A cryptocurrency wallet is not a physical wallet that stores money, but rather a digital storage space for data. This data includes your public key and private key, as well as the entire blockchain and all its transactions in some cases. Your private and public keys are used to send and receive cryptocurrency to other public keys (i.e. other cryptocurrency wallets), and are connected to the transactions recorded on the blockchain. It is therefore crucial to store these keys securely.
There are several types of cryptocurrency wallets, each with its own level of security. Web wallets are the most convenient but also the least secure, as they are managed by third parties and do not allow you to own your private keys. Software wallets are downloaded and installed on your computer and offer a higher level of security, as you own the private keys. However, they are still vulnerable to attacks from hackers if your computer is connected to the internet. Hardware wallets, on the other hand, are considered the most secure option for storing private keys. These are USB drives that are rarely connected to the internet and are only used for transferring cryptocurrency. This makes it difficult for hackers to access your private keys through a compromised internet connection. Hardware wallets are a good choice for storing large amounts of cryptocurrency or for long-term storage (HODLing). However, it is important to note that hardware wallets can still be lost or stolen.
Before choosing a cryptocurrency wallet, make sure it is compatible with the cryptocurrency you want to mine and store.
First of all, what is a cryptocurrency wallet?
While it is understandable that some might think you can store cryptocurrency in a cryptocurrency wallet, technically speaking this is not the case. A cryptocurrency wallet is not like your bank account or an ordinary wallet which actual stores money. A cryptocurrency wallet basically stores data. This data consists of your public key and most importantly your private key. Beside these keys in many cases, such as Bitcoin, it also stores the entire blockchain including all the transactions ever made. With the two keys you can receive and send cryptocurrency to other public keys (i.e. other cryptocurrency wallets). These keys are connected to transactions which are stored on a blockchain. In other words, the keys that are stored in your cryptocurrency wallet connect you with the transactions that are stored on the blockchain. These keys are therefore very important and thus crucial to store securely. In the next section you will find out there are different types of cryptocurrency wallets, one safer than the other.
Web wallets are considered easy but relatively unsafe in comparison with other types of cryptocurrency wallets. The reason they are generally less safe is that third parties manage your keys. In other words, other parties take care of the protection of your private keys. In case you don’t own that much cryptocurrency and often spend it quickly but don’t want to download the entire ledger, for example, a web wallet might be an option as they are easier to use and quicker to set up.
A step into a more secure direction are software wallets. This is basically computer software which you download and install on your laptop or desktop computer. This does mean, however, that the data (such as your private and public keys) is stored on the computer’s hard drive. And as most computers are connected to the internet most of the time, they can still be vulnerable to attacks from hackers. An advantage that software wallets have in comparison to web wallets is that you, and only you, own the private keys to that wallet. Aside of that, there are many different software wallets to choose from, all with their own pros and cons.
Hardware wallets are considered to be one of the safest options for storing private keys. This type of cryptocurrency wallet is simply put a USB flash drive that is hardly ever connected to the internet; only when transferring bitcoin (BTC), ethereum (ETH) or any other cryptocurrency from or to your wallet. In any other case, you unplug the wallet making it impossible for a hacker to access your private keys through a compromised internet connection. Hardware wallets are a safe bet when you handle large amounts of cryptocurrency or if you are a HODL’er. It might therefore be worth looking into hardware wallets as they will offer the safest way to store cryptocurrency. Keep in mind though, that hardware wallets still can be physically lost, including their content. Hopefully you now have a better understanding of the options out there. Do note that not all cryptocurrency wallets are compatible with every cryptocurrency. Therefore, make sure the cryptocurrency wallet you are eyeing is indeed compatible with the cryptocurrency you want to mine and store.