If you recently read my last few articles “An Introduction to Bitcoin, what is it, why it exists and where to buy it“ and “An Introduction to Ethereum”, you might now be an owner of cryptocurrency. If that’s the case, you’re required to use a cryptocurrency wallet which holds your private key that unlocks the stored tokens on the blockchain.
Oftentimes, the exchanges or apps that you purchase cryptocurrency on like Coinbase or the Square Cash app, for example, offer their own version of cryptocurrency wallets. Other digital wallets exist but they are each crypto specific. For example, MyEtherWallet is used for Ether and ERC20 tokens, Bitcoin wallet for bitcoin, and Stellar wallet for XLM (lumens).
With a cryptocurrency wallet, you’ll have access to your private key, and then your public key. This is an important distinction since your public key is used when someone sends you cryptocurrency or if you need to request payment in cryptocurrency. Your private key should never be shared and should be kept offline.
If you keep your cryptocurrency on an exchange, you don’t own your private key and you can only retrieve your cryptocurrency when you submit a sell request.
Why should you buy a hardware wallet?
If you are an investor who owns multiple cryptocurrencies, it’s difficult to keep track of all the currencies in multiple wallets and places online which is why purchasing a hardware wallet is important. Moving your cryptocurrency into a hardware wallet is one of the forms of “cold storage” which essentially just means that your cryptocurrency is not left online on either an exchange or a wallet. In other words, cold storage means that it remains offline entirely.
Further, it’s important for investors to maintain control over their cryptocurrency and not be forced to hold tokens just because their digital wallet or exchange has a bug or the site is down. With access to your cryptocurrency on a hardware wallet, you can sell on virtually any other global exchange without worrying about any site or app related issues or lock-ups.
Further, as we’re well aware after Mt.Gox, exchanges can and have been hacked. And while many exchanges claim to move their crypto offline into cold storage and offer 2FA (2 Factor Authentication) there is still a risk in keeping your cryptocurrency online as a number of wallets have been hacked and your security is dependent on the security of the exchange.
A major value proposition for owning cryptocurrency is reducing the dependency on a middle-man or 3rd party. Why would you want an exchange to become the middle-man between you and your cryptocurrency when you have an alternative route? This was a major reason for creating a distributed, decentralized blockchain to begin with.
Managing your cryptocurrency without using a middle-man is the opportunity for individuals to take ownership of their own assets and become the managers of their own personal banks.
Which hardware wallets you can purchase
The most popular hardware wallets to date are Ledger and Trezor. These are physical USB drives that must be plugged into your computer with a pin code that you create to access your cryptocurrency. In short, it’s the safest way to store your cryptocurrency today.
The Ledger team sits in France, and their most popular device is the Ledger Nano which allows you to store Bitcoin, Bitcoin Cash, Ethereum, Ripple and many more cryptocurrencies.
Trezor is another hardware wallet which works similarly to Ledger except it holds much less cryptocurrency than Ledger. You can check their respective sites for the full list. (Note: Do NOT buy these off anywhere except for the actual sites as there have been a number of scam incidencies on Amazon.)
Hardware wallets are really secure because they have pins and a physical hardware device which makes it difficult if not impossible for hackers to access your cryptocurrency. However, if you do purchase one, you have to take responsibility and ownership and ensure that your recovery password is stored in a safe place.
While we still have a very long way to go before purchasing and storing cryptocurrency becomes accessible for the mainstream and non-technical audiences, my hope is that in the interim, you’re equipped with knowledge of the various options available and can make a decision that suits your individual need and risk appetite.
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