How Do I Store My Crypto Securely? A Guide to Cryptocurrency Wallets
Just like wallets for traditional (fiat) money, crypto wallets have the goal to let you access your funds — but that’s the only thing they have in common. A bank app simply shows you how much the bank owes you — you don’t really own this money as the bank can use it to give out loans to others. A crypto wallet keeps your private keys that are used to access your funds — that’s why it’s common to say “not your keys — not your coins”.
There is a wide variety of crypto wallet types: from paper wallets with public and private keys written right on them to hardware wallets that store the keys securely on a flash drive-like device. Let’s see how crypto wallets work and what features each of the types offers.
Public and private keys
When a person says “I own cryptocurrency”, it means they have installed a crypto wallet app and generated a unique pair of keys — public and private ones.
Public keys are also called a wallet address — this is a string of numbers to which your coins are assigned in the blockchain database. If we use a bank card analogy, it’s like a card number — it’s OK to keep the wallet address public (however, everyone will know how much money you have in this wallet; but they won’t be able to access it).
Private keys are like a PIN code for a bank card — you can’t use your crypto until you enter the private keys and sign a transaction with them. However, you don’t do it manually in the wallet app — usually, it’s done automatically once you enter the password and access your wallet app.
Crypto coins are not stored in the wallet themselves — the wallet only stores private keys, the essential thing necessary to use crypto. To own cryptocurrency means to dispose of private keys from it.
Types of crypto wallets
The most popular format of a crypto wallet among both newbies and experienced users is a hot wallet — the wallet that stores private keys on a device connected to the Internet. This can be a desktop wallet, a mobile wallet, or a web wallet that is based in an internet browser. Popular hot wallets are Atomic Wallet, Coinomi, and Exodus.
Hot wallets are valued for their usability — you can access your coins at any moment without any extra devices; user interfaces of most hot wallets are simple and work well for daily use. Many hot wallets are decentralized (or non-custodial), meaning that private keys are stored locally on a user’s device in an encrypted form, so the team and no one else but the owner have access to the coins.
Hot wallets are convenient, but they are not recommended for keeping a long-term investment and big sums of money. Most of these wallets are protected very well, but they can still be hacked due to their online nature.
In cold wallets, your private keys are stored offline — on a device (hardware wallets) or paper.
Hardware wallets. When you store your private keys on a protected device disconnected from the internet, this reduces the risk of hacks almost to zero. The examples here are Ledger and Trezor. These wallets are recommended for secure storage of long-term investments and large sums. Besides reduced accessibility by hackers, hardware wallets cannot be emulated by fake wallet websites and phishing emails, which makes them considered the most secure wallets on the market.
To use a hardware wallet, you need to connect it to a computer with a cable or to a cell phone via Bluetooth. However, this is only needed to send transactions — receiving them is always possible without plugging or logging in for any type of wallet.
Hardware wallets, like some of the hot wallets, allow for storing over a thousand different cryptocurrencies. Besides simply holding the coins, you can stake them and use them in many other ways.
Paper wallets. These are pieces of paper where public and private keys are printed. The idea here is to keep your keys not on a device that can be hacked. However, paper wallets are not popular today: they can be easily lost or stolen, and their usability is not very high.
Tips for keeping your cryptocurrency protected
To unlock a hot wallet, you usually need to enter the password that you’ve set before or apply Touch/Face ID (on mobile phones). Some of the wallets have 2-factor authentication functionality. Unlocking your wallet means deciphering private keys that become available for usage.
However, a crypto wallet is nothing like a website account where you can restore your password if it’s lost. Actually, you can’t. If you’ve forgotten the password, the device with the wallet has been lost, or you simply want to launch the same wallet on another gadget, the only way to do that is by entering your seed phrase. This phrase is a combination of 12 or 24 words shown to you at the wallet setup. The first thing you do at this stage is write the seed phrase down and keep it as secure as you can. Without it, you won’t be able to restore access to your crypto if something happens to your device; if someone sees your seed phrase, they can take full control over your funds.
Besides passwords, 2FA, and a seed phrase, there is one more security feature supported by some wallets — multisig, or multi-signature. If you enable it, you will be able to send transactions only when they are signed with a few keys. This method is used by teams who want to avoid arbitrary expenses made by their members; you can also use it on your own for extra security — if a hacker manages to obtain one of your keys (which is usually enough), they won’t be able to move funds anywhere as there needs to be more than one signature.
Storing cryptocurrency in a wallet means taking full responsibility for it. On the one hand, if you publish your public keys (wallet address), people will be able to learn how much crypto you store there. On the other hand, if you lose access to your private keys, you can consider your coins lost. This is the price we pay for decentralization — the absence of one single authority controlling the network means there’s no one who can help with your access.
There are two main types of crypto wallets. Hot ones like Atomic or Exodus work well for active daily use of crypto, multi-asset interaction, and storage of moderate sums of money. Cold wallets (especially hardware wallets) are the best choice if you have very high standards for security and the money you store you can’t afford to lose.
If you are thinking of setting up a crypto wallet right now, consider NOW Wallet. We offer a non-custodial wallet where you can exchange cryptos in over 20,000 trading pairs. Read more about NOW Wallet or download it on App Store or Google Play.