Wallets: What to Look for in a Cryptocurrency Wallet
Today’s digital currency investors face far fewer barriers for entry than those that attempted to get involved with the digital currency industry during its earliest days. At that time, limited options for digital currency wallets and the lack of software and information catering to the general public made the investment process needlessly difficult.
Users were often left compromising on either security or accessibility. Now, the industry continues to evolve in order to bring more of the public into the fold, with projects creating easier ways for users to store their funds securely.
However, accurately navigating the abundance of options for keeping virtual funds secure is reliant on investors sharpening their research tools, and knowing what to look out for in the emerging space.
Cryptocurrency wallets: understand what you’re researching
At a basic level, a digital currency wallet is comparable to how cash is stored in the real world. Instead of having a physical wallet in which funds are secured, users have a virtual application or piece of hardware that retains important information about their digital currency holdings.
Having a general idea of the nature of virtual currencies greatly helps investors when it comes time to choose their digital currency wallet.
The modern digital currency investor does not have to be a technological wizard to understand the industry. With guides online dedicated to educating current and potential cryptocurrency investors, as well as projects increasingly catering their services for the end-user, it is easier than ever to build an understanding of the industry.
Hot or cold?
Coinsquare News previously wrote about the different types of digital currency wallets. These wallets can take many different forms, and not all are considered equal.
There are generally two main categories of digital currency wallets that investors should concern themselves with when choosing how to store their funds. Both have their own pros and cons, and the choice ultimately depend on user preference.
The term ‘hot wallet’ refers to digital currency wallets that require a connection to the internet in order to operate. Essentially, these wallets cooperate with a server in order to grant users access to their funds.
These wallets are built with many features that prevent abuse and are often easier to use than the alternative, a “cold” wallet. The majority of digital currency exchanges will automatically provide you a “hot” wallet as part of your account so that you can easily buy, sell, and trade on the platform.
Cold storage wallets, on the other hand, operate offline. They are often stored on external devices such as a USB drive, and do not connect to the internet.
The idea is that cold storage wallets prevent theft. Since they are not connected to the internet, they theoretically cannot be hacked. However, cold storage wallets are traditionally much less user-friendly. In addition, if a device is lost or damaged, the wallet holder will not be able to retrieve their funds unless they have a backup of their data.
Opt for transparency
One of the most praised facets of the decentralization movement is the push for increased transparency. Digital currencies like Bitcoin allow the public to view all of the network’s past and present transactions, as they are stored on a public ledger through blockchain technology.
Luckily for investors, the need for transparency is often echoed by the developers of digital currency wallets. Many of the cryptocurrency wallets on the market today are designed to allow users to know exactly what is going on with their funds.
One form of transparency employed in this area is through releasing software that is open source. By its nature, open-source software allows the public to view and scrutinize the processes of an application, ensuring that there is nothing nefarious happening behind the scenes on the part of the developers.
This can be especially important in many cases, as whoever controls information stored in a digital currency wallet essentially controls the funds. As a result, many users opt to use wallets that do not retain their information.
Pay attention to reputation, but be skeptical
The digital currency industry is unfortunately no stranger to fraudulent actors. As a social movement, however, users are granted a lot of insight when it comes to differentiating between safe software and flawed projects.
While users should always exercise their own discretion when listening to others online, and should steer clear of information that comes from a single source, projects sometimes have their reputations for a reason.
This is one area where transparency is an especially useful tool for the public at large, as it can reduce the need to place faith in developers. Otherwise, investors should use their best judgement, alongside information from others, to inform which digital currency wallet they choose to use.
Consider your specific needs
Digital currency wallets are continuously released, adding to the already abundant number of options available to users. Without knowing what they are looking for, sifting through the available options can be a daunting task for industry newcomers.
Alongside picking the type of digital currency wallet, investors should keep in mind which digital currency they are hoping to store. Increasingly, many wallets support multiple currencies, however, users should still ensure that the projects they are researching are compatible with the currency they are looking to buy.
Further, the ‘wildcard’ in the digital currency equation is the user. There is no correct answer for which wallet works best, as it is a subjective decision for the investor to make.
While many of the popular digital currency wallets have their own supporters rallying behind them, users may opt to choose other wallets in favour of different features, added security, ease-of-use, or a plethora of other factors. This is one of the perks of the decentralization movement; the choice is granted directly to the user.
Ultimately, choosing a digital currency wallet can seem daunting. It is important to remember, however, that users are not locked in to their choices. As long as the wallet chosen is secure, there is little stopping investors from transferring their funds to a different wallet at a later date.
Still, while making their decision, it is important for investors to conduct the appropriate research to determine which wallets are safe, and seek out wallets that suit their individual needs.
Image Credit: Flickr
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