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Types of cryptocurrency wallets and how to protect cryptocurrency wallets

Types of online and offline cryptocurrency wallets and how to protect cryptocurrency wallets
How to choose and protect a cryptocurrency wallet
In July 2017, one of the largest cryptocurrency exchanges in the world, BTC-e, suddenly became unavailable. Trading on the exchange for the last day before the shutdown amounted to about 56.7 million dollars. USA. The official reason for the shutdown of the exchange was the FBI accusation against Alexander Vinnik of money laundering using cryptocurrency. Exchange accounts were seized, exchange servers seized. About a million client accounts fell under attack, and it was very difficult to return a day from. The management of the exchange for more than a month and a half has been considering the possibility of a refund.
Following BTC-e, another largest exchange, Poloniex, made amendments to the contract, stating as a separate clause that the exchange is not responsible for money lost by the trader (stolen or otherwise lost) and does not guarantee the security of the platform. In other words, representatives of the exchange preferred to evade responsibility and do not exclude problems with hacking. This clause of the agreement immediately gave investors a reason to suppose that the exchange itself was not averse to using forbidden methods for capturing accounts, arguing this fact by hacking.
Unsurprisingly, investor confidence in uncontrolled and unregulated exchanges fell. An alternative to storing cryptocurrency on exchange accounts can be electronic wallets. Read about their types, advantages and disadvantages, as well as protection methods.

The best cryptocurrency wallets
An electronic cryptocurrency wallet is a wallet that stores a private key that allows access to cryptocurrencies. That is, this is a kind of key, a password that gives access to cryptocurrencies hosted on the blockchain. And its transfer to public access means the actual loss of cryptocurrenciesWallets can be developed for a separate cryptocurrency or multicurrency (for the most popular cryptocurrencies). They can be divided into two groups: online and offline wallets.
1. Online Wallets
They are a third party service. Keys in this case are located on remote servers. They allow not only opening several wallets for different cryptocurrencies, but also conducting convertible operations, trading on exchanges, calculating commissions using built-in calculators, etc.

  • quick registration;
  • anonymity. Verification is not needed, the owner of the wallet remains unknown;
  • the ability to work with several cryptocurrencies;
  • high transaction speed.

  • risks inherent in cryptocurrency exchanges. Some wallets were created with obviously fraudulent purposes; the risks of breaking wallets remain;
  • additional expenses. In addition to the exchange commission, you will have to pay a commission to the service.
There are no reliable ways to protect money on such platforms. Therefore, recommendations for protecting money come down to diversifying risks, that is, working simultaneously with several wallets. Given the profitability of cryptocurrencies from 100% for several months, this option is optimal.
Examples of popular online wallets:

  • HolyTransaction. The multi-currency wallet, founded in 2014, supports more than 10 of the most popular cryptocurrencies. It has an intuitive interface, the commission in comparison with other wallets is average;
  • Coinbase, created in 2012,it  supports bitcoin and ethereum;
  • Cryptonator The most popular multicurrency wallet in the CIS.
2. Offline Wallets
They represent the storage of keys on their own media without access to the Internet. There are several such options:
1. Desktop . Wallets that involve storing keys on your hard drive. They are considered one of the most reliable options among offline wallets. They are a program installed on a computer with the help of which access to data on a cryptocurrency account is carried out. Their disadvantage is the need for continuous updating, which takes up a lot of memory (from 100 GB). Therefore, desktop programs are divided into "thick" and "thin". "Thick" ("heavy") - programs that themselves from the very beginning download all the block chains and constantly update them. "Thin" ("light") - download the necessary information from third-party services. Despite the fact that the key file remains on the computer, there is a risk that the data from the services will not be downloaded as needed.
Wallet Examples:

  • Exodus Has a built-in exchange platform ShareShift, supports 7 cryptocurrencies;
  • Bitcoin Core. One of the best wallets for bitcoin, working with all operating systems;
  • Armory It is an addition to Bitcoin Core, which allows to increase the level of security of private key storage.
2. Hardware . They are a separate removable media like a flash drive. This method of storing keys is not very popular yet, because it is suitable only for long-term storage (it is inconvenient to trade from it). But he does not overload the computer.

Examples of devices:

  • KeepKay. Supports 4 major cryptocurrencies;
  • flash Ledger USB Bitcoin Wallet;
  • Trezor.
3. Browser . Programs that are made as extensions for the Chrome and Firefox browsers. They have a minimalistic design, pleasant for visual perception.

  • Jaxx, supporting 14 cryptocurrencies, has open source code, allows you to export and import keys, and has a desktop version for Windows and Linux.
4. Mobile . They are programs for installation on mobile media (gadgets). Mobile wallets provide payment for goods and services. It is rather a transit option for storing cryptocurrencies, since mobile devices do not provide for constant updating of the blockchain.
Wallet Examples:

  • Coinomi. One of the best wallets for Android, supporting more than 50 cryptocurrencies. Its advantage is the ability to enter a seed phrase, which allows you to restore wallet data;
  • Xapo. A California company wallet that supports bitcoin. Money on the wallet is insured, there is the possibility of issuing a debit card, you need to bind a mobile number.
5. Paper . A unique option for storing keys, which is a printout of a picture with a QR code containing a public address and a private key. Long-term storage option for those who do not trust electronics.
Each wallet has its advantages and disadvantages. Which option to choose depends on the goals. For larger amounts, desktop versions are better, paper media - for those who are used to cash currency, they are considered the most reliable from the point of view of the absence of hacking risks.
Ways to protect cryptocurrency wallets
Online platforms are a risk associated with a third party. But cold wallets are not completely safe. There are many viruses that read key data and transmit it to third parties. Some viruses not only open access to passwords, but also install hidden software that uses the power of a computer for mining. Alas, anti-virus programs are not always effective, because the best protection is autonomy and control over which sites are opened and programs are downloaded.
Other ways to protect cryptocurrency wallets:

  • encryption. The wallet is password protected. A classic way of protection that minimally protects data. It does not give an absolute guarantee, since there are viruses that read keystrokes. Any password can be hacked;
  • backup. The data used for changes in transactions can be stored in different places and may not be accessible to the user. Because we are talking about a full backup of the wallet;
  • multi-signature. Optimal protection against hacking online wallets, provides for the signing of transactions by two or more people. Multi-signature is used in a business environment where an account can belong to several partners. It is possible to create 2 accounts from different devices - this way the investor builds multi-level protection.
And finally, the most reliable option is to not mess with electronic wallets and cryptocurrency exchanges at all. Not so long ago, LiteForex offered traders a new service - trading in leading cryptocurrencies . Your trading account is reliably protected from hacking, and the broker's work is strictly controlled by regulators and an independent auditor. Join the number of professional traders and earn on technology! Successful to your trade!

How to Earn Crypto Wallet
 Crypto wallets are the starting and access point for any transaction in the cryptocurrency world. Banks and other intermediaries simply do not have any here. When that is mostly free of charge. Let's see their sources of profit. Above all, it is necessary to talk a little bit about the crypto wallets themselves: they are usually free programs or mobile applications that allow to work with cryptocurrencies such as storage, transmission, receipt and control of public / secret keys. Generally they all seem simple, but some are very popular and even earn a lot of money. How can this be?

 The governor does not receive any profit from transactions

 There is aberration that the crypto wallets earn by taking commission on transactions. This misguidance has been entrenched because some exchanges (which they mistakenly consider conservative) receive significant commissions in exchange for taking out the money (and sometimes in exchange for depositing it). Thanks to the bitter experience of interacting with the traditional financial system, we assume that any broker involved in the process needs to take his share. As for the fees collected by the governor, in fact it is the payment of services for the miners who organize the transaction in the register. The governor has nothing to do with mining. We present a description of this process from Coinbase:
 "Coinbase generally does not charge a commission for using the digital wallet service. Virtual currency conversions to the Coinbase platform address can entail the network commission (for example a Bitcoin metallic reward) that a user has to pay. All these fees are reported before the transaction." 
But there are exceptions as well. Bitgo Signature Wallet Signs 0.25% of all incoming and outgoing payments for safe storage of funds for business. Bitgo is for large companies that need to store a digital asset, not for ordinary people. 

Most portfolios maintain their viability at the expense of partnership agreements 

Its main business model is thus limited (at least for the time being). The portfolios earn substantial partnership rewards from external services thanks to the large number of users and the wide spectrum of use. The most famous of which is the ability to instantly switch cryptocurrencies via Shapeshift or Changelly services. The latter of them have a very generous partnership program because prices are usually much higher than market prices. Customers pay comfort, while portfolio designers receive the reward from the service provider. Finally, some wallets allow the purchase of digital assets directly from a credit card. These services are provided in cooperation with companies such as Simplex, which pay designers a reward for each process. Users pay to rest so they reward wallet designers. Other than that, the portfolios create passage on stock exchanges that are willing to pay high discounts on new customers. Everyone has partnership programs, and even systemic portfolios (which cannot be said to be free) often participate in such events. The financial indicators of the designing companies are often unknown, but it can be said with certainty that 90% of its revenue comes from one or several sources mentioned above. 

The basic problem of systemic wallets Systemic wallets

 (or "cold warehouses") are usually a very simple business model in which the buyer pays. Prices range in the range of $ 50-300. Producing portfolio itself does not cost dearly (about $ 20) so the profitability of projects such as these is high which helps conduct generous partnership programs (eg Trezor offers a 10% cashback). However, in reality, this model has one drawback, which is only one-time purchase. The average customer has no need to switch his wallet with the new one every year (other than the smartphone), he buys a wallet (and a second for backup) and here his interest ends. Theoretically, portfolio producers cannot offer him anything new. Designers know this very well so they include software links on various possible services or try to get out into new markets with a future. 

Hybrid portfolios / stock exchanges 

Some portfolios allow the purchase of cryptocurrency, but other than their integration with the third party, they work with the stock exchange directly. For example, Harrow or (possibly the largest cryptocurrency portfolio to date) allows the purchase of bitcoin and ethereum. They charge commercial commissions and sometimes earn from regular currency conversion. Some projects never pursue interests Many cryptocurrency wallets are open source code projects that are not profit-making, but their freeware usually affects the convenience of use. And other projects (such as Ethos) do not require profit because they collected a huge amount during the IPO so achieving service income is not a priority. Finally, some portfolios are free because they are under the control of companies that earn from other services, and the portfolios have business costs for them. This is for example, Trust Wallet. The wallet was purchased by Binance Exchange so it is completely FREE (and it will likely remain that way). 

New frontiers

 Thus, portfolios relate to either revenue from partnership programs or one-time purchases made by users. Hehti that partnership programs are a safe basis for long-term growth as no one knows when to cancel them. Is there a stable approach to the development of crypto wallets? So far, it is difficult to answer this question. Ultimately, every consumer will have their own wallet like smartphone or TV. These projects will gain a lot in the industry as well as browsers or mail clients on the Internet. When that is the partnership programs or even the buying / selling operations they will become a basis for offsetting operating expenses (which are rather large). In the future, new income items will emerge that will keep the cryptocurrency portfolios evolving. It is difficult to say exactly what it will look like. Additional revenue may appear in the form of direct or indirect payments because we are all used to paying for software and services. The presence of a lot of paid mobile applications other than games indicates that this idea is perfectly possible to investigate. Of course, the sector must evolve, but the process will proceed only after new funds appear and new rules are imposed and the economy of cryptocurrencies moves to the next level. Cryptocurrency portfolios are still in their embryonic state while they are the bedrock of the cryptocurrency economy. 

Jon Westenberg follows

  • John Marshal
    Writer, founder, passionate entrepreneur + I'm on a mission to build businesses
  • John Marshal
    Writer, founder, passionate entrepreneur + I'm on a mission to build businesses
  • John Marshal
    Writer, founder, passionate entrepreneur + I'm on a mission to build businesses
  • John Marshal
    Writer, founder, passionate entrepreneur + I'm on a mission to build businesses
  • John Marshal
    Writer, founder, passionate entrepreneur + I'm on a mission to build businesses