Don’t write a blog post about “the easiest cryptocurrency wallet,” then. The goal of this post is to introduce you to the basics, and if you’re going to pay attention to the technology, you’re going to have to work out on your own how—and where—to store each cryptocurrency that you buy.
The best place to start is a cryptocurrency wallet (also known as an “account” or “vault”). You don’t need one until you decide which cryptocurrencies you want to own, and whether you want to invest in anything at all.
For most people, it’s simplest to get started with a web-based wallet like Coinbase or Blockchain. But for some reasons, I think hardware wallets are better for beginners.
It’s still not so hard: Just go to the website of the company that makes your chosen wallet, and follow their instructions. And if you get stuck there’s always http://bitcoin.org/en/wallet (though note that it lists wallets by name rather than by function.)
Store your cryptocurrency safely. There are lots of free wallets, however, it’s recommended that you purchase a hardware wallet. Hardware wallets are more secure than a web-based wallet and can be used offline too.
Hardware wallets store your private keys offline on a USB key or in an external hard drive.
These devices protect your cryptocurrency from hackers because they’re connected to a computer, device or network only when you need to access them.
The safest option is to buy a hardware wallet like Ledger Nano S (which costs $99) or Trezor (which costs $69). These devices cost more than web-based wallets but are by far the most secure choice for storing cryptocurrencies such as Bitcoin, Ethereum and Litecoin.
If you’re new to cryptocurrency, you might decide to buy a hardware wallet. These are devices that hold your keys offline, in a protected area, and can be connected to your computer or smartphone via USB or Bluetooth.
Hardware wallets are supposed to be more secure than online services like Coinbase. But they aren’t free! They start at around $100 and go up from there, if you want the best security possible. And they’re not cheap, either: if you want to protect all the other stuff you own using cryptocurrency, someone is going to have to pay for it.
Even though hardware wallet technology has been improving steadily for the last few years, most people still don’t think about them as an investment. But hang on for a minute; I think we’re going to see a return sometime in the next few years.
Cryptocurrency wallets are sometimes called Bitcoin wallets, but that’s a bit of a misnomer. Bitcoin is only one kind of cryptocurrency: Bitcoin is an application that runs on top of the blockchain, but other cryptocurrencies run on top of Bitcoin or on their own blockchains.
There are several kinds of blockchain-based cryptocurrencies. Every type has its own strengths and weaknesses, and its own purpose. The main types are as follows:
* Airdropped coins: These can be anything from coupons for video games to custom tokens issued by your favorite business. They’re not currency themselves; they’re tokens, and they can be used however you like.
* Cryptocurrencies traded in markets: These are cryptocurrencies that trade on exchanges like stocks or bonds or futures contracts. They’re typically backed by some government or organization, so it’s easier to buy them with a credit card than with bitcoin (for example).
* Cryptocurrencies traded privately: These are cryptocurrencies owned by individuals, who can spend them privately without involving any third parties at all.
There are dozens of different kinds of cryptocurrency wallets, and they all work in different ways. This is partly because the world of cryptocurrency is still evolving, and partly because different people have different ideas about what a good wallet should do. There are wallets that can be used to pay for things online, such as paying your bills or buying stuff on Amazon. There are wallets that you can use on your phone, like apps provided by Coinbase or Circle.
And there are hardware wallets: small devices you plug into your computer to use for cryptocurrency transactions instead of using your phone. They’re easy to lose – or, more likely, steal – so I won’t recommend them unless you’re really sure you want to buy cryptocurrency from an exchange that can be hacked.
Wallets all work by converting money into tokens that represent value inside the wallet and then sending those tokens back out again when you want to exchange them for money in another place. The value inside the wallet comes from the computer where the wallet software is installed, not from the money itself (although a wallet will sometimes hold some fraction of its total value in reserve).
Bitcoin is an amazing cryptocurrency. But it comes with several potential problems. First, its supply is limited. This means that the price will rise and fall accordingly, but it also means that the price could crash if there’s a shortage or a government crash-ban.
Second, while it is easy to transfer money from one place to another, Bitcoin lacks some features of traditional currencies. It is not as safe as traditional currencies are because of its lack of physical presence. Bitcoin accounts can be hacked, and Bitcoins can be stolen if you don’t take steps to protect them.
Third, Bitcoin does not have much of a track record. It has been around for less than ten years, so there hasn’t been much time for people to discover whether it works well or badly and for new uses to have been found for its underlying technology.
Fourth, there are various ways one can lose money with Bitcoin: stolen coins (of course), scams like Mt Gox and Bitfinex, volatility (in your main currency), and price manipulation.
When the first cryptocurrency came out, it was called bitcoin, and you could only get it if you bought a whole coin from a Bitcoin miner. If you wanted to make some money from your new cryptocurrency, the easiest thing to do was start mining more of them. But mining cryptocurrency one by one would be a pretty inefficient way to make money.
So instead people started selling tokens that were less expensive than bitcoin but were still based on bitcoin’s same open source code. They are known as altcoins. Altcoins rapidly acquired all the features of bitcoin plus some extra ones like the ability to trade back and forth with each other on an exchange. Altcoins became a way for people to make money without having to work hard at it.
Now there are hundreds of altcoins, each with its own features: some are easier to mine than others, some are faster than others, some use different algorithms for mining, and so on. Some people think altcoins can become the next big thing in finance; others think they’re bubbles waiting to burst.