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Cryptocurrency wallet: how to create and manage it securely

December 14, 2021
6 min
Cryptocurrency wallet: how to create and manage it securely
Beginner
You will learn

    In an increasingly cashless society, it is very important to keep your money safe. Cryptocurrencies offer huge advantages over traditional currencies, but you have to be careful how you store and manage your private keys.

    What are self-custody wallets

    Bitcoin and other cryptocurrencies only exist in digital form, so there is no “physical” way to store them.

    However, there are several ways to store private keys, which are very important because they allow the owner to have total control over their digital currencies.

    Private key

    A private key is a cryptographic key used in an asymmetric encryption system. Each private key is associated with a public key in such a way that what is encrypted with one can only be decrypted with the other.

    All types of cryptocurrency wallets where the owner has access to and must carefully store their private key are called self-custody wallets. These types of wallets can be grouped into 2 major groups:

    1. Hot Wallet – this wallet is constantly connected to the internet
    2. Cold Wallet – there is no connection to the Internet, it is possible to receive funds but not to send them (a connection must be established in this case)

    Different types of wallets

    With the birth of Bitcoin in 2009, the first wallets were created, and over the years new types of wallets have been developed thanks to technological developments. Currently, these are the main kinds of wallets:

    • Paper Wallet – is simply a printable document on paper containing a public address (useful for receiving Bitcoins) and a private key that allows Bitcoins stored at that specific address to be spent or transferred. It is often printed in the form of a QR code so you can easily scan it and add the keys to a wallet app or software to make a transaction;
    • Smartphone apps – these wallets rely on secure and known nodes in the Bitcoin network to confirm that the correct information has been acquired. The private key in this case is provided during the creation of the wallet but is also stored within the phone in an encrypted manner (a password or biometric authentication is trivially needed to unlock it);
    • Web wallets – compared to mobile app wallets, the only difference is how the wallet is displayed. The private keys, in this case, remain totally in the hands of the owner;
    • Computer software – this is software that is downloaded and installed on the computer, storing the private keys on the hard disk. As they do not require a third party to store the data, they are more secure than web and mobile wallets, provided the computer is kept secure and the software is only connected to the internet when needed.
    • Hardware Wallet – these are the most secure wallets, allowing private keys to be stored in a highly protected hardware device. They are immune to computer viruses, deposited funds cannot be transferred unless encrypted outside the device and in most cases, the management software is open source. This is the safest way to store any amount of Bitcoin and other cryptocurrencies.
    crypto wallet security

    Best practices for private key security

    Here are some tips and good habits to keep your cryptocurrency wallets safe:

    1. Choosing the type of wallet best suited to your needs is the first step. You need to consider your technical skills and the use you will actually make of it: choosing an extremely secure wallet without having the appropriate skills can lead to the irreparable loss of your private key and therefore your money;
    2. For all cryptocurrencies that you want to store without touching them in the long term, offline is always better than online, due to the risks associated with connecting to the internet;

    Here comes the crucial part: during the creation of the wallet, you will be provided with a seed phrase, which can also be called something else, but it will be a series of random words that you will need to retrieve the wallet in case of loss of the private key.

    The Golden Rule

    Private key or seed phrase should be written down immediately, stored and then kept in the safest possible place, away from prying eyes.

    1. Protect your Wallet (any type) with a strong and robust password by following these security guidelines;
    2. Use a 2-factor authentication (2FA) code whenever and wherever possible;
    3. Split your funds across multiple wallets, this is a useful tip to reduce the risk of theft. Clearly, you will need to be more careful about storing private keys;
    4. Use hosted wallets, such as the one on Young Platform, for cryptocurrencies intended for short to medium-term buying and selling, if you wish to save on transfer costs.
    5. Be anonymous and discreet. It is good practice to keep the amount of cryptocurrency you own to yourself so as not to attract the attention of any malicious parties;
    6. Provide for digital inheritance. Give people you trust access to your funds in case of problems. This ensures that we do not lose our funds irretrievably.

    What is the best wallet for cryptocurrencies?

    After having seen the different types of wallets and the characteristics of each one, in order to correctly choose the best wallet, it is necessary to consider all the advantages and disadvantages and understand your needs.

    The safest of all is a hardware wallet, but it is also the most difficult and cumbersome to use.

    A Paper Wallet may feel simple because it resembles traditional banknotes, but it is also the easiest to lose and is not always easy to use.

    A middle way between security, convenience and comfort is a Wallet for smartphones, always in our pocket and available at any time to be unlocked with the different types of biometric authentication (fingerprint or facial recognition).

    Whichever you choose, if you adopt good security practices, you can sleep soundly and keep your tokens safe.

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