What is a wallet?
To be responsible of your security, rather than entrusting it to a third party (cf. platform). There is a way to become your own bank, manage your assets and carry out transactions. This is what we call a “wallet”.
This wallet works with two encryption “keys”, the public key and the private key. If you want to take the subject deeper and are not allergic to Math, I invite you to consult the asymmetric key cryptography.
A public key also called “public address” can be shared without restriction, you can see it as your name or ID. It will allow you to receive crypto-currencies or to check your balance.
On the other hand, the private key must absolutely remain secret, this private key being the key element (no pun intended) that will secure your wallet. As its name suggests, it must absolutely stay private in any circumstances. You should see it as your password, it gives the right to anyone who holds it to withdraw or move funds from another wallet.
Hackers have developed many techniques to recover it, mainly Malware or Keyloggers (see folder: Malware) but also social engineering.
How to protect your crypto-currencies?
1) Online wallets
There are different names, “Online Wallet”, “Web Wallets”, “Cloud Wallets”. Their main advantages are their ease of use and availability. Indeed, this wallets can be virtually used on any device with an Internet connection (computer, tablet, smartphone…). They also have an intuitive interface that makes it very easy to carry out crypto-transactions, and most of them are completely free.
There are two types of online wallets:
- Exchanges such as Binance
- Specialized platforms
This first solution has some advantages, but we don’t recommend it due to the high level of risks. Because you are no longer the holder of your private key, you are required to have blind confidence in the security measures put in place by the exchanges. In case of a security breach, if the exchange closes and denies your access, or if it disappears, you will never see your funds…
2) Wallets on Computer or Smartphone
These wallets, “Hot Wallets” or “Desktop Wallets”, are software programs that can be downloaded directly to your devices and are very easy to use. The other significant advantage is the possession of your private keys, which will not be given to a third-party service. Sending and receiving your crypto-currencies online is generally very fast.
There are two types of hardware wallets:
- Light Wallets” that support different types of cryptocurrencies by connecting to servers to check data compliance.
- Complete wallets or “Full Node” which contain a Blockchain in its entirety from the first to the last transaction issued. If the Blockchain is recent, all transactions will only represent a slight loss of space on your hard disk, but if it has a long history and a high volume of transactions, it could quickly represent tens or even hundreds of gigabytes of data. For example, at the time these lines are written, downloading the Bitcoin Blockchain would represent more than 190 gigabytes of data (according to the website https://www.blockchain.com/charts/blocks-size)
The security of this type of wallet depends mainly on the security of your device (computer, smartphone, tablet…). Indeed, since your keys are stored directly on the latter, it is imperative to maintain a flawless level of security to avoid the loss of your assets. There are many ways to take advantage of a vulnerability in your system right now. That’s why we don’t recommend this type of storage if you want to store a large quantity of cryptocurrencies.
3) Material wallets
Today “Hardware Wallet” or “Cold Storage” represent one of the most advanced security solutions available. Operating offline, they are virtually “impossible” to hack and completely impermeable to potential viruses.
You can view these as portable electronic safes. In case of loss or theft, the device will not only remain inviolable, but you can even recover your funds buying a similar device with a recovery phrase.
However, the latter having mainly a storage function is not suitable for day-to-day trading.
In addition, even though it is almost impossible to steal your funds “directly” from you, the creativity of hackers/scammers makes possible some indirect hacks that you should consider (you may find those in the next section “Risks related to material wallet”)
4) Paper wallet
As its name suggests, this type of portfolio consists of a simple sheet of paper, also known as a “Paper Wallet”. Actually it is pretty simple, you have to write your public and private keys in a handwritten or printed form, there is also the possibility to include QR codes in order to be able to scan keys and thus avoid having to type them again each time.
Since it is not connected to the Internet, it’s therefore impossible to suffer a cyber-attack, which makes them the best protection for your cryptocurrencies. Of course you should put them in a secure place (bank, safe… etc.)
The main disadvantage is obviously the fragility and the low durability of the support over time (the ink fades away) but also the danger of having to circulate with a piece of paper containing your funds in order to make payments or transactions. To make an analogy, it’s kind of moving around with your credit card and codes in your wallet.
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