What you need to know about cryptocurrency storage wallets?

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3 years ago

Many people often say that cryptocurrencies are "stored" in wallets, but this is technically incorrect. Funds are stored on the blockchain: a distributed, decentralized ledger that is the backbone of the cryptocurrency ecosystem. Wallets, in turn, contain important data that allow the user to access these funds directly inside the blockchain and, if properly managed, ensure their safe storage.

Today we will talk about the device of wallets, their classification, and give a list of the most convenient for the end user, in terms of comparing their functions.

How do cryptocurrency wallets work?

To work with cryptocurrencies, special software is usually required - this is a wallet program that is integrated either into the software, or into the exchange or hardware environment. It allows the user to work with the blockchain and create transactions or receive transfers to their address.

Each wallet, regardless of the operating environment, contains private and public keys.

The public key is a digital string that anyone can see. It consists of a set of letters and symbols and is used when sending funds to a wallet.

A private key is a kind of security key made up of a series of cryptographically generated random numbers that cannot be cracked. In fact, it is a hexadecimal number consisting of 256 bits or 32 bytes, which is created to sign translations.

The signed transaction is sent to the network and, once approved, reaches the recipient.

Is it safe to use cryptocurrency wallets?

In cryptocurrency systems, the security and integrity of your account is guaranteed by a network of agents (segmented file transfers or file transfers from multiple sources) that are verified by miners. They protect the network by maintaining a high speed of processing algorithms.

Hacking existing cryptocurrency security is mathematically possible, but the cost of achieving it is unacceptably high. For example, an attacker trying to cheat the BTC blockchain and double-spend would need computing power that exceeds the capacity of all miners in the system. But even then, he will not have all the control capabilities. A hacker needs to cross the 51% power threshold to even get close to this goal.

What choice is there

A non-custodial wallet is a type of decentralized wallet in which the client owns his private keys. The user receives a file with private keys and must write a mnemonic phrase with which he can restore access to his funds. Having private keys means that the user has full control over the funds. However, it should be borne in mind that full control over money also means that only the consumer is fully responsible for his funds.

In contrast, a custodian wallet is a type of digital wallet in which private keys and a backup of all data, that is, protection, funds, are on the developer's side.

From the user's point of view, of course, a non-custodial wallet is the most acceptable option, because in this case, attackers will not be able to steal assets, however, if you rely on the human factor and allow the likelihood of making mistakes, then storing funds in custodian wallets (not in in all cases), gives hope for the recovery of lost funds.

The wallets that hold the currency can be classified into:

  • Custodian wallet

Exchanges.  For the most part, keys on exchanges are generated and remain on the developer's servers without reaching users' devices.

Software wallets.  there are also certain software wallets like FreeWallet that store data on their servers. However, there are not many such services.

  • Non-custodial wallet

Software wallets.  Software wallets can be mobile or computerized and downloaded directly to your device.

Web wallets. These wallets are most popular with novice users and people who trade a lot. Web wallets are commonly offered on the websites of major cryptocurrency exchanges. They can store any purchased currency, help sell it quickly or transfer it to other users. The popularity of this type of wallets is due to the ability to quickly and easily sell various coins and make transfers directly on the site, which is very convenient for novice users. Web wallets are also great because they can be accessed through a browser from anywhere in the world. This allows you to always manage funds if you need to pay for something or make a transfer. The main problem with such wallets is the presence of potential risks of hacker attacks, so storing large amounts of money in them is very dangerous. Despite,

Mobile wallets.  Mobile wallets are usually used for storing small amounts of money as well as very impressive ones. More and more stores around the world are starting to accept payments in Bitcoin or Ethereum, so it is convenient to store some of these tokens in a mobile wallet in case the user needs to pay for something.

Paper wallets.  A paper wallet is considered the safest storage mechanism for cryptocurrencies. To use them, the user prints keys on paper and integrates them into an online wallet.

So where is the cryptocurrency to be stored?

Keeping crypto assets is the most important part of the job for any investor. So the choice of storage should be approached very responsibly. As the most popular options, there are three subcategories: software, stock, and hardware. Today, we will conduct a comprehensive comparison of the functionality, and figure out which of them will be most suitable for the specific tasks of each kind of user.

Review of software wallets

A software wallet is one of the most common storage methods, which implies multi-platform, quick access to your funds, and relative security. It should be understood that each software wallet is, in one way or another, tied to its physical medium, and its loss, in most cases, will lead to an irrecoverable loss of funds.

Blockchain wallet

Blockchain Wallet is by far the most popular digital wallet that allows users to store and manage their cryptocurrencies to the fullest. The Blockchain wallet is backed by a software development company Blockchain founded by Peter Smith and Nicholas Carey. A blockchain wallet allows you to make transfers in cryptocurrency and convert them into currency.

Pros:

  • Support for a mobile application, with a well-designed UI / IX;

  • Web interface support;

  • Support for leading cryptocurrencies;

  • Open source freely available.

Minuses

  • If the attackers managed to gain access to the user's mail, they can easily cash out all the funds stored in the wallet;

  • Lack of a desktop version of the wallet;

  • Keeping keys on the developer's side.

Output.  Blockchain Wallet is the most popular place to store funds, however, the level of security is poor. Blockchain allows users to keep funds in relative safety, and is maximally focused on convenience. This option can be considered if the user is not going to store large amounts, and is a beginner in the crypto space, for whom simplicity of functionality is important.

Coinbase Wallet

Coinbase Wallet is an application that allows users to store their own cryptocurrency and interact with the blockchain through a decentralized application. This wallet combines the versatility offered by its predecessor, Toshi Wallet, with the support offered by Coinbase. In this wallet, the user can not only store ETH and ERC tokens based on the Ethereum network, but also interact with BTC, BCH and LTC.

Pros:

  • Mobile app support, with excellent UI / IX;

  • Web interface support;

  • Support for leading cryptocurrencies;

Minuses:

  • Keeping keys on the developer's side.

  • Lack of a desktop version of the wallet;

  • Lack of open source code in the public domain.

Output.  The Coinbase wallet is a great alternative to storing your funds. Firstly, it generates a seed for security, and secondly, it allows you to protect the application from using the fingerprint reader. All in all, this is a very simple and easy to use application, but with a lot of tools. Additionally, this wallet is supported by Coinbase. On the other hand, it can cause certain inconveniences. When opening some decentralized applications, the browser may freeze, which will not always allow making a deal in a matter of seconds, as required by the quality standards set by the users.

Trust wallet

Trust Wallet is a mobile app that allows you to send, receive and store cryptocurrency tokens on the Ethereum blockchain. Designed with simplicity in mind, an open source portfolio is designed to provide a platform that is easy to set up and use. Trust Wallet allows users to store their private keys on their devices and provides a backup feature for easy recovery.

Pros:

  • Allows you to store any ERC token;

  • Private keys are stored on the user's device;

  • Ability to work with decentralized applications (dApp);

Minuses:

  • Lack of support for many tokens;

  • Doesn't provide two-factor authentication;

  • Non user-centric interface design.

Conclusion .Trust Wallet includes a built-in Web3 browser that makes it easy to explore decentralized internet applications. This application complies with quality and safety standards and is optimized to operate at a high level. Trust Wallet is perfect for those users who are not too picky about functionality and do not need to keep a large portfolio of various non-ERC tokens.

Atomic wallet

Atomic Wallet is a unique cryptocurrency wallet that allows you to manage over 300 different crypto assets, in addition to the ability to add custom ERC20 tokens. Another characteristic that this wallet boasts is that it has the ability to conduct atomic swaps, which are based on the implementation of exchanges without intermediaries using smart contract technology.

Pros:

  • Mobile App Support

  • Desktop version support

  • Multicurrency

  • Multi-signature

  • Open source

  • Private keys are stored on the user's device;

Minuses:

  • Lack of web interface support

Output. Atomic Wallet is theoretically completely safe for storing funds. The wallet is open source, which greatly reduces the likelihood of errors or introducing hidden vulnerabilities into the program. What's more, sensitive data such as passwords is encrypted and only stored locally on the end user's device.

Review of exchange wallets

There is an opinion that storing funds on exchange accounts is an undertaking doomed to a deliberate failure. However, millions of investors and traders around the world choose exactly the exchanges, because only custodian wallets imply a subsequent refund in case of loss of physical media.

Binance

Binance is currently one of the largest cryptocurrency exchanges in the world and is the most popular among traders. The platform has a huge amount of functionality, and allows you to keep funds safe, constantly improving its protocols.

Pros:

  • Large list of supported tokens

  • When exchanging cryptocurrencies for cryptocurrencies, Binance's fees are the lowest in the industry.

  • Binance takes security very seriously, and upon registration, users are asked to set up two-factor authentication (2FA), further confirming the exchange's commitment to secure storage.

  • As Binance has become one of the most popular exchanges for buying, trading and selling cryptocurrencies, there are a lot of transactions happening on its platforms all the time. This is an important factor that allows you to quickly make transactions with assets, and, if necessary, move funds in such a way as to extract maximum profit from storage.

Minuses:

It is not known in which country the exchange is registered.

Output.  Binance offers a huge number of internal digital wallets for over 80 cryptocurrencies, with the most popular ones including BTC, ETH, USDT, EOS and BNB and many others; In addition, for those who still consider using an exchange wallet unreliable, a version of a "trusted" wallet called Binance Trust Wallet was invented, which allows you to store Ethereum and more than 40 tokens from the environment of decentralized applications; Trust Wallet, integrated directly with the blockchain, is a wallet that allows complete control of assets without leaving the Binance environment.

Coinbase PRO

Coinbase Pro, formerly known as GDAX, is a cryptocurrency exchange and trading platform. This exchange stands out among other things for its low fees and powerful security measures (it has never been hacked). In addition, the platform keeps 98% of users' funds offline using cold storage.

Pros:

  • It is currently the easiest, safest and cheapest exchange method due to its low commission costs.

  • High platform security due to storage of 98% of funds offline and frequent technical and financial audits.

  • Very good user interface and intuitive navigation.

  • Wide range of fiduciary deposit and withdrawal options.

  • Insured deposits.

Minuses:

  • Private keys are stored on Coinbase servers, which does not insure users against hackers gaining access to their funds;

  • Large amounts of requested personal data: KYC and AML are impeccably observed on the exchange, which will not allow you to fully interact with the site without entering your personal data into the database.

Conclusion . Considering all its features, Coinbase Pro is undoubtedly one of the best exchanges on the market, as long as the user is not confused by the amount of personal data requested.

Huobi

Huobi is a reasonably secure, trustworthy platform that has managed to maintain a positive reputation free of fraudulent or material disruption issues. Although today, due to active restrictions on cryptocurrencies in China, its jurisdiction has been transferred to other countries, Huobi continues to increase the volume of transactions and provide users with a safe storage of funds.

Pros:

  • High liquidity;

  • Has an interface compatible with mobile devices.

Minuses:

  • Operating fees are quite high;

  • Provides several ways to fund your account.

Output.  Huobi has invested heavily in security and has passed many third-party tests. They offer two-factor authentication, SMS and email notifications, and PGP encryption. More than 98% of client assets are stored in a cold multi-signature wallet, which provides a high level of security for the funds stored on it. By the way, once the exchange was hacked, however, the attackers failed to steal user funds.

Hardware wallet overview

Hardware wallets are physical, electronic devices such as USB flash drives that can generate private keys and digital signatures of transactions offline. They can guarantee complete anonymity. They are much more expensive than the other options, but they are easy to set up, back up and use in everyday life. Their security is undeniable, and is the benchmark in the storage of cryptocurrencies.

Ledger blue

Ledger Blue is a premium hardware wallet released in November 2016 designed to make storing cryptocurrency the safest and easiest possible.

Previously described as the most advanced hardware security for cryptocurrencies on the market, Ledger Blue features unrivaled security, a large LED display, and rugged construction for regular use.

Pros:

  • High level of security of cryptoassets;

  • Compatible with a wide range of devices;

  • Convenient interface;

  • Excellent touch screen, easy to use and enhanced security;

  • Support for multiple currencies.

Minuses

  • Impressive value;

  • Not as portable as other hardware wallets on the market.

Output.  Ledger Blue is the most advanced security equipment on the market. It can run multiple applications and combines enterprise-grade cryptographic capabilities with a lightweight, portable device. Manufactured and developed in France, it meets the highest standards. It is built around a touchscreen secure element with USB and Bluetooth connectivity.

Ledger nano s

This device allows you to both store virtual currency and make payments. Some of its main characteristics are ease of use, speed of making transfers, payments and a high level of security.

Pros:

  • With the security provided by 24 randomly generated words, your crypto assets can always be recovered.

  • With a crisp OLED display, you can always check your assets in real time.

Minuses:

  • Since there is no battery in the wallet, it needs to be connected to the computer.

  • At the moment, the Ledger app only works with the Chrome browser.

Output.  A hardware wallet, such as the Ledger Nano S, completely provides secure storage of data, however, here you should take into account the human factor, and not lose access to physical media, so as not to lose funds.

Trezor

Trezor is a physical device with no internet connection. They store the private keys required to carry out transactions with cryptocurrencies. It is very easy to use for both new users and people who already have experience in transactions and operations with payments in cryptocurrencies.

Pros:

  • Fully mobile to use (via Android, with an OTG cable)

  • Easy to use functionality

  • Can be used as a powerful password manager

  • Supports two-factor authentication

Minuses:

High price.

Output. Trezor is one of the most trusted companies in the world when it comes to hardware wallets. Their most popular product is the Trezor Model One, which is an affordable hardware wallet with state-of-the-art security systems.

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