Best Bitcoin and Cryptocurrency Wallets
I could bore you to death with all the different ways you could go about protecting your cryptos, from beefing up your home security to changing your router settings, but there is one major thing you can do right now which won’t cost you a thing. That’s ‘social security’ – as in, simply don’t tell anyone that you’re in cryptos. If people don’t know you have cryptos, they won’t come sniffing around.
There are various ways of protecting your cryptos, including wallets.
Wallets to Store Your Bitcoins and Cryptos
The easiest way to get your head around wallets is to think of them in terms of your personal bank account. If you do that, things become much clearer. With your bank account, you basically have three things to know: your sort code, your account number, and your PIN. The sort and account number identify the name of the bank and where your account is, and the PIN is the electronic key that grants you access to your funds. It’s pretty straightforward.
It’s actually even simpler with crypto wallets as you only need to know two things: the public address and the private key. The public address is simply the equivalent of your bank account number and your private key is the equivalent of your PIN. That’s it, although it is a bit harder to memorize your crypto wallet credentials, as your public address will be 25–36 characters and your private key can be up to 50 characters or, in some cases, 20 different words in a set order.back to menu ↑
The Benefit of Crypto Wallets
An added benefit of crypto wallets is that you can set one up in under 30 seconds with no documents. Try setting up a bank account at that time. It’s impossible. I recently opened an additional business bank account so I could have a separate ‘investment pot’ for one of my businesses and, despite the bank having all my details, it still took 45 minutes on the phone! This is another reason why the banking sector is going to fail and cryptos will prevail because when the ‘unbanked’ finally becomes ‘banked’ it will be with a crypto account, not a typical bank account.
The vast majority of the population trusts banks enough to look after their capital. When you get paid into your account, you don’t often worry about it being hacked. But in the crypto world, personal data security is a topic you will become rapidly familiar with the more crypto wealth you amass. Necessity is a great teacher. Because you’re now storing and protecting your own wealth, you need to understand that not all wallets are the same.
Wallets come in various forms, but there are generally two types: a hot wallet and a cold wallet.back to menu ↑
Hot wallets are easy and convenient to use, but not as safe as they could be. Common hot wallets are ‘web wallets’ where you just create an online account with a wallet provider of some sort.back to menu ↑
Cold wallets are the safest and the best way to store your cryptos. You dramatically minimize the odds of being hacked with a cold wallet, although with that extra safety you do lose convenience. It can take an extra few minutes to get your cryptos back on to an exchange to sell compared to a hot wallet, but that’s a small price to pay. If you’re doing things properly on the crypto market, you shouldn’t really be that pushed for time.
One of the best tips I give to new aspiring traders is that the best risk-mitigation weapon they can deploy is to just sit on their hands and do nothing. Just wait an extra day. Most of the time this delay saves people thousands. The extra rigmarole and time of getting your cryptos out of cold storage may sometimes be ‘too much of an effort’ and end up saving you money by preventing you from making rash decisions.
Read related post: Best Bitcoin wallet – Ledger Nano S Review 2020
Read related post: Ledger Nano s Vs Trezor
The most common forms of cold storage are a USB ‘hardware’ wallet like a Ledger Nano S or a Trezor.back to menu ↑
What are hot and cold wallets?
The way I view hot and cold wallets is to imagine I’m buying diamonds in a market square in an edgy, unfamiliar town. You feel everyone watching you as you buy your diamonds and put them in your wallet. You could walk around town with the diamonds in your wallet; it’s nice and convenient to have them on you in case you want to sell them quickly, but you also run the risk of being mugged. A safer solution is to get home as soon as possible and store them in your basement safe that’s bolted to the ground. That’s the equivalent of a cold wallet.
The hard-drive myth
As the price of Bitcoin rises, you will see multiple articles on how someone has X amount of Bitcoin stuck in a computer or hard drive that they threw out years ago and how it’s now worth X millions. The thing that’s lost in translation is that the Bitcoin isn’t actually in the hard drive.
When you buy a Bitcoin or any other crypto, the cryptos don’t move anywhere. They remain in the Bitcoin network. Imagine that the ceiling above you right now is the Bitcoin network. All you’re getting is a private key, which is simply a portal allowing you to see/have access to your Bitcoin. So in the cases of lost hard drives, all that’s in there is the private key, and whoever has the private key owns them. Finders keepers, I guess.
Best Bitcoin and Cryptocurrency Exchangesback to menu ↑
The Fiat Exchange
This is the bane of every crypto investor. Since Day 1, the task of ‘getting your money in’ (converting your Euros/Dollars, etc. into cryptos) has been an utter chore. You typically have to open an account with a fiat exchange, go through their verification process, send your currency from your bank account to their bank account (hopefully you’re not sending money to a scammer), wait for anything from one to six weeks, and then finally get the funds in your account. This type of exchange is what’s called a ‘fiat exchange’, a place where you can convert fiat to cryptos. There aren’t many out there, they’re difficult to set up, and the selection of cryptos you can buy through them is normally limited, meaning you end up buying Bitcoin, Ether or Litecoin and then sending them over to a ‘crypto exchange’.
Most Popular Fiat Cryptocurrency Exchanges:back to menu ↑
The Crypto Exchange
A crypto exchange is simply an exchange that deals only with cryptos. No fiat. When you hear statistics such as 99 percent of crypto exchanges have been hacked, it’s quite alarming. But it’s worth noting that nearly all of those hacks were on crypto exchanges, not fiat exchanges. This is because fiat exchanges accept fiat currencies, they have to jump through many regulatory hoops, and they have the same level of security as a traditional share-trading platform. That’s why you have to go through their laborious verification process because you’re going through Know Your Customer and anti-money-laundering checks.
It doesn’t look good for crypto exchanges, does it? And you’d be quite right not to trust them. I certainly don’t. As I mentioned earlier, it’s like buying diamonds in a dodgy town square. But the upside to crypto exchanges is that you will have a vast array of different cryptos to choose from.
With all of this in mind, you’re probably a bit confused about how all of these elements fit in. So here is the simple Buy & Exit process for cryptos.
Most Popular Crypto Exchanges:back to menu ↑
The Buying And Selling Process
The simple way to buy cryptos is as follows:
- Send fiat to fiat exchange. I use Coinbase and Bitstamp.
- Use your fiat to buy Bitcoin.
- Send your Bitcoin to a crypto exchange. I use Binance and Kucoin predominantly, but I’m adaptable here as exchanges come and go.
- Use your Bitcoin to buy whatever altcoins you want.
- Send all your cryptos from your exchange to a cold wallet for safe storage.
Never, ever, trust an exchange to store your cryptos.
- Make detailed notes of what you bought, how much and at what price. Basic bookkeeping/logging is crucial for tax purposes.
- Come back to sell everything just before the bubble pops!
That’s it. Hopefully, it looks pretty straightforward
Then, once it’s time to exit, here’s what you do:
- Send your cryptos from their respective wallets over to a crypto exchange.
- Sell everything. By default, you’ll end up with Bitcoin as you buy and sell altcoins against Bitcoin.
- Send your Bitcoin to fiat exchange.
- Sell your Bitcoin into whichever fiat you wish.
- Send your fiat from your fiat exchange over to your bank account.
- Update your trading/investing logs for tax purposes.
- Browse the Internet for your new Lamborghini.