“Encryption works. Properly implemented strong crypto systems are one of the few things which can rely on”
M. Snowden is the perfect exemple of the world we are living in. It is all about security, privacy and freedom. The principle of blockchain is to give to people the freedom & privacy they need, but what about security? If we belong to nobody, how can we ensure our own financial security, if nobody does it for us?
noun: wallet; plural noun: wallets
A Cryptocurrency wallet is a collection of private keys but may also refer to client software used to manage those keys and to make transactions on the Bitcoin network.
“Bitcoins can be used for online transactions between individuals”
Then, What is it?
As the one you already have, it contains your money.
If you want to receive bitcoins, you will need a wallet (Coinbase for example, is a wallet). As we already saw it in previous posts, it’s a bit more complicated than it appears to be. Let’s start with the definition explanation and we will go further right after.
Private keys collection
The wallet will save your personal data.
But you will ask me, how to keep the data that is everywhere? How can I ensure that it’s mine and nobody else can have access to it. The answer is the Private Key. It’s a bit like the combination of your personal email address AND your password combined.
You will be the only one to have the right key to give access to the wallet. This keys have different aspects, but only one will exist, you loose it, you loose everything. There is no Hotline for the blockchain… (I mean, not yet)
Because we are talking about digital money, we definitively need to use a software to have access to our information. In another post we will see the variety and the different levels of security of them.
Let’s check this little video out to have a visual understanding
What can we do with a Wallet?
There is three different wallet principles so far, all of them have the same goal, allowing you to receive bitcoins AND to secure them. You should have a wallet for those main reasons:
- Receive/send Bitcoins (or other currencies)
Without a wallet you will simply not be able to use the blockchain. If you followed the tutorial about Coinbase, you already have a wallet.
- Protect your data (money)
All the different services have different levels of protections but the main goal is to secure (NOT ENSURE) your capital.
- Centralize your information
It is a simple way to keep all the transfers information and capital information in the “same place”. All the wallets are working differently but the wallet will help you to connect from everywhere and to have access to your specific information.
- Trade & speculate
Some wallets (but mainly the exchanges) are made for speculation. Coinbase for example is not the right place to do that.
Different kind of Wallet?
Before starting, we have two families of wallet, the hot and cold wallet.
The hot wallets (Coinbase like) are online storage wallets, accessible from anywhere. Regarding the fact that it is online, practical and flexible it is also vulnerable. Somebody could hack your password, spy your computer or also hack the online service. There is so many reasons why a warm wallet is vulnerable, reason why we strongly recommend physical storage.
The cold wallets are physical storage wallets, they are the most secure option, protecting you from hacking but giving you the entire responsibility of your account security. This option stores physically in a place of your choice, the needed information to connect to your wallet.
Don’t take it wrong, we suggested you to take a hot wallet in our tutorial, it’s right, but we will explain you in our tutorial the way we should use this service and also how to store your capital. First, let’s have a look to the 4 different options, their rate and our recommendations.
The online wallets are the most easy-to-use solutions. After a standard signup procedure, you have a wallet. You can also access to your wallet from anywhere in the world from any device. The services are secured and we are living in the modern world so, why not?
After experiencing and learning on the topic, we realised that our Private key is stored on their servers. It does mean that you can not have access to your key. If the service disappears/shutdowns, your information are lost, your key too, the one which is unlocking your wallet on the blockchain. Another security issue is that all of the services are also vulnerable to hacking. It is more fruitful to hack a online platform and steal as many key as you can, when there is no guaranty of getting founds anyway.
Why are you using it for ? For daily transactions, daily usage. We know, we recommended you to use Coinbase regarding the flexibility and the simplicity of the service. We are not telling you now to change again because you need a more secure platform BUT you have to be aware that risks are possible.
Never, ever keep more that what you can accept to loose on your online wallet.
The software wallets are considered hot wallets. The principle is to download a software on your computer or mobile phone to create your wallet. There is also variety of client softwares but it’s already a first step into security that a online wallet could not provide.
The only issue will be the vulnerability of the device you are using. You should always have in mind that malwares or hackers may steal the wallet information.
A paper wallet (cold wallet), as mentioned is a paper document containing all the data necessary to generate Bitcoin private keys. It is a printed version of a Bitcoin (or other currency), a print out of your Public and Private key. It’s more secure than the other options because you physically have the key with you, but again, if you loose it, nobody will be able to generate it again.
This option should be considered like keeping jewellery or diamonds. You should definitively proceed to very strict security precautions.
To make it simple, it is a USB key, which is linked to your wallet and which is generating keys for each transactions. Without this device, nobody can access or do anything with. It is the most secure option the system can offer to you. There are several options to recover the information if your device get broken or lost. So far, there is no other better option for us, the most tricky part will be to choose from the competition. They are more or less the same but we experienced LedgerWallet and we will create a great tutorial in order to support you in this new step.
Remember, we are talking about protecting your capital, don’t play with that.
A list of possible hardware wallets you could be interested in.
See you there
We also recommend you to read those articles in order to go a bit deeper into the topic:
Bitcoin Wiki https://en.bitcoin.it/wiki/Private_key