If you have come this far you will know what cryptocurrencies or Bitcoin itself are, digital and intangible currencies that we can use as a payment method for all types of exchanges. But how are they stored? Where are some coins that are intangible kept? Cryptocurrency wallets or bitcoins wallets allow us to access private keys and control our currencies. We explain what they are , how they work or what types of wallets there are.
If you already have cryptocurrencies, you will know everything that we explain below. If not, it is convenient to review in a basic way what they are and for what in the simplest way possible so that you understand how they are stored or where.
How are bitcoins stored?
Cryptocurrencies (or bitcoin in particular) are a decentralized currency that is not controlled by any entity such as the European Central Bank and whose value is based on the law of supply and demand. In addition, the creation is in the hands of the users (what is called “mining”). Since 2010, bitcoin has become popular (although it was born a few years before) and currently we have all heard about this cryptocurrency and many others, but where is it? do you keep bitcoins or cryptocurrencies?
It is not physical money that we can carry in our wallet or purse or on a credit card as you usually do. That is why there are cryptocurrency purses or walletsthat allow us to store this type of money when we want to use it. It is not a website or app that “saves” the money we have as in a piggy bank or safe, nor is it a pendrive as when we save files. They are not files nor are they stored in any specific place but to operate with bitcoins and other cryptocurrencies we need a private key that allows us to confirm that we are the original owner, that it is our money and that we can use it for whatever we want. As we have said, that is why there are wallets for bitcoins or platforms that allow us to store virtual currency. But there are several types: physical, for mobile, online, for PC …
Types of purses
We will see them in the next sections but you can use wallets in “format” credit card as if they were the one you usually use, in pendrive format. Or it may simply be a website that you access for your bitcoins. We will explain them later. They are generally divided between hot wallets or cold wallets depending on whether or not they are “connected” but there are types and subtypes depending on the format, use, etc.
Cryptocurrency security
There are two keys that you have to take into account when it comes to knowing more about cryptocurrency wallets or payments with Bitcoin and other virtual currencies: there is a public key and a private key. So that you understand the difference between the two, we can compare it with the conventional bank: you have a public key that would correspond to your bank account that you can give to whoever you want to make a transfer. And you have a private key that would be the password with which you access the bank to manage your account and spend your money from your ATM or from that bank’s website. It would be something similar to the credit card PIN that you cannot give to anyone because they will rob you. The private key gives us “power” over cryptocurrencies.
The two keys will be fundamental and it is what these purses are responsible for. They do not store the money you have or manage as such, but rather the password that allows you access so that you can use it in your day to day. The wallet gives us access to “the network” of cryptocurrencies. You use a private key to demonstrate that you have a code (that public key that would correspond to your bank account if we compare it and the private key to your PIN code to access) and that allow us to access what is there, the cryptocurrencies that are stored .
There is also a third “type of key” which is the wallet’s own key or password. In this case it would be the password to access the content, a password in an app or in a program like you have a PIN to access the phone or when starting Windows 10. It is important to note that this is not the private key but the password that used to access the wallet. Most wallets are encrypted with a password and only you can access it even if other people use your computer , for example, or your phone. If you have encrypted the wallet and you have lost the access key, you would lose everything you have if you have not made a backup.
Cold (or mostly physical) wallets
Generally cold wallets are physical wallets (although not always, there is also software) Physical wallets exist although cryptocurrencies are intangible but little or nothing has to do with what you carry in your pockets. They are considered, by experts, as the safest bitcoin wallets to store your cryptocurrencies but the least practical when it comes to using them. It is a good option to save, to save in the long term, not to depend on a web or app that can break or that can suffer a hack that makes you lose everything. The advantage of always having them with us is that it is more complicated for someone to steal the data that is not exposed on the Internet, it is not in a specialized website or app but that we have it at hand, stored.
Their main characteristic is that they are not connected so they are much safer and less susceptible to hacking, malware or any type of problem that may arise online . In addition, you do not need any third party to manage the private keysso you have extra security: you would only depend on you. The keys are kept on said device and are recommended if we are not going to make continuous use of cryptocurrencies. For example, they are designed for any user who wants to save large amounts of cryptocurrencies if you want to do it in the long term or if you do not want to have to use it frequently. Are they foolproof and risk-free? Logically no, there are always risks. If your house catches fire or you lose the hardware or the device that contains the keys, you will have a problem and you will not be able to recover it in any way. Nor if it is stolen, for example.
There are several types and not all have the same design or shape or the same advantages. Generally you can have paper wallets, hardware type wallets or even some software are considered “cold wallets” (although they are less common)
Paper purses
Paper wallets are easy and with great security but, as we have explained before, they are designed to store cryptocurrencies that you will not use frequently. Thought as a long-term account, as a kind of fixed term. They are disconnected from the Internet and it is a printed, offline wallet. How is it created? You must go to a paper wallet generator (it is always advisable to do it without an Internet connection at that time) and you get that private key where you can store the money “cold”.
Keep in mind that using paper purses or paper wallets is something like storing thousands of euros at home in an envelope, anywhere. If you wash your pants with money in it, you lose it. If your house burns down, you lose it. If you throw away the envelope in which they are stored … They are very safe because they do not require being connected but it is important that you bear in mind that it can be lost, it is not perfect or infallible. You should also bear in mind that it is a paper so it is advisable to bet on taking care of it since the paper deteriorates, as you will have seen in many purchase tickets. And do not print it, of course, on a public printer or in a printing center or your office that others have access to. Do it from a dedicated printer, at home, safely.
You should also bear in mind that these paper wallets can be created and you send funds to them but when you have to use the funds you have no choice but to import the private key to another type of wallet or software so it is useful as a regular storage but if you are going to use it you require transfer. It works well and is recommended if you are looking for a long-term wallet.
Hardware wallets
Similar to a pendrive, the physical hardware wallets also work without an Internet connection and allow us to have the private keys saved without taking too many risks. Like paper ones, they are considered cold because they are not continuously connected to the Internet. In appearance, as we say, it is something similar to a pendrive or a small device and it may be the best option to store the keys. More comfortable than a paper, more secure than a web or a desktop program. It stores in cold but we can use it whenever we want (unlike the previous ones) because most of them work via USB that we can connect to our computer in case we want to use it.
One of the small drawbacks that we find is that they imply an extra cost because you have to pay the money that the device is worth, which can be around 50, 100 or 200 euros depending on the model you choose. But it will depend on whether it is worth it or not depending on the amount of cryptocurrencies you are handling. Generally, these devices are designed to store a large amount of cryptocurrencies in the long or medium term. They protect us from threats from websites or exchanges and we can connect it to the computer when we need it through a specific app.
The keys are generated by the hardware itself and never leave it: they do not go out to the computer at any time and we can generally add more layers of security. In addition, another interesting feature is that they have a seed that would allow us to restore the keys and recover the funds that we have.
Hot wallets or hot purses
Hot wallets or hot purses are considered as such because they are always connected to the Internet, to the blockchain. This has advantages and disadventages. The main advantage is that we are likely to use them frequently without having to resort to the long process involved in using a paper wallet, for example. But the drawback, of course, is that it is easier for you to suffer a computer attack of any kind or that you have a greater risk of theft of your cryptocurrencies. Another advantage over hardware wallets is that they are free and we do not have to pay anything to use them, in most cases.
There are generally three types of these hot wallets: desktop, which are installed on your computer and manage cryptocurrencies from it, from a web page that you access online or from your smartphone with specific applications. Although they are all hot wallets, there are clear differences between all of them: on a computer you have more security if your wallet is downloaded and you use it on your own computer than if you have it on a website. But it is not infallible either because you can always have your computer full of viruses, breaking, etc.
Desktop wallets or PC programs
As its name suggests, it is software that you download to your computer and that allows you to manage cryptocurrencies. It is usually one of the most frequent options for being in an intermediate step of security and comfort between a hardware and a web page and some of the best known are Electrum or Exodus, for example. As we say, it is specific software downloaded and installed on your computer (it is usually compatible with various operating systems) and allows us to store or manage cryptocurrencies. They are safe because you are not on a website that can close at any time but they are susceptible to being lost if your computer is hacked, so it is recommended that you have good control of malware.
Mobile wallets and apps
Mobile wallets are the same as desktop wallets but for another platform. Instead of being used on the computer, you have them on the mobile phone in the form of an application. This can have advantages (you take them everywhere) but also disadvantages because the space they have is less and the risks you run on a phone are generally greater (not only can they infect you with malware but they can steal or lose your phone, something little often if you use a PC)
They have the advantage of an ease of use that allows us to use it anywhere and send and receive payments wherever you are and they are usually free for anyone who downloads them. In addition, many businesses allow payment with cryptocurrencies so it will serve as a “currency” in your daily life.
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Edge – Bitcoin, Ethereum, Monero, Ripple Wallet
Developer: Edge (formerly Airbitz)
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BLW: Bitcoin and Lightning Wallet
Developer: anton kumaigorodski
Some of the mobile wallets and applications for cryptocurrencies are the same as desktop with programs that are multiplatform such as those mentioned in the previous section, Electrum or Exodus, but there are many more apps that we can download and they have millions of users on Android and iOS.
Online or web wallets
The third of the hot wallets or hot purses are online wallets. As their name indicates, they are web pages that you do not have to download anything , that are free and whose access consists of accessing a web just like you access the bank’s through the browser. It is comfortable to carry out any operation from anywhere without carrying your “money” on you but it has risks because you are causing third parties to be involved in the management of cryptocurrencies, that you have the private keys. The web can go bankrupt, be hacked. It may be the most comfortable option for many, but it is also one of the least secure.
Which to choose? Conclution
They all have advantages and disadvantages, as we have seen in the different paragraphs. If you are concerned about security, it is recommended that you bet on physical wallets that allow us to store those cryptocurrencies at less risk (although there are always risks). Physical wallets are the ones that provide greater security and within them, the hardware ones are more comfortable than those of paper. If security does not concern you, online wallets or web wallets are convenient because you can access from anywhere but you run the risk of depending on a company server for possible hacks, website closures …
Do you need to use your cryptocurrencies away from home? Mobile wallets are the best option in this case, although they may not be the safest but you can always have them on hand to use as your credit card and there are many establishments that allow it. If you want a balance between utility and accessibility, desktop wallets are highly recommended and frequent.
Whether you choose one or the other will depend on many factors: do you want to use it frequently or do you want to save? Are you going to carry your mobile with your purse everywhere or is it a secondary phone? How many cryptocurrencies do you have? Are you worried about security? All these questions will make you choose one or the other.
