Wallets for cryptocurrencies
The three cryptocurrency exchanges mentioned above provide online wallets for many of the currencies that are traded there. If you select and buy coins there, the digital coins will initially end up in such a wallet after the purchase. This is practical and facilitates the first steps in trading with cryptocurrencies.
Wallets for cryptocurrencies
In the case of online wallets for crypto exchanges, only the exchanges have this private key. It is better to have the private key for your coins and, of course, keep it safe.
Many cryptocurrencies have their own websites where they offer software wallets for download. You can install these on your PC or smartphone and use them to receive and store currencies or to pay for something with your currencies. The private keys are then yours.
Hardware wallets – the solution for more security
The good thing is that a hacker can only get hold of a hardware wallet if he breaks into your place. You, on the other hand, have the hardware wallet lying next to your laptop, for example, and can access your cryptocurrencies with the private keys stored on it and an additional pin code.
Of course, you need to securely protect both the device and the 24-word key from theft and loss. If you write down the pin to the device, this piece of paper should not get lost or fall into the wrong hands either. Always remember that we are talking about your money here, which could suddenly just be gone if you are not careful enough.
Cold Wallets: keep cryptocurrencies safe online & offline
Advantages of cold wallets: Storing cryptocurrencies offline offers more protection than a hot wallet, as they offer hackers only a minimal attack surface. Moreover, coins held on cold wallets belong to the user himself, as they are not held through a crypto exchange. Only the user has the key to access the coins. Here, no crypto exchange acts as an intermediary that manages the coins.
Disadvantages of cold wallets: However, users of cold wallets have to accept some compromises in addition to the high security. Once the coins have been transferred to the corresponding hardware, the responsibility lies solely with the user. If the password is forgotten, for example, access to Bitcoin, Etherum and Co. is no longer possible, which would mean the loss of the coins. Users should therefore create back-ups and keep the passwords for accessing the hardware wallet in a safe place.
There are different providers for cold wallets, which either look like external hard drives or USB sticks. Coins held online can be transferred from crypto exchanges on these backup media.
What are cryptocurrencies?
Recipients of transactions are usually represented only by an abstract address (a kind of account number), so cryptocurrencies can ideally be used pseudonymously. Transactions are monitored and accounted for by so-called miners. Through huge computing efforts, miners buy the right to create new blocks and extend the blockchain. For this effort, successful miners are rewarded with currency units.
- Make multiple backups of your wallet in case your PC or smartphone is stolen or has a technical failure. These backups should be kept secure and have cryptographic access protection
- As with cash, you should not store large sums of money in your wallet on your PC or smartphone; only smaller amounts for daily needs make sense
- Most important is the encryption of the wallet as well as the created backup copies
The advantages of cryptocurrencies are that they can be used worldwide, pseudonymously and without intermediaries (banks). In minutes, even large sums can be transferred worldwide. However, there is no state regulation of the currency, which can lead to various problems such as the exclusion of own transactions due to a majority decision of miners. Due to the complex mining process to manage the blockchain, cryptocurrencies are also often not very efficient. There are currently over 1000 different cryptocurrencies on the market, the best known of which is Bitcoin.