What is a crypto wallet? If you are new to investing in Bitcoin or any other virtual currency, you might not understand the importance of a crypto wallet…but you soon will.
In concept, these are a lot like ordinary wallets in that you can store your currency there until it’s ready to use but that is about as far as the comparison goes in terms of similarity. There are physical crypto wallets, and online versions. Which you choose may depend on your plans for the coins you own. Are you a frequent trader, or a buy-and-hold investor?
Those are important considerations to remember when deciding on your strategy for protecting your private cryptocurrency keys no matter if you prefer Bitcoin, Ethereum, or a more obscure type of currency.
Crypto wallets actually hold the KEYS to your money rather than the money itself. If you think about a traditional wallet you realize that you don’t just have the ability to store hard currency but also ATM cards and their associated account numbers and the PIN you use to access your funds. In this way, the crypto wallet is quite similar to the old-fashioned type.
As we hinted at above, you don’t actually store the currency in your crypto wallet. You store the private keys to the currencies which reside on the blockchain they were minted/mined on. The keys are your “PIN number” like an ATM card (after a fashion) and that key is owned by you and no one else has access to it.
That is why we say there is no customer support for lost or stolen private keys. You’re on your own once you obtain your keys. Yes, cryptocurrency can be a “one mistake and you’re done” type of situation where lost private keys are concerned.
In terms of physicality, a crypto wallet can be a safe where you store handwritten cryptocurrency private keys, it can be a hard drive or thumb drive where you store your private keys, and it may also be an online account where those keys reside.
And like a regular wallet, if you lose it, you lose access to your money. But UNLIKE a regular wallet, you don’t have any customer support or other options for accessing your funds should that occur.
Pros And Cons To Different Types Of Crypto Wallets
Storing your private keys online has risks. If your chosen platform doesn’t feature security measures like two-factor authentication or other protection, you may find your keys are more vulnerable than you’d prefer. You can and some do store their keys 100% online, but know and understand the risks of doing so.
Redundancy is important when it comes to storing those keys, which is why many use more than one “wallet” to do so. If you store your keys online, consider a backup on a hardware wallet.
Hardware wallets can be a thumb drive or even a dedicated device specifically for storing the keys. The trick to understanding the risks of hardware wallets? Treat them exactly like external hard drives. And by that we mean, expect them to fail when you least expect it, and be prepared to lose data. Yes, your backup needs a backup.
And then there are people who write down or print out their crypto keys and store them as physical documents. The disadvantage to this is obvious if you’ve ever traded crypto before–there is no convenient way to convert the paper keys and you’ll spend more time than you prefer typing out those numbers.
But the alternative–losing your crypto altogether–is a great motivation for storing your crypto in a printed document. You just need to ensure that you are the only one with access to that document and keep it in a safe place.
Joe Wallace has covered real estate and financial topics, including crypto and NFTs since 1995. His work has appeared on Veteran.com, The Pentagon Channel, ABC and many print and online publications. Joe is a 13-year veteran of the United States Air Force and a former reporter for Air Force Television News.