Wallets: Storing Digital Currency Means Balancing Convenience and Security
With the growth of the blockchain and digital currency ecosystem, there are almost more ways to store your digital currencies than there are digital currencies.
Digital currencies like Bitcoin are stored in wallets, which are a place where your private keys, the actual storage location of digital currency, are kept safe.
Wallet choices vary and each has it’s own benefits and downsides.
In the early days of digital currency, ‘full wallets’ like Bitcoin Core were the only wallets available, but they required you to download the entire blockchain in order to function properly.
The Bitcoin blockchain is currently 140GB and growing daily, that means you have to download 140GB of data to your computer, which can be costly when you factor in the price of both data and storage.
Today, many digital currencies offer what is called a Lite Client, which means it is a wallet with all the functionality of a full wallet without the burden of downloading the entire blockchain.
There is also a new breed of wallet that allows you to store multiple-currencies in one wallet, such as Jaxx, designed by Canadian start-up Decentral.
Multi-currency wallets are a good choice for investors who have decided to buy a few different coins. The downside is the developers decide which coins they will support in their wallet, so if you have a diverse portfolio of coins it may be difficult to find one wallet that supports them all.
If you choose to store digital currency in a desktop wallet, it’s important to remember that any computer with internet access is not a 100% safe environment. Computers can become infected with malware that transmits your passwords to hackers, so it’s important to minimize the risks by running frequent antivirus scans and limiting the types of computer use that may increase your exposure to malware.
As we approach an age when more merchants accept digital currency, mobile wallets have become an increasingly popular storage choice.
A mobile wallet stores your private keys inside an app on your phone, allowing you to quickly access your funds. They also have a lot of the same functionality you would find on your desktop wallet.
This mobility comes with its own security risks, however. Mobile phones, for instance, are not a safe environment and are more prone to attacks from hackers than a desktop might be.
By only storing a small portion of your funds in a mobile wallet you can mitigate this risk. It helps to think of a mobile wallet like a real wallet for cash, in the sense that you would never store your entire life savings in a wallet that’s in your back pocket.
Online wallets allow you to control your funds through your browser. This is a very simple way to control your funds and gives you the benefit of being able to access your funds from any web-enabled computer.
Many online wallets allow you to store your private keys on your computer which gives you a better level of security.
Some store your private keys for you. Exchanges are an example of a place where your private keys are controlled by the exchange and stored on their server.
Similar to a mobile wallet, though, they can be less secure and it’s best to use these in conjunction with a more secure wallet where you store the majority of your funds.
A growing number of manufacturers are offering hardware wallets as a means of storage. A hardware wallet is a device which stores your private keys inside it, that can be removed from your computer and stored remotely. They look and function similar to a portable USB key.
Storing your private keys offline in a hardware wallet allows for a much higher level of protection because it eliminates the vulnerability found when storing them on a desktop environment.
This added security comes at a cost, as hardware wallets are one of the most expensive digital currency storage options available. They are good, though, for those who have a high enough value of funds to justify paying for the hardware wallet.
Last but not least is the paper wallet. There are several sites and programs that allow you to generate a new private and public address for your funds, as well as corresponding QR codes, which you can then print onto paper and store somewhere safe.
The benefit of a paper wallet is that your funds and private keys are not stored anywhere digitally, which means they are safe from hackers.
Paper wallets are often a good choice for people who want total control over their funds because they are stored completely out of the prying eyes of any hacker, but can be a risk if the piece of paper is lost or damaged.
The wallet that’s best for you
There is a vast range of wallet manufacturers for each wallet type and each individual may prefer one type over the other.
Often the choice comes down to convenience versus security, since no developer has come up with a wallet solution that is both convenient and has the highest level of security.
Digital currency is an ever expanding field with new technology being developed at a high rate so it’s not in the realm of impossibility that one day there will be a wallet that can offer both.
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