When you buy cryptocurrency like Bitcoin, Ethereum, etc., it gets stored in a wallet secured by a privatized key. A privatized key is like a password; a long string of numbers or letters assigned to your wallet. There are various ways to store your cryptocurrency including donating bitcoin to help others in safe transactions. But first, let’s look at what cryptocurrency wallets are.
What are cryptocurrency wallets?
Unlike hard cash, cryptocurrencies are not stored in a specific location and do not exist in physical form. Instead, Cryptocurrency account balances and transactions exist on a blockchain.
Blockchain is a term that describes a running ledger of transactions.
A Cryptocurrency wallet has software that creates your private and public keys. This key interacts with the blockchain, allows you to send or receive cryptocurrency, and helps you monitor your balance.
A better way to think about cryptocurrency wallets is as a key to access your digital funds. Your crypto wallet is designated to a private key that allows you to access the funds in your account.
How do Cryptocurrency wallets work?
Your cryptocurrency wallet allows you to check your cryptocurrency balance. And send or receive cryptocurrencies just like any other banking app. Likewise, it would be best to have a password to access your online banking app; similarly, you have a private key to access your crypto wallet. Your public key is what you share with another individual for them to transfer funds to your wallet. It is also called your wallet address. People can only send cryptocurrency to your wallet using the public key and cannot send funds from your wallet elsewhere.
However, a private key can assess your digital asset and transfer it elsewhere. That is why it is so important to keep your private key secure.
Unlike traditional banking, if your funds end up stolen, you cannot recover them in any way.
There are many distinctive types of crypto wallets available in the market, each with its pros and cons.
The least secure way to store cryptocurrency is on an exchange. Because they operate using the internet, there is more potential to get hacked. Exchanges are a target to hackers. Individual wallets do not give certainty how many potential digital assets are accessible to steal. However, Crypto exchanges guarantee a large amount of crypto that can easily get hacked.
Hence, cold wallets are the safest and most ideal way to store significant amounts of cryptocurrency. Cold wallets are also called Hardware Wallets. These hardware wallets are designed to create and store your private keys offline safely.
When sending, receiving, or managing funds, every user uses a hardware device and goes through more security steps, which makes your funds less vulnerable to threat.
Some major hardware wallets are Ledger Nano X & S, Trezor, and BC Vault.
Your funds will be safe once you create and store private keys with hardware wallets. This will also ensure that your funds are safe from other potential security issues that software wallets may experience.
However, before you invest in a hardware wallet, there are two things you must keep known.
The important thing is that you buy hardware wallets from the actual makers. Buying wallets from a third-party company is not safe as it might be used before.
Since hackers might buy a hardware wallet and resell it to the traders for quickly hacking their devices to steal your funds.
Secondly, as with all crypto-related activities, ensure to double-check the URL you are accessing to buy the hardware wallet. Ensure that the address is correct and has an SSL or secure sockets layer which uses the HTTPS protocol instead of HTTP.
There are a lot of phishing websites on the internet that claim to be the actual websites you intend to access. And when you do so, you may end up losing your funds. Or even receive a hardware wallet that might be compromised.
Being your bank gives you a lot of freedom, but it comes with more responsibility, control, and competence. Make sure to look at all possible options before investing, trading, and storing your digital funds.
To ensure that your digital assets are secured, here are a few things you should make sure to follow;
- Backup/recovery/seed phrases of crypto wallets
- Cold storage
- Paper wallets (private keys)
- Hardware wallets (manage private keys)
- Guard your private key and recovery phrases.
These are vital elements in securing your cryptocurrency. Taking necessary steps will help secure your wallets to the highest level and trade cryptocurrency securely.