Ready to burst out onto the cryptocurrency ICO scene and snap up the next big thing? Good for you. While you’re planning the biggest investment adventure of your life, a group of hackers is lurking in a dark corner of the internet, waiting for you to make your first mistake. What’s that? It usually has something to do with storing your coins in a wrong place and in a wrong way.
Don’t expose your crypto assets to unnecessary risks. Before you participate in any ICO, ensure you know where and why you’ll store your tokens and crypto coins. An alternative to that is watching your funds being drained from your poorly secured digital wallet.
Let’s explore this in more detail.
What is a crypto wallet?
A simple answer is that a crypto wallet is a piece of software that stores your crypto coins. A more technical answer is that it is a software programme that stores public and private keys, which come in pairs, enabling the owner to send and receive cryptocurrencies through the blockchain and monitor their balance. If you want to send, receive or store coins, you will need a crypto wallet.
How does a crypto wallet work?
Unlike a normal, “pocket” wallet, the crypto wallet doesn’t actually store your coins. In fact, the coins are not stored anywhere. The only thing that exists is the transaction records on the blockchain. The purpose of a crypto wallet is to store your private key — a code that is only known to you and your wallet — which proves ownership of a public key — a code tied to a certain amount of coins. Think about the private key as the PIN code to access your bank account and the public key as your bank account number.
So what actually happens when you send cryptocurrency? You’re sending value in the form of a transaction, as opposed to a number of coins, and transfer the ownership of your coins to the recipient. For the recipient to receive and spend the coins you’ve sent, their private key must match the public address that you sent the crypto coins to. There is no actual exchange of coins, just a record on the blockchain.
It’s imperative to ensure you keep your private keys securely hidden so that only you know where they are. Ownership of the private keys gives you the total and complete control over the funds associated with your corresponding public keys. If someone else gets their hands on your private keys, they can move your coins however and whenever they like. If that happens, all transactions are irreversible, and you lose all your coins. To be on the safe side, it is also recommended to have a backup of your private keys, to protect yourself from accidental loss. Being unable to recover your lost private keys will lead to losing all funds associated with them (which would be a total disaster).
Why is it a bad idea to use exchange wallets to participate in a cryptocurrency ICO?
You don’t control an exchange wallet. It may be confusing for a crypto novice to comprehend the fact that exchange wallets are not the same as bank accounts. While they do keep the funds for you as traditional banks do, you can’t move your coins as and when you like it. To do that, you need to get the exchange wallet’s “permission”, which is risky and annoying.
With a private wallet, you are the sole owner of the funds stored inside it, as you are the only one who has the private key. Whereas the exchange wallet doesn’t really belong to you, it is only generated on your behalf. It means you don’t own its private key and therefore nothing that’s stored inside it. If you’re planning to participate in an ICO, you should certainly get yourself a private crypto wallet.
If you use an exchange wallet to participate in an ICO, you won’t get the tokens. Yes, that’s right! A cryptocurrency ICO smart contract typically sends tokens back to the address that the investment came from almost immediately. If you send coins from an exchange wallet, the tokens that are sent back won’t actually belong to you. As the owner of the wallet, the exchange will also have full control of the tokens. While, in some cases, exchanges eventually return the tokens to the customer, they are not legally obliged to do so. It’s a huge risk to take for a savvy investor!
What to look out for in a crypto wallet?
Although bitcoin is the most popular currency out there, it’s quite likely you will purchase other crypto coins as well. In this case, it’s best to set up a multi-currency digital wallet to be able to use several currencies from the same wallet and enjoy a more convenient experience. Checking what currencies a wallet supports before making up your mind is vital to ensure you don’t need to set up a new wallet every time you trade new coins.
You can only choose the right wallet if you know how you’re going to use it. Consider the following questions:
- Will you use the wallet to make everyday purchases or to buy and hold digital currency for an investment?
- Will you need to access your digital wallet on the go, from anywhere or only from the comfort of your home?
- Are there any specific features you’re looking for in a wallet (privacy, cold storage, etc.)?
- Again, do you plan to use a single currency or several different currencies?
Exploring these questions will help you narrow down your options and choose the wallet that will meet all your expectations.
What types of cryptocurrency wallets are out there?
Not all cryptocurrency wallets are created to serve the same purpose (that’s why we have written an entire guide to cryptocurrency wallets). In fact, there are five different types to choose from: online, mobile, desktop, hardware, and paper.
Online wallet. These wallets are convenient for people who need to access their coins on the go. Since they run on the cloud, online wallets are accessible from anywhere. However, this makes them more susceptible to theft and often requires extra layers of security.
Mobile wallet. Using a mobile wallet, which is simply an app you download onto your phone, comes handy if you want to pay in physical stores. Mobile wallets are considered to be safer than online wallets.
Desktop wallet. Desktop wallet is something you download and install on your computer, and it can be accessed only from that one device. It is also safer than the online wallet, but if your computer is infected by malware, you may lose your funds.
Hardware wallet. It is one of the safest options because it is kept offline most of the time. Hardware wallets are special because they store user’s private keys on a device, typically a USB drive. You can plug it into an internet-enabled device, authorise it yourself and send or receive coins immediately.
Paper wallet. By far the safest option, paper wallets is a physical copy of your generated public and private keys and can even refer to a printed sheet of paper.
Top 8 crypto wallets for keeping your ICO tokens
In no particular order, here are the leading crypto wallets for keeping your ICO tokens.
Trezor is a hardware wallet that offers a secure way to keep your coins safe from hackers and malware. The most prominent features include OLED display and cross-platform support. It supports a wide range of currencies, including BTC, DASH, LTC, and other.
Ledger Nano S is a hardware wallet built to store leading cryptocurrencies, including BTC, ETH, LTC, and other. Some of the most notable security features include backups and advanced passphrase.
KeepKey is also a hardware wallet that secures bitcoin, ethereum, litecoin, dogecoin, dash, and namecoin. It offers a USB connection as part of its features.
Exodus is a multi-asset wallet and the first desktop software wallet to have ShapeShift built into the interface in order to allow for rapid conversion between various altcoins and cryptocurrencies. It lets you store your private keys in one application with a customizable user interface.
Mycelium is an Android-based multi-asset cryptocurrency wallet that has been tested by hundreds of thousands of users. Mycelium also offers hardware wallets and integrate with various third-party service providers.
Jaxx is a digital asset wallet that can be used to hold, control, and trade your Bitcoin, Ethereum, Litecoin, Dash, Zcash, Augur, Salt, Civic, Qtum, Blockchain Capital, Bancor, and dozens of other blockchain-based assets. It offers a simple yet powerful set of features and gives you complete control of your private keys.
MyEtherWallet is a popular choice among cryptocurrency ICO investors as it can be used to sell, buy, and store ERC20 tokens obtained from token sales. It is an attractive option because it is an online wallet, which provides offline hardware wallet support at the same time.