By Josiah Wilmoth
After obtaining cryptocurrencies or tokens, you must store them in a digital wallet. Unfortunately, even the most sophisticated investors often struggle to understand the best way to secure their cryptocurrency and token investments, which is why Strategic Coin has set out to provide investors with the educational materials they need to navigate the crypto finance ecosystem. Below, this article explains the different types of Ethereum wallets, along with their benefits and risks:
Whether you plan to store your tokens long-term or you want them readily available, hardware wallets keep your investments secure against cyber attacks. Since coins and tokens do not exist in physical form, the wallets instead hold the private keys to the addresses owned by the user.
A private key is a piece of code that unlocks the cryptographically-secured address and proves to the network that a user owns the corresponding balance. Whoever has access to an address’ private key controls the coins or tokens inside it, so it is extremely important to store private keys in a secure wallet.
Hardware wallets store your private key on a small physical device that can be connected to a computer USB port when you are ready to make a transaction. Private keys are generated on and never leave the physical device, preventing them from being compromised by cyber attacks, even if you make a transaction on a computer infected with malware.
As an added benefit, hardware wallets often support several cryptocurrencies in addition to Ethereum. Commonly-supported coins include Bitcoin, Litecoin, Ethereum Classic, and Dash.
The only downside to hardware wallets is that, unlike other options, you must purchase them. Two of the most prominent hardware wallet manufacturers are Trezor and Ledger, and their devices retail for $50-$100.
Desktop & Mobile
Like hardware wallets, desktop and mobile clients often include support for multiple cryptocurrencies. They may also include additional features, such as an integrated currency and token exchange. These wallets create and store your private keys on your computer or smartphone, so they are more secure than holding your coins on a centralized exchange.
However, since you most likely use these devices to access the Internet, your wallet may be at risk if your computer or smartphone becomes infected with malware or spyware. Additionally, some desktop clients download a full copy of the blockchain, which can often take up a significant amount of hard drive space.
Web Interface & Browser Plugin
The most convenient wallets–though not necessarily the most secure–are web-based wallets. Some early web-based cryptocurrency wallets stored private keys on a server, leaving them vulnerable to cyber attacks.
Today’s wallet services, such as the one offered by MyEtherWallet, store your private key in an encrypted file on your local device or USB drive. When you want to make a transaction, you go to the MyEtherWallet website, select the keystore file, and then decrypt it with your password.
MetaMask and Jaxx also offer browser-based wallets. Though only available on Google Chrome, these easy-to-use wallets create and store your private keys on your computer and are always readily available.
As with desktop clients, a web-based wallet is only as secure as the device on which your private key is stored. If the device becomes infected with malware, your key could be compromised.
Regardless of which wallet you use, it is vital to backup your wallet in multiple locations to ensure you can regain access to your funds if your device is stolen or destroyed.
Strategic Coin is your go-to source for cryptocurrency investment research and education. Whether you need help understanding the basics of blockchain technology or desire to read an in-depth analysis of the latest initial coin offering, Strategic Coin will provide you with the information you need to understand the crypto finance industry.