Most people when they read the name wallet would most likely consider it a small brown leather purse used for storing fiat currency, like the US Dollar or the Indian Rupee. A crypto wallet is different, it is less physical and more virtual, a crypto currency wallet is a software\hardware used to store\trade and view digital currency like Bit coins, Doge coin and Ethereum but not limited to. There are four types of crypto currency wallets:
- Desktop wallet: A desktop crypto currency wallet is a software that can be downloaded and installed on a personal computer or laptop. A few notable examples of such wallet are Exodus and Electrum, each of them having their own advantages and disadvantages. A desktop wallet is very secure with a low chance of getting hacked.
- Online wallet: These are software that run on the cloud and are easily accessible from any location. However, as they are controlled by a third-party, it is prone to hacking.
- Mobile wallets: Such wallets are applications on the user mobile phone that can be easily accessed. They also have a simpler user interface than desktop wallet, and better fit for transactions in retail stores. Mycelium is a free mobile wallet application.
- Hardware wallet: This type of wallet is my personal favorite due to its compactness and security. It is essentially a USB device, with an ability to store a range of crypto currencies. They are a bit expensive, but if cost is not an issue and security is of tantamount importance, then Ledger Nano S and Trezor Model T are the two of the best brand products in the market.
Are you new to Crypto, and want to know where to start? Coinbase is a very popular and highly secure wallet and exchange, that is great for beginners. Click the button below to get started, and you'll receive $10 of Bitcoin for free when you sign up!
As the world's largest exchange, Binance is well-established, and also a great option for beginners and seasoned traders.
How does it work?
A wallet can store, view and transact crypto currency. Crypto wallet provides access to block chain and operate on it. Public addresses are a form of account number for crypto currency used to acquire crypto currency of different kind, for instance, to access lite coin or Bit coin block chain, an individual needs a respective address. A wallet in this case gives access to all the transaction that occurs on that address. It is also used to view the balance associated with a specific address, and move crypto currency on a unique block chain.
Wallets store many crypto currency distinct public addresses on a given block chain. Now, a public address for a specific crypto currency is quite different from physical address. These are a long chain of hexadecimal string comprising of numbers and letters, both upper and lowercase. These addresses must be shared publicly to receive crypto currency. The software is directly connected to that block chain, where people can receive and send crypto currency on that specific block chain. Now, every lock needs a key to keep it safe, and so the public access will have a key in the wallet known as the private key. It is also made up of hexadecimal digits and letters, but are stored in the wallet or by third party online wallets due to its difficulty in memorizing it, so to make it easier, each private key has a specific pin, just like an ATM pin. In short, the wallet is the bank, an individual public address is the account number but for a specific currency and the block chain is the ledger system.
What are the wallets unique feature?
Cryptocurrency Types
There are many wallets in the market that support different types of crypto currency, for instance Binance trust wallet may be used for a plethora of different crypto currencies, while Mycelium, though a household name in the crypto world, only supports Bit coin. The lucrative ability to hold different types of crypto currencies in one place is one of its best selling point, though most are free. The layman term is like having a bank account where you can store different fiat currencies.
Crypto Exchanges
One of it is major plus point is its interchangeability, the extrinsic value makes its as valuable as fiat currency. Thus, for that reason, the supply and demand factor has made it quite easy for traders to make crypto to fiat and vice-versa transactions via a centralized system. The third- party system is sophisticated than the traditional method. The exchanges are mostly online with neat User interfaces and a robust verification systems. They provide users with not only an exchange but also a trading platform. There are many exchanges such as Kraken, Binance and Coinbase but not limited to.
Anonymity
Most people in developing or poor countries feel less secure moving larger sum of money, or storing a certain amount of capital in one place. The anonymity provides a moderate level of security which is certainly absent in the traditional mode of transaction or the security provided is surface level. However, this sort of anonymity has a downside, for the large crypto currency investor, the loss of stored currency due to hacking or social engineering would prompt an investigation and a subsequent hunt. However, it is quite rare to recuperate the loss, the most glaring one was of Mt. Gox, which is still fresh in the memory of veteran crypto hoarders.
Wallet Recovery Methods
Usually it is quite common for investors to forget their passcode or associated security features required to log in. Thus, for that reasons, a streamlined approach is adopted to recover the account for use. This method for wallet recovery is mostly used for online systems, where the three main methods are the modus operandi. The first one and the most common is the seed phrase method used by wallets such as block chain wallet, Jaxx and Coinbase, while GateHub and Cryptonator use the 32 character recovery code and email support respectively.
How to own an online wallet?
Set up an account
The first and most important step is to set up an account with an exchange such as Coinbase, Crypto.com or Binance. An online wallet without an account is useless, if you have not mined any coins, or have coins in another wallet that you want to transfer. However, Binance users have been facing issues withdrawing their cryptocurrencies. The Doge coin Devs [1], a twitter user states:
Providing some clarification the Binance situation: 1) A bit over a year ago, Binance notified us that they had stuck transactions. We were not shown these transactions, but it was suggested that they were 'stuck' due to insufficient fees...
Many user have found problem with withdrawal on the platform. Nonetheless, Coinbase account set up is very easy and trading or exchanging currency can begin at the blink of an eye, however, for larger purchase and selling, a few steps are required to verify the user identity, such as passport for some countries and national Identification credentials for others. An up to date picture of an individual face is required as well. Kraken is a bit harder, though, the security is warranted. They require a billing method or Bank statement to verify address and necessary . The user base has no issue with their transactions.
Click the button below to sign up at Coinbase, and get $10 of Bitcoin for free!
Binance, the world's largest exchange, is also a great option for beginners and seasoned traders.
After the account has been set, the next option is to download a wallet, presumably, a Samurai wallet for the dusting attack alert, which I will explain later, or the more renowned Electrum with the ability to freeze dusting attacks. Each transaction or block will be given a unique identifier known as the private key. These keys are important and should be noted down. For further detail, the user should read the frequently asked questions on each Wallet webpage. Furthermore, most Wallets have seed phrase, an important recovery passcode, which must be noted down and stored in a safe location. The loss of the phrase would also cut the access to the wallet and the currency inside would be nearly impossible to recover. In the article [1] by new NY Times, millionaires have lost a lot of money, when they forgot their password to their wallets.
Dusting Attacks and Hacking
There are many types of attacks used by hackers and scammers to steal crypto currency from a user wallets, however, as crypto users are anonymous, to hack or scam them, they must first initiate a method to find the identity of the said user. The most common method nowadays is the dusting attack, where the hacker sends 100 or greater Satoshi (small unit of Bit coin) to the host wallet. This amount is then inadvertently used by the host for a transaction to a personal account. The hacker now knows the identity and can launch other attacks to siphon the crypto currency. Many wallets come with a built-in defense mechanism, but loopholes still do exist. Even the offline wallets like Trezor are prone to such dusting attacks. The easiest way to safeguard yourself is to create a newer address for every transaction in order to preserve user's privacy. However, transferring your currency to another crypto coin will cause the dust to disappear and the transaction untraceable.
Conclusion
In my opinion, to be on the safer side, an offline wallet, even though, a bit expensive would be ideal to keep you away from getting your coin stolen. However, users should be up to date about newer crypto hacking methods and the most common one's, so at least they can create a defensive mechanism. Do not download wallet from third-party sites, as a user lost 1400 bit coin by downloading the wallet from a Russian website.
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