Cryptocurrency Wallet Guide
What is a Wallet?
A cryptocurrency wallet is a software program that stores private and public keys and interacts with the blockchain to enable users to send and receive digital currency and monitor their balance.
How Do Wallets Work?
When a person sends you bitcoins or any other type of digital currency, they are essentially signing off ownership of the coins to your wallet’s address. To be able to spend those coins and unlock the funds, the private key stored in your wallet must match the public address the currency is assigned to. If public and private keys match, the balance in your digital wallet will increase, and the senders will decrease accordingly. There is no actual exchange of real coins. The transaction is signified merely by a transaction record on the blockchain and a change in balance in your cryptocurrency wallet.
Which Wallet Should I Use?
Software
Software Wallets are accessible from any computing device in any location. While they are more convenient to access, many online wallets store your private keys online which makes them more vulnerable to attack.
Hardware
A hardware wallet is a special type of wallet which stores the user's private keys in a secure hardware device. These are the most secure options for storing your cryptocurrencies.
Security
Although online wallets have proven the most vulnerable and prone to hacking attacks, diligent security precautions need to be implemented and followed when using any wallet. Remember that no matter which wallet you use, losing your private keys will lead you to lose your money. Similarly, if your wallet gets hacked, or you send money to a scammer, there is no way to reclaim lost currency or reverse the transaction. You must take precautions and be very careful!
Three Steps to Keeping Your Wallet Safe
Step 1:
Backup your wallet. Store only small amounts of currency for everyday use online, on your computer or mobile, keeping the vast majority of your funds in a high security environment. Cold or offline storage options for backup like Ledger Nano or paper or USB will protect you against computer failures and allow you to recover your wallet should it be lost or stolen.
Step 2:
Update software. Keep your software up to date so that you have the latest security enhancements available. You should regularly update not only your wallet software but also the software on your computer.
Step 3:
Add extra security layers. The more layers of security, the better. Setting long and complex passwords and ensuring any withdrawal of funds requires a password is a start. Use wallets that have a good reputation and provide extra security layers like two-factor authentication and additional pin code requirements every time a wallet application gets opened. You may also want to consider a wallet that offers multisig transactions like Armory or Copay. A multisig or multi-signature wallet requires the permission of another user or users before a transaction can be made.