In the first post of this series I outlined the problem of all the competing crypto-currencies and the confusion that can cause in newbies. Another barrier to entry is understanding where your crypto-currency is. I’m going to try and clear that up in this post.
This post is the second part of a three part series on crypto-currency and the blockchain. Part one is here and part three will be posted June 7th. These articles are not financial advice and I am not a financial advisor. Caveat Emptor, always.
Bitcoins are not stored anywhere…
I realize that headline up there is not very helpful, but it is technically pretty accurate. I’m using bitcoin as an example of crypto-currency here, but remember there are many different cryptocurrencies out there.
The concept of a digital wallet can be helpful to get your head around it. You store your bitcoin in your digital wallet and your wallet helps out with sending and receiving bitcoin. You are really storing a private key ( this is just a secret number ) for the bitcoins in your wallet. The bottom line is that if you want to buy or trade bitcoin you’ll need a wallet to get started.
Hang in there with me, cauze it’s not quite that simple. There are multiple kinds of wallets available as well as many different digital wallet providers.
Types of Digital Wallets
- Desktop Wallets
- Mobile Wallets
- Web Wallets
- Hardware Wallets
Desktop wallets are just digital wallets on a computer. These wallets give you the best control when slingin’ crypto. Even if you opt to use a different type of wallet, if you really want to learn how all this works get to know how some common desktop wallets work. The open source Electrum, Bither, and Jaxx are good ones to check out.
Mobile digital wallets are similar but you can use them away from the computer. Obviously this is handy for real time payments, etc. Most of these wallets are platform specific ala: android vs. iPhone. One nice thing about Bither mentioned above is there is a version for both as well as a desktop version. Jaxx has all that plus a Chrome extension….
Which brings us to web wallets. They are convenient as they can be used from any computer or from your phone. They are also potentially the least secure as you are trusting your private keys ( the secret number that points to your bitcoin ) to a third-party web service. If they are hacked, suffer a data loss, etc. your Bitcoin could potentially be lost. I’ve used Coinbase’s online web wallet and they seem legit and safe to me.
Finally there are hardware wallets. These are dedicated hardware devices ( a usb stick for example ) that do nothing but mange your cryto-currency. Portable, secure, and stored offline make it safe and convenient. If you have allot of money tied up in crypto this is your best option.
Storing your crypto offline is called cold storage where as a web wallet would be a hot wallet. If you hear the term Paper Wallet it means a printout of your public and private keys.
One thing to consider when you start shopping for a digital wallet is what type of crypto you plan on trading. For example Jaxx, was created in 2014 by Ethereum co-founder Anthony Diiorio so in addition to the ubiquitous bitcoin you can use it to manage Ethereum, and dozens of other cryptocurrencies.
So go get you a digital wallet and get started. How could I have explained this better? Comment or message me and let me know. Tune in Thursday the 7th and I’ll do my best to explain how trading crypto-currencies on the blockchain actually works.