Assuming that you have invested some money in Cryptocurrency, would you leave it in the exchange you bought it from?
That’s not recommended! If an exchange is hacked, then what happens to your money?
Cryptocurrency exchanges and servers hold vast amounts of currencies and hence are prime targets of hackers.
You might have read a lot of articles of exchanges being hacked, with the hacking of the Mt Gox exchange in 2013 being one of the most prominent examples. In that hacking event more than 850,000 Bitcoin were stolen, valued at more than $450 million at that time and over $3 billion at September 2017 rates.
I am sure you would not like to put your hard-earned money at risk.
Therefore, the safest option is to store your cryptocurrency in a wallet. So how does the Crypto wallet work and should I choose a Software Wallet or a Hardware Wallet?
Would you go with a software wallet either on web , desktop, mobile version or go with a hardware wallet instead? This is even more confusing than it sounds as the level of functions and security in all the versions are different.
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As I wrote in my previous blog about Blockchain powered Cryptocurrency Wallets, it is similar to a normal bank account or nowadays like your mobile wallet, making it possible to send and receive the digital currencies like Bitcoin with complete security.
Now you might be thinking that your Crypto transactions are stored in these wallets but that is not true.
The transactions are stored in Blockchain network in the form of secure digital codes, known as private keys (similar to your online banking PIN) that, when used, demonstrates ownership of a public digital code, known as a public key, which works as your wallet address.
Your currency wallet is therefore a means of storing your access to your currency. Once your private key matches the public key, the transaction is successful.
There are wallets available in market which can store multiple digital currencies.
So if you are intending to store several currencies, you may need to either use a number of wallets or select a wallet that is capable of storing all of your currencies.
Types of Cryptocurrency Wallets
Cryptocurrency Web Wallets are online wallets that store your keys online which is even easy to access from anywhere and from any computer. Hence, the web-based wallets are not that much secure as the public keys are stored on someone else’s server.
Those servers are protected well but the system is not under your control. But if your wallet service provider allows you to purchase Cryptocurrency through their exchange, then using their web-based wallet is more convenient.
Cryptocurrency Desktop Wallets
Desktop Wallets are software programs that store your digital currencies in your PC or laptop.
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One of the key advantages of using desktop wallet is that it offers complete control of the currency to the user not relying on any third-party interface. However, on the other hand, it means that the entire security is your responsibility.
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If your computer gets hacked or compromised or if the computer hard drive breaks down, you may lose your coins forever. Because of such fear, people use unused or spare computers that never have access to the internet to store their Cryptocurrency, which is also known as ‘cold’ storage.