Cryptocurrency is hard to store and transfer. So if you have a hardware wallet like a Trezor or a Ledger Nano S, you can go to sleep knowing that your coins are safe.
The blurb for the Ledger Nano S says “Ledger supports Bitcoin, Ethereum, Litecoin and other ERC20-compliant tokens.” That means it’s not just Bitcoin wallets that work with it: Ethereum wallets do too.
It also supports “Dogecoin, NameCoin and Decred.” Dogecoin is one of the few cryptocurrencies that uses an existing coin as its unit of account. NameCoin is another such coin; they were both created as an alternative to Bitcoin so that someone could make a cryptocurrency without having to bother with mining or proof-of-work.
So the Ledger Nano S can be used with any cryptocurrency that has an open source client–that is, a client written in Python–which can run on Linux.
Just like with your email and other internet accounts, it’s better to use a hardware wallet instead of trusting a third party to store your cryptocurrency.
The reason is simple: If you lose access to your private keys, you also lose access to your funds.
If you’re already storing your cryptocurrency on an exchange, you don’t have control over the keys used to sign transactions. But if you use a hardware wallet, like the Trezor or Ledger Nano S, the private keys are generated on the device itself and never leave it.
The best way to store your cryptocurrency is in a hardware wallet. It’s the safest way to keep it. Once you have your private key, you can use it with any cryptocurrency. But if you didn’t keep it in a hardware wallet, you would lose access to that money forever.
I work for Ledger, a company that makes a USB device called the Ledger Nano S (which we call the Nano). It’s pretty much foolproof and easy to use, with one small exception: it doesn’t have a screen. You can’t see anything on the screen — and therefore you can’t check your transaction history — unless both you and the computer have apps that support Bitcoin’s newfangled technology called Web3.
If you are holding your Bitcoin in an online wallet, it is possible that the wallet service could go out of business. If this happens, you will have no way to access your coins.
A hardware wallet like Trezor or Ledger Nano S solves this problem. These devices are designed to be one-time use only: they have a small screen and no way to connect to a computer. They can’t be hacked and they can’t be shut down, so even if the company that made it goes out of business, you will still have access to your coins.
The main reason to store your cryptocurrency offline is that it is safer. The keys to your wallet are in a secure place. If you have your private key, you have the funds. If you lose your private key, there is no way to access the funds.
The other reason to store your cryptocurrency offline is that if the price of cryptocurrency continues to rise, then it becomes more valuable. As a result, storing funds offline makes it more valuable.
If you want to get rich, do not listen to what people say about the market price of cryptocurrency and hold on to your coins so that you can sell them at a higher price later.
Your cryptocurrency wallet has two functions. One is to store your private keys, which are the cryptographic keys that allow you to spend and transfer your coins. The other is to keep track of the current value of your holdings, so that you can calculate how much money you have.
The problem with using software for both functions is that it’s easy for hackers to steal your private keys and make a copy of them. This can be accomplished in a very simple way: just get hold of the software that uses your private keys, take a snapshot of all your coins, then put the snapshot on a USB drive and stick it in a box somewhere.
That’s what happened to the DAO project: hackers stole the private key so they could empty out the DAO’s balance sheet. It would have been even easier to do if they had taken a snapshot before they did so, but they didn’t—so they got caught.*
We often think of Bitcoin as a free money machine that anyone can use. But when you put money into Bitcoin, it is not like putting money into a bank account. Rather, it’s like putting money on a gamble. You really think that the price will rise, or you don’t. Banks and other financial institutions hold your money in trust for you, but with Bitcoin there is no one to keep an eye on your funds and make sure things work out right.
Bitcoin is a kind of digital gold standard. It is designed to be scarce and decentralized, just like real gold. It is meant to be an alternative to fiat currencies such as the dollar or the euro; it doesn’t represent any claim on physical wealth or anything of the sort. Yet it has been remarkably successful in displacing fiat currencies and becoming a commonly-used medium of exchange – even though it is worth no more than paper or computer memory.