BLOCKCHAIN ABC "Cryptocurrency storage"
Similar to paper money, cryptocurrencies should be stored somewhere. Thus, there are electronic wallets, crypto word’s equivalents to conventional wallets.
Let’s explore why some e-wallets are hot, and others are cold, as well as how to store currency on paper and for whom cryptocurrency exchanges will be appropriate.
A cold wallet is a physical device that does not require the Internet connection. To store currencies in this way is not quite convenient, as you will have to tinker long with the device to conduct transactions.
At the same time, cold wallets are considered to be the safest because hackers do not have a direct access to users’ assets.
The best example of the cold wallet is a hardware one. This device looks like a common USB drive, but it stores electronic currency instead of family photos and text files.
If an owner loses or damages the e-wallet, there is a special code for its recovery. It functions just as a memorable word to recover the email password.
One of the most popular manufacturers of such devices is Trezor. Despite the small size, it features a user-friendly interface and high level of security. It supports Bitcoin, Litecoin, DASH, Zcash, Bitcoin Cash, Ethereum, Ethereum Classic, and ERC20 tokens.
Paper wallets are quite an interesting way of cryptocurrency storage, belonging to cold e-wallets as well. It is literally a piece of paper containing private and public keys as QR codes.
You should be especially careful with paper wallets: it is impossible to restore data in case of losing or damaging.
Unlike cold ones, the hot e-wallet is connected to the Internet. It provides a fast access to cryptocurrencies in the online mode. They are quicker and easier: online services frequently have user-friendly interfaces, while cryptocurrency operations are conducted in real-time mode.
On the other hand, hot wallets are not that safe. Hot wallet services have an access to custom keys. If swindlers manage to hack them, they will likely get to user accounts.
Some of the hot e-wallets are available only on the desktop; others have mobile versions.
For instance, Blockchain.info is one of the best-known time-proven online services. It features a user-friendly interface and software supported by the majority of platforms. Blockchain.info offers only Bitcoin and Ethereum cryptocurrencies. The service is available on the desktop as well as on iOS and Android.
One more example of the hot wallet is Exodus. It is a simple multi-currency wallet with a convenient interface for those preferring to store currencies on their PCs. Besides, the integration with the ShapeShift service allows to exchange cryptocurrencies right on the app.
Exodus can store the following cryptocurrencies: Bitcoin, Bitcoin Cash, Litecoin, Ethereum, Ethereum Classic, Dash, Golem, Augur, Decred, EOS, Aragon, Gnosis, OmiseGo, and Civic.
It is available on Windows, MacOS, and Linux; a mobile version is absent.
To store cryptocurrencies in a safe way, e-wallets are encrypted using keys. They can be private and public.
A private key is a 256-bit line similar to the set of random figures and letters. It can be coded in various formats. Therefore, admittedly the same keys can function differently.
It is impossible to enter the wallet, check the account, or transfer funds to other users without the private key. A public key is based on the private key.
The public key is a unique individual user address consisting of letters and figures generated out of the private key. The public key is available to all network participants.
In the cryptocurrency world, it is a kind of user nickname, as neither names nor last names are mentioned.
Brain Wallet is a type of wallets, which keys are stored in the most reliable place – the user’s head. The Brain Wallet private key is a random set of 4, 6, 8, 12, or even 14 letters and figures (paraphrases) created by the user. It is recorded nowhere.
Most frequently, hackers use the dictionary attack. Thus, the bigger and more incoherent paraphrase is, the harder it will be to decode the electronic wallet.
Besides, some users add a salt modifier (a data line transferred to the hash function along with the password) in the paraphrase. If it is difficult for users to remember various passwords and they use the same one for all wallets, the salt will reduce hacking risks.
A cryptocurrency exchange is an online service allowing to sell and buy electronic currencies. Exchanges are convenient because of supporting the operation of hundreds of cryptocurrencies simultaneously.
For instance, Binance is the best cryptocurrency exchange according to the Prostocoin ranking. It is based on the multi-level and multi-cluster system architecture. The exchange can process up to 1 400 000 orders per second and operate on Web, Android, iOS, Mobile Web, Windows, and macOS devices.
Cryptocurrency exchanges are a perfect choice for people holding a huge volume of cryptocurrencies and regularly conducting transactions. However, they are the least secure because all the users’ assets are in the hands of the third party.
There are known cases of cryptocurrency exchange hacking: e.g. NiceHash that has lost about $70 million as a result of the attack. Investors should be very attentive, withdraw currency on their personal wallets more often, and check the history of the exchange they are going to use.