LEARN: CRYPTOCURRENCY WALLETS

The security of assets in a wallet is inextricably linked to the existence of a public and private key. These keys allow you to create important elements of the wallet: the address and digital signature that allow you to complete transactions.

During wallet registration, a private key is first generated. A public key is generated based on the private key.

The public key allows you to create an address – an identifier that is somewhat similar to a bank account number. By giving his address, the user allows another person to uniquely identify this address and send cryptocurrency to it. The public key can be transferred to third parties; this is the payment details for which the target recipient will receive funds to his wallet.

Knowing the private key, you can easily determine the public one. It will not be possible to find a private key if you know the public key. The private key is the key that gives access to the assets in the wallet. Therefore, it is worth emphasizing that the private key can never be transferred to anyone. This is tantamount to losing your funds.

Example public key : 1dt6jJdB2AnWaFNgSbv4MZC2m7115k9pa.

The private key forms a digital signature, which is proof that the wallet owner has confirmed the transaction. There are different formats for creating a private key.

An example of a private key in one of them : Ks43hJNhjpUTd25MArh8UdfuTXEVx7J7Faui3cUXCPpyQMH2sk7.

Instead of using a private key as a wallet security tool, another method has been developed. It is based on the use of words instead of a complex combination of numbers and letters. This combination is called the seed phrase. You can also find names: mnemonic phrase, recovery phrase or simply seed.

Currently, users rarely have access to private keys. Most cryptocurrency wallets today support seed phrases. A seed phrase is a sequence of 12, 18 or 24 words. Example of a seed phrase: alpha afford bundle fit fatigue vast upper youth wood vacuum toddler skirt.

The phrase is generated at the time the wallet is created and remains unchanged for the entire duration of its existence. The seed phrase is available only to the owner of the wallet; the application developer or any other services do not have access to it. It’s worth mentioning that the seed phrase cannot be disclosed to anyone under any circumstances. When creating a wallet, you need to secure it in a safe place. The media on which the copy of the seed phrase is recorded must not be connected to the Internet. A flash drive, a piece of paper, or engraving on metal are some common ways to store a seed phrase. If a phrase is lost, it cannot be restored. The question may arise: is it possible to select a seed phrase, for example, using special software? In short, no. Experts say that with modern technical capabilities, selecting a seed phrase of twelve words requires time commensurate with infinity .

What does the presence of this phrase give? One of the scenarios is that a phone with an installed wallet application containing assets was lost. When installing the application on a new phone, just enter your seed phrase and all assets will be transferred to the wallet on the new device.

Wallets for storing cryptocurrencies can be classified in several ways. The method will depend on the characteristics by which the classification occurs. These are custodial and non-custodial , hot and cold , heavy and light wallets .

• Staking and mining available.

• The place where the private key is stored is the user’s device.

• Using a wallet requires a huge amount of hard drive memory. The Bitcoin Core wallet takes up about 400 GB. The volume of data is constantly growing.

MINUSES

• Mono-currency – one wallet is used to store one asset.

• Almost complete confidentiality.

PROS

• Reliability provided by open source code. Additionally, such wallets are continuously tested to find vulnerabilities, which makes it possible to anticipate and promptly eliminate security gaps.

2. ETHEREUM MIST

1. BITCOIN CORE

Examples of such a program:

A heavy wallet is the official wallet program of a specific network. Bitcoin, Dogecoin, etc. have heavy wallets. When installed on a computer, the entire blockchain is downloaded along with the program itself. In the future, the program updates the data when connected to the network. Private keys are stored on the user’s device.

2. ARMORY

1. EXODUS

Examples of light wallets:

These are the same as heavy wallets, but without downloading the entire blockchain. They need to regularly connect to the network to update and upload their data.

• There may be problems with the hardware wallet software.

MINUSES

• The estimated cost of a hardware wallet is $40-200.

• Ability to recover lost wallet data.

PROS

• High level of protection.

4. COOLWALLET

3. SAFEPAL

2. TREZOR

1.LEDGER

The most famous brands of cold wallets are:

Cold wallets include paper wallets. This is a piece of paper on which is printed, or better yet handwritten, a private key or seed phrase. Such a sheet cannot be photographed or stored as a digital copy on a computer or cloud storage. It is advisable to write down the information by hand rather than print it out. An experienced hacker can intercept digital information from any network, thereby defeating the attempt of the owner of crypto assets to protect them. Due to its physical properties, paper is vulnerable in terms of storage. Therefore, the sheet can be laminated. Instead of a paper sheet, a metal plate with typesetting or engraving is sometimes used.

A hardware wallet is a physical device with its own software that is capable of generating public and private keys.

The most common type of cold wallet, a hardware wallet, is a physical device, often, but not necessarily, in the format of a USB drive.

They are considered the most secure due to the fact that they are not constantly connected to the Internet. They connect to the network only to make transactions. A cold wallet is inconvenient for frequent transactions, but as a device for long-term storage of crypto assets, it is the best option.

3.MYETHERWALLET

2.TRUST WALLET

1. METAMASK

The most popular hot wallets:

• Multicurrency. Most often, hot wallets have a much larger list of supported assets than cold wallets.

• The custodial hot wallet may be blocked by the provider.

• Speed ​​- to make a transaction you just need to connect to the Internet.

MINUSES

• Easy integration with cryptocurrency exchanges.

• Vulnerability to cyber attacks.

• Free.

PROS

• Easy to set up and use.

A hot wallet is always connected to the network. A hot wallet is any wallet that is installed on a device in the form of a computer program, browser extension, phone application, or telegram bot. Since they are always connected to the Internet, these wallets have the advantage of speed of use without the need to connect or configure anything. However, this is their weakness: they are constantly online, which means they can be hacked.

6. COINPAYMENTS.NET

5. HOLY TRANSACTION

4. CRYPTO.COM

3. BITGO

2. XAPO

1.FREEWALLET

Examples of custodial wallets:

Multisignature is one of the effective ways to protect your wallet. A simple example of the principle of operation of this technology is that a safe is locked with two locks; to open it, you need two keys. If different people have the keys, then none of them will be able to open the safe without a second key. This feature is useful for account management, for example, in a financial institution. One of the varieties of multisig is two-factor authentication. The action (login to the wallet, confirmation of the transaction) will only be approved if confirmed on different devices.

• Set up multisignature (multisig). Introduce two-factor authentication.

• Store in custodial wallets only those funds that actively participate in transactions.

• Set daily withdrawal limits – this will help save some of the funds if you return control of your wallet in time.

HOW TO PROTECT YOUR CUSTODIAL WALLET?

• Set a PIN code.

• Inability to access funds during technical work.

• Slow withdrawals, may require manual approval or other interventions.

• Loss of the platform on which funds are stored, for example due to hacking, can directly affect users.

• It is not possible to use a private key to access your funds from other wallets.

• Authorities may restrict the activities of the custodian, servers may be seized. The custodian is often centralized and subject to government regulation.

• If the wallet provider goes down, access to funds will be lost.

DISADVANTAGES OF CUSTODIAL STORAGE

• The custodian controls the funds when using managed wallets.

• Low commission and high transaction speed.

• Some transactions may be canceled and refunded. Despite the fact that all transactions within the blockchain are irreversible, there are some mechanisms that allow you to return funds. Without the help of an intermediary, however, there is little hope for this, but some services provide their users with some compensation if they make a mistake.

• A forgotten private key or mnemonic phrase is not a loss of funds. You can start the access restoration procedure at any time. This will take some time, plus this is a slight departure from classical anonymity, but it’s better than losing everything completely.

BENEFITS OF STORING IN A CUSTODIAL WALLET

• Easy access. By pressing a few buttons on the right and secure device, you can manage your cryptocurrency assets.

The private key is stored on the side of the service that provides the wallet, that is, with the custodian (custodian). The simplest example of a custodial wallet is storing funds on an exchange.

The main advantage of a non-custodial wallet is complete control of assets by the owner. There are also disadvantages. If you lose your private key or seed phrase, this will result in the loss of funds. A non-custodial wallet can also be hacked by hackers.

The private key is stored by the owner of the wallet. That is, the service that provided the non-custodial wallet does not have access to the private key.

There is no clear answer; it all depends on the needs of the user, the approach to risk management, and the method of using cryptocurrency. A holder and an active trader have different requirements. If the wallet is managed by an organization in which the transfer must be confirmed by several persons, then a multi-signature function is required.

CONVENIENCE

Ease of use: how easy it is to install the wallet, how many coins it supports, how convenient it is to buy cryptocurrency from the application, the availability and efficiency of technical support from the service, whether the wallet satisfies the maximum needs of the user.

Using a hardware wallet is a reliable way, but first it would be wise to test it with a small amount to learn the features of the wallet. A cold wallet can be thought of as a bank account, a long-term storage facility.

A hot wallet is something like a regular wallet for shopping. When using some services there is no choice; you have to use the wallet option that is offered by the service itself.

All the characteristics discussed above describe wallets from the perspective of their technical capabilities. In order to select a specific wallet, the user wants to understand the capabilities of the wallet and why one wallet is better than another. Therefore, let’s look at wallets from practical points of view.

METAMASK: is a wallet that is sometimes called the “default” wallet. In November 2021, the wallet’s monthly audience was 21 million users . Almost any question a user might have most likely already has an answer. Information on installation and solving various problems can be found on any convenient service: YouTube, Telegram channels, various websites, and in different languages. The wallet supports about 40 networks . Allows you to store cryptocurrencies, make transactions, and earn money through staking. Metamask is an identification tool on many web 3.0 sites. The wallet is a storage facility for more than just cryptocurrency. It can store NFTs, Ethereum Name Services domain names. The wallet is non-custodial, KYC verification is not required.

TRUST WALLET: is a wallet-application for a smartphone, on the market since 2017, the number of users, according to data from the official website, is more than 25 million . Installation is simple, the interface is intuitive, Russian language is supported. There are versions for Android and iOS. The wallet is non-custodial, KYC verification is not required. Supports 53 blockchains and more than 1 million types of assets. Access from the application to purchases, cryptocurrency exchange, the ability to access various DeFi applications. Help Desk – An extensive help center with a dedicated section for self-help.

SAFEPAL: is a wallet that can be installed as an Android or iOS mobile application, as well as purchase a hardware version. Supports 32 blockchains and 30,000+ tokens, NFTs, DeFi. The wallet is non-custodial, no KYC verification is required, Russian language is supported. Technical support – Help Center on the website.

ANONYMITY

1. XMR (MONERO)

2. ZEC (ZCASH)

As an option, for those who are particularly interested in anonymity, it is worth paying attention to cryptocurrencies that focus on anonymity. For example:

Just in case, you need to pay attention to this fact. Hiding technologies, such as the use of anonymizers, technologies like mixers , can be considered by CEXs like Binance as obviously illegitimate. Since mixers and similar services are often used by owners of funds obtained illegally. And cryptocurrencies participating in such services could theoretically be subject to sanctions in centralized services when they are introduced into such services. Therefore, you need to thoroughly study all the nuances and facts that prevailed at the time of making the decision to use such services, including anonymous wallets.

• No address reuse.
• You can hide an application on your phone.
• Fully encrypted client side and offline mode.
• Tor and VPN support.
• Export wallet anywhere – You can export your wallet to any Bitcoin wallet.
• Restoring a wallet using a seed phrase.

However, there are wallets that position themselves as anonymous:

Anonymity in the blockchain is a very relative concept. It will rather depend on the desires and incentives of the person seeking information about transactions on the blockchain.

Blockchain technology was initially touted as an opportunity to manage your finances anonymously and decentralized. Now this concept has blurred. But still, for many cryptocurrency users, the issue of anonymity is very important. The specificity of the blockchain is such that anyone can track any transaction in any blockchain by address or transaction hash using a network explorer.

Anonymous wallet app for Android, supports Bitcoin only. Some of its options:

SAMOURAI WALLET

The wallet creates a process that makes it difficult for both outside observers and participants in the transaction to track funds. Uses the anonymous Tor network, supports only Bitcoin. It is a desktop program, there are versions for Windows, MacOS, Linux.

WASABI WALLET

The role of Guardian can be:

Opportunities: storage, purchase, staking, loans.

The current geopolitical situation has forced us to look at asset security in a new way. Users of some crypto-services are faced with the possibility of account blocking. Therefore, the question of which wallet to store assets in is now relevant. You should definitely choose a non-custodial wallet.

A wallet that does not use anonymizers, is non-custodial, and open source. Designed for the Ethereum network and ERC-20 tokens . Quite reliable, supports Ledger and Trezor hardware wallets. There are partner services that allow you to exchange fiat for crypto tokens. The 1inch DEX aggregator is integrated into the wallet. There are applications for Android and iOS, desktop version. When creating a wallet, you do not need to enter personal information.