Cryptocurrencies have brought in a paradigm shift in the way that people store and keep their digital money. Unlike fiat currency which can be felt and seen, cryptocurrencies are virtual currencies that we can neither touch nor feel. The storage of digital currencies requires a new form of storage that deviates from traditional ways of storing assets.

Cryptocurrencies are stored in digital wallets. There are several types of them. Each has its own advantages and disadvantages. We will come to that later. We first need to clarify what a digital wallet is. Firstly, it is important to understand that you can never own tangible or physical cryptocurrencies. What you own is a digital agreement that you own a certain amount. That digital agreement has to be kept in a certain digital address. The address is provided to you by a digital wallet.

In essence, a digital wallet is simply a software program or physical gadget that stores your digital currency. It acts as your normal bank account in the sense that it allows you to send, store, and receive digital currency. You cannot own digital currency if you do not have a digital wallet.

The use of digital wallets is growing in popularity due to a number of people owning and investing in cryptocurrencies. The number of people who have signed up for blockchain wallets has significantly increased.

Image source: https://www.statista.com

Types Of Wallets

There are different types of wallets. Each type has its own special functions and purposes. At the end of it all, it all boils down to how much risk you are exposed to. We will start off with the fundamentals.

  • Private Key – your private key is akin to the PIN number of your bank account. It is what gives you access to your digital wealth. Hackers steal your private key and not your crypto wealth. The private key will lead them straight to the money.
  • Public Key – you can consider this to be the account number that people use to deposit money into your account. People use the public key to send money to your wallet. You don’t have to worry about keeping it in the public domain. It belongs there.
  • Hot wallet – it is always connected to the internet. It is not entirely safe.
  • Cold wallet – allows you to store your currency offline. Very secure.
  • Multisig wallet – this is a shared wallet that needs at least two parties to process a transaction.
  • Multi-currency wallet – it has the ability to support several tokens/coins. The majority of the wallets support several cryptocurrency types.

As a rule of thumb, it is good for you to store your wealth in a cold wallet. Only transfer the amount you want to use in the near future.

A digital wallet can come in five main types. It can be a…

  • Online wallet – this wallet resides on the internet. You normally use a web browser to access it.
  • Mobile wallet – travels with you wherever you are.
  • Desktop wallet – it resides on your laptop or desktop. A very safe method to store your crypto-currencies.
  • Paper wallet – stores your private keys on paper. It is safe as long as you keep the paper safe.
  • Hardware wallet – the secure wallet. You crypto wealth is stored in a dedicated piece of hardware, such as a USB.

Wallets And Security

The security of your cryptocurrencies is dependent on the security of your wallet. One of the most recent breaches occurred in December of 2017. Hackers made off with an estimated $63 million worth of Bitcoins when they infiltrated NiceHash, a cryptocurrency mining company. The Bitcoins belonged to the company’s clients. The digital currency was stored in a NiceHash wallet.

Security Features Of Digital Wallets

The Enjin Smart Wallet is a mobile wallet that currently runs on Android smartphones. It will soon be compatible with iOS devices. The wallet has designed a proprietary keyboard that displays random numbers and keys in order to protect you from keyloggers.

Image source: https://blog.enjincoin.io

12 Words Of Life

Mobile and hardware wallets are great and very secure to a certain degree. However, it is inevitable that your device might get lost. The loss of your devices basically means the loss of your digital wealth. Luckily many mobile and desktop wallets now give you 12 words that can be used to restore your wallet if it gets lost. You can choose to write the 12 words down or print them. Some even grab a screenshot and save it as a picture. It is not considered to be an extreme measure if you keep the 12-word phrase in a vault or security safe.

Image source: Exodus wallet

Here at Blockchains.my (BCMY) we take security for digital wallets to the next level. It implements the Microsoft Azure API that can identify wallet users via facial recognition. The OTP verification makes sure that people only register with their true phone numbers and email addresses.

BcmyImage source: https://bcmy.io

2-Factor Authentication

You need your password or passphrase to gain access to your digital wallet. Unfortunately, this is something that an outsider can gain access to and leave you high and dry. It is advisable to implement the 2-FA authentication mechanism. The 2-FA mechanism adds one more layer of security by demanding that you are who you say you are. You can use your phone number or other methods. This helps in case someone cracks your password. The password alone won’t be enough to give them access to your wallet.

Future Dangers

Quantum computers are currently being built. Quantum level computers deal with the properties of matter at an atomic or quantum level in order to build computer hardware that is faster than anything we have ever known or seen. Although this could be a great leap in technology and security, it could also help hackers a great deal as well.

Advanced persistent threats (APTs) steal data over a period of time by embedding seamlessly in the network of the target victims. There are a lot of other scenarios where hackers can get hold of people’s accounts and steal from them.

However, a proper plan and due diligence on the part of wallet creators can eliminate a lot of chaos and heartache. The use of advanced biometric scanning is a step in the right direction. More importantly, computer based wallets must keep tabs on the latest developments in computers. As for users of wallets, they have to constantly change their passwords and always remain alert to any changes that may occur in their accounts.

The Future Of Wallets

The future of wallets is bright as long as they can do their job of protecting the wealth of the clients. Wallets must adapt to new technology and keep their ears on the ground for emerging technologies. The wallets must also implement multi-layers of security so as to make it extremely difficult for hackers to get access to the wallets. Although some breaches have taken place in the past, they have served as first-hand lessons for those in the wallet creation business. It has allowed several wallets to fix their vulnerabilities, and upcoming wallets to know what to plan for. Feel free to check out our advanced and secure, multi-asset, digital wallet app: the Blockchains.my wallet.


Resources:
https://www.statista.com/statistics/647374/worldwide-blockchain-wallet-users/
http://www.chinameer.com/know-all-about-digital-wallets-and-mobile-payments.php
http://www.businessinsider.com/nicehash-bitcoin-wallet-hacked-contents-stolen-in-security-breach-2017-12
https://blog.enjincoin.io/the-most-secure-mobile-cryptocurrency-wallet-in-the-world-eb46c9cb16f4
https://medium.com/@pamelawjd/bitcoin-security-made-easy-using-2-factor-authentication-92c3943471fa
https://www.forbes.com/sites/bernardmarr/2018/02/23/20-mind-boggling-facts-about-quantum-computing-everyone-should-read/#1cbc163b5edb
https://www.csoonline.com/article/3043030/security/12-top-cloud-security-threats-for-2018.html