Introduction
This article explores Crypto wallet options, best practises when it comes to holding your Cryptocurrency. Multiple factors explained further determine what is the best option for you. There is no one best option for everybody as the crypto space is evolving quickly and requirements vary largely between users.
Why is cryptocurrency a hot target for thieves?
Unlike more traditional payment channels like credit cards, bank transfers, mobile payments and PayPal, most of the blockchains powering cryptocurrencies are decentralised and practically immutable meaning that once someone has made off with your money, it can be incredibly hard and cost and time prohibitive to ever recover the funds.
Ensuring that your Crypto is secure is the single most important aspect, once its gone, its gone!
Wallets
Like cash, the thing you keep your Crypto in is called a wallet.
Crypto wallets can be broken down into three categories depending on how you access the wallet and store its private key –
- Software
- Hardware
- Paper
It is important to understand how Crypto wallets work and to do this we need to learn a bit about cryptography and private/public keys. Watch this video and bear in mind how being the holder of the private key allows you to prove you has access to a bitcoin wallet and make payments –
No matter what wallet you choose, it is very important that it is from a reputable source before picking one, make sure to check the TechZilica recommendation for your preferred wallet type.
Software Wallets
Software wallets are accessed by multi-function devices such as a smartphone or desktop/laptop computer and are the most straightforward to setup and manage. Software wallets can be broken down into two subsections –
- Cloud-hosted
- Self-hosted
Self-hosted means you are looking after your own private key and are fully responsible for the security of your funds, this can be both a pro and a con which we will review in the Risks section.
Cloud-hosted means you trust another to store and protect your private key, you will usually sign-in with your email and password and then the external company will look up the private key which has been assigned to your account, the major advantage of cloud hosted is that you can access your funds on any internet connected device as your wallet and private key is hosted in the cloud and administration is kept to a minimum. Keeping your money in an exchange would also go under this category.
Hardware Wallets
Hardware wallets are purpose designed and made devices to store Crypto private keys. They take the benefits of self-hosted software wallets and provides a small pocket-sized computer to store your private keys on to reduce the risks from malware and someone stealing your computer or smartphone.
These purpose made devices are what big Crypto investors are using to store their funds however Hardware wallets are not magic, do not eliminate risks and are not free of vulnerability but instead reduce them. Someone will still always be able to steal your Cryptocurrency if they see you put in passwords and take physical control of your devices and it is important to always bare this in mind when formulating your security strategy.
While hardware wallets are supporting more and more tokens, many newly developed projects are yet to be supported and still require the use of a software wallet.
Paper Wallets
Paper wallets you say?! you are probably thinking how undeveloped and backward a paper wallet sounds especially when thinking about how many see tokenisation of money as a next step in financial evolution and a beacon of a highly developed future economy but this is exactly why it is attractive and probably always be.
You cannot hack a piece of paper, there is no vulnerability found causing someone to be able to read your private key written in your safe.
A paper wallet is as basic as it sounds, you use a service to generate a wallet and then you can print it off and keep the paper containing your private key as long as you trust the service you used to generate the wallet and you don’t give anyone else access to your private key, you can sleep sound at night.
Backups
As with any important data, keeping a backup of your private key is vital to the long-term security of your Crypto, storing back-ups in multiple locations and in areas safe from theft should be part of your security strategy.
Shamir backups can help you reduce the risk posed by theft of your private keys by requiring multiple back-ups from multiple locations to be recovered to generate your private key –
Risks
Every method of storing your Crypto comes with risks and no option you choose will eliminate all of them, it is important to make sure you know what the risks are so you can reduce them as much as possible.
The main risks with each type of wallet are –
Software – Software wallets are generally the most risky due to being exposed to multiple attack vectors, in the case of cloud-hosted wallets you have a 3rd party keeping your secret key safe, the potential of being phished, your email hacked and being sim swapped and in the case of self-hosted with you making sure your keys aren’t stolen and also that you don’t lose them.
Hardware – As you would expect, a device specifically designed to securely hold Crypto has less security risk. Hardware wallets generally are a lot more exposed in terms how physically secure you can keep them, but it is also worth noting vulnerabilities and issues occur in the best designed products and you should not consider hardware wallets to be perfect.
Paper – Not storing your private key digitally means you reduce a lot of risk of being hacked and losing funds, it’s important to take note that you will still need to interact with a computer and with your private key to eventually move money out of your paper wallet.
Recommendations
All products listed have been tested by TechZilica however we cannot provide any guarantee or warranty about them.
Make sure for any cloud-hosted wallet that you enable all the security features on your account.
Software Wallet
Cloud-hosted: Coinbase & Blockchain.info
Self-hosted: Electrum (Desktop and Bitcoin only) Trust wallet (Mobile)
Hardware Wallet
Trezor Model T