Wallet, wallets everywhere. What to choose, a hope and a prayer. That was how I felt looking for my first cryptocurrency wallet. Since the inception of Bitcoin countless developers have made wallets for it, and the numerous altcoins each have their own. All of them claiming to be the best thing around. I must have read a dozen articles about it and watched just as many YouTube videos. My first Bitcoin purchase of $100 was sitting on my Coinbase account and, at the time, that seemed like the most logical place to store my money. I had this feeling like I had lto get it into my hands. In this post you will learn what a wallet is, how it operates, the different types and where to get one. I’ll let you know what I use too. After reading this you should have an idea of what sort of wallet you might want to use.
Before diving in I need to say this about wallets. This is the mother of all rules when it comes to wallets and I cannot emphasize this enough. If you do not possess the private keys, then it is NOT your wallet! I mean that in the most explicit and seriousness of tones possible. Everyone that lost their money on the Mt Gox  exchange or the NiceHash hack  learned this the hard way. Trust me. I was one of them. I lost a month of mining earnings on NiceHash in that hack. Thankfully it was only a few bucks. You might be wondering what is a private key? Or, I thought we were talking about wallets? Well, I need to explain what that is exactly.
To understand what the term “Wallet” is in the realm of cryptocurrency I must explain to you how one functions. First, shed all notion of the traditional concept of a wallet because the name does not own up to what is actually happening. A wallet handles what I am about to explain to you and gives you a lot of pretty buttons to use while you’re doing so; enter another piece of software. All coins or tokens belonging to a cryptocurrency must live at a certain address that is yours, and that address is accounted for on the blockchain. Here is an example of a BTC wallet address I created at www.bitaddress.org:
E.g. My BTC Address in the sidebar of this blog: 1CAiRgo2KcXQehsC2PdiPEmjMHECJhvriK
Good luck remembering that thing by memory! This address is public and is what you give to others to receive a payment, and the private key is even longer. All transactions made are visible publicly on the blockchain or public ledger. That address did not just come from anywhere, however, it is generated by a random seed and comes with a private key pair.
The private key is how you sign transactions on the blockchain. A transaction consists of three items; A destination address, an amount to send, and a signature . All of these make up a piece of information that is sent out to the network to become a part of a block to be mined and added to the blockchain. A wallet is your window to controlling your interests on the blockchain.
Here’s a good analogy. You can think of your wallet like a mailbox. This is your public facing address. Everyone can send you mail if they know where you live. Also, anyone can look into your mailbox and see what’s there, although I hope my neighbors aren’t snooping inside! Can’t somebody just steal your mail? Well, yes but let’s say ours is a P.O. box with a key! Now, usually, to send mail you put it in your mailbox for pickup or a drop box. We all know our mail isn’t going anywhere without a stamp, right? So, think of that stamp as your signature. Obviously, the contents of the mail is the digital currency you’re sending.
Not too hot and not too cold… Yes, there are types of wallets, and they’re not associated with temperature.. A hot wallet is on that either lives on a hosted website or on a device. If the hot wallet is hosted by another site, then you by default do not own the private keys and your money is not in your possession. All exchanges operate this way. Do not trust an exchange or website to keep your money safe! They can be hacked! I don’t even trust Coinbase to do this and they’re about as reputable as it gets in the USA for an exchange. The other type of hot wallet is a the kind that runs on your mobile device, like Coinomi , or your desktop, like exodus . For the record, I do not endorse either of those software host wallets. They are merely meant as an example. The hot wallet types are versatile, convenient, and, usually, easy to use. However, this wallet type is only as safe as your device is. If your device, desktop or mobile, becomes compromised then your crypto is at risk.
I don’t know about you, but I am not a huge risk taker. I’m not risk averse, but I do prefer to mitigate risk whenever possible. You’ll see this when I get around to talking about indexing my crypto assets in a later post. Why would you prefer a cold wallet over the convenience of a hot wallet? I’ll tell you the answer is peace of mind. A cold wallet is one that is not connected to the internet or any device such that the private keys can be transmitted electronically. There are cold wallets that take the form of paper. You literally cannot hack a piece of paper! Unless we’re using a pair of scissors, your private key can be safely stored away in your filing cabinet if you so chose. I don’t like typing in long characters off of a piece of paper, so I’d rather have something manage that for me. Yes QR codes do exist, but who wants to have to pull a piece of paper out of a safe every time you want to scan it? The use case for paper wallets is limited to people wanting that sort of security, or to ATM devices that dispense your money is such a manner.
Enter the hardware wallet. I personally use a Ledger Nano S to safely store my crypto assets . If you want to help me out, you can use the link in my references to obtain one and the referral should help me out. To give you other options, there are the Trezor and Keepkey wallets. I have never used either of those alternatives, but I read they are comparable to a Ledger Nano S. The device I use plugs into your machine via USB. You must enter a 4-8 digit PIN number to access it, and to make a transaction you must physically push a button on the device. If someone obtains your device, it will erase itself after 3 or 4 unsuccessful attempts. If someone takes it apart, it is tamper proof and will erase itself. Even if my desktop gets hacked, the ledger does not transmit the private keys to the compromised device. And, the best part! If a car runs over it or it gets incinerated, you can regenerate your wallet on another one! That’s worth the Approx $60 I spent to get one to me. I’m probably going to pick up a couple more to keep as back ups later. You must decide whether to go hot or cold.
A word on keeping your private keys safe. Regardless of the wallet choice you are still responsible for safeguarding the private key, or the seed that generated it. Seed? Wallets don’t have seeds in them? Some wallets generate the private key directly and then you store it somewhere safe. Other wallets generate the private key based off of a seed phrase you give it. For instance, the Ledger Nano S generates its public and private key pair off of a 24 word passphrase that is unique to each device issued. Forget the phrase and you will never regenerate the keys. That’s worth safeguarding! If you find yourself with a seed. Do yourself a favor. Write it down and put it in a safe. Seed or long giant private key; regardless of wallet type. With the power of being on your own bank, you are responsible for getting this right!
I added a progress gauge to the sidebar of this blog. The gauge is live and updates on its own! I’m still sitting at a whopping 0.018 BTC! Yay me! I am actually making progress just not in terms of BTC. I’m mining Ethereum and Making headway in my crypto asset portfolio. I just haven’t converted anything over to Bitcoin. Honestly, I’m wondering if I should? Once I work my way up to 1 ETH, I’ll use what’s left over and convert it. I sort of like to have at least one of each for investment purposes.
Until next time! I hope you now have a thorough understanding of wallets. If you have a topic you want covered or a question. Feel free to contact me on my Facebook page or Twitter!