built in from the beginning that allow you to conduct transactions more quickly and work with cryptocurrency in general.
Online Wallets
This category includes all wallets that can only be accessed through a computer browser. They can be specialized online services for operating or using digital assets. In addition, online wallets include all cryptocurrency exchange accounts.
One should keep in mind that all user assets stored in an online wallet are under the control of the company that provides the wallet. Therefore, before you start using such a service, you need to study it carefully to understand how reliable it is.
Browser Extensions
This is lightweight software that is created as an extension for the browser. Such wallets are quite convenient to use. There are services in the cryptocurrency market that can only be accessed through a browser wallet.
In contrast to online wallets, they assume that the user must control the security of his or her device himself or herself. If the computer gets infected with malware, hackers can steal the entire contents of the browser wallet.
In any case, it is necessary to save the private key on a separate medium. Then, if necessary, you can restore access to the wallet through another device.
Easy Wallets
In most cases, hot wallets don’t involve downloading the entire blockchain. Most often, they are lightweight software that is installed on a PC or mobile device. It is used only to store keys and provide connectivity to the decentralized network.
Standardly, such a wallet allows you to receive and send cryptocurrency, it may have additional functions. When working with such software, it is important to keep private keys to be able to restore access to the account from another device.
Cold Wallets
Cold wallets are most often chosen by people who work with large amounts of money, or plan to store cryptocurrency for a long time. Therefore, they need reliable storage, as well as protection against theft and loss of funds.
Downloadable wallets
The classic version of a cold wallet involves downloading the entire blockchain to your computer. Take bitcoin as an example – today its blockchain size reaches 400 GB. Many users also use lightweight wallets for this purpose. In addition, there are versions for smartphones and tablets.
Once such a wallet is installed, the device is disconnected from the network and is rarely used for transactions thereafter. If the device is not unplugged, it cannot be considered cold storage.
Many users believe that the best cold storage wallets are those developed by the creators of a particular cryptocurrency. And software from third-party developers is considered less reliable. This is not the case. There are platforms that store bitcoins with just as high security.
Hardware wallets
A hardware wallet is a small device that is designed to securely store private keys as well as conduct transactions. They are considered cold because they are not connected to the Internet.
To make a transaction, such a wallet must be connected to a PC via USB-connector. Next, you need to specify the amount and the recipient’s account. The sending itself is confirmed by pressing the physical button on the device.
A high-quality hardware wallet guarantees that the private keys will not be stolen, even if it is connected to an infected PC.
Paper Wallet
This is probably the cheapest way to store bitcoins. At the same time, it has high security.
A wallet is a simple piece of paper with public and private keys printed on it. It is possible to place QR codes for both keys on it, if you wish.
In order to receive funds on such a purse, it is necessary to give the sender a public key. And to send cryptocurrency, it is necessary to enter a private key into any wallet and create a transaction. Both of these actions are simplified by the use of QR codes.
Multicurrency wallet
This is a separate category of cryptocurrency wallets, which involves storing different assets in one place. They come in different types: online wallets, desktop, mobile, hardware, etc. Moreover, such wallets can be either hot or cold.
Today it is multi currency wallets that are in maximum demand. The main reason is their convenience – if a user wants to work with different assets, he does not need to download separate wallets for each cryptocurrency.
In addition, such wallets often have additional built-in functions. For example:
- Cryptocurrency exchange directly in the wallet;
- Ability to integrate with decentralized applications;
- Purchase of cryptocurrencies through bank cards and electronic accounts;
- Participation in staking.
One of the most popular examples of a multi-currency wallet is Trust Wallet. It’s a dedicated mobile app for Android and iOS that supports more than 53 blockchains and over 160,000 assets. Of course, when working with this wallet, you don’t need to download all the blockchains – you’ll only need public and private keys to receive and send coins. Trust Wallet can act as a hot wallet or cold storage. If necessary, the wallet can be accessed from any device.
Thanks to the extensive functionality of multi currency wallets, their owners can react faster to cryptocurrency news. As well as work with popular assets that have good prospects for development.
Conclusion
Today, there are many ways to store cryptocurrencies. They have their own features and characteristics suitable for different purposes.