Understanding your options for storing crypto securely both on and offline.
Cryptocurrency wallets is a digital wallet that you use to store your crypto coins or tokens, just as you’d store your cash and cards in a physical wallet. You can also access your tokens in a crypto wallet using your “private keys”. Private keys are the cryptographic information – essentially a string of secret randomised letters and numbers – that you use to access your crypto and make transactions. There are numerous different types of crypto wallets, all with different features and varying levels of security. So, which one is best for you?
While there are numerous crypto wallets available on the market, they can be separated into two main categories: hot and cold wallets.
A hot wallet, also known as a “software wallet” is a crypto storage facility that is connected to the internet. Centralised cryptocurrency exchanges (CEXs) usually offer hot wallet storage via their sites, but you can also download them.
Some hot wallets are specifically designed to be in partnership with certain web apps, which means that they may only be compatible with specific cryptocurrencies. So, if you’re interested in investing in more than one type of cryptocurrency, it is worth researching which wallets are compatible with the crypto you’re looking to buy. Many downloadable hot wallets that are compatible with multiple currencies are also free of charge.
There are 3 main types of hot wallet. These include:
As mentioned above, a web wallet is an online wallet that’s in partnership with various web apps. These services store cryptocurrency on your behalf. This means that the third party site has access to your private keys.
Ease of access. Web wallets can be accessed from anywhere and via any electronic device that is connected to the internet.
User-friendly. Web wallets generally have user-friendly interfaces, and only require an email address and username to set up.
High risk. There’s a risk of downloading viruses and malware with web wallets that leaves you open to phishing scams. The third-party provider having access to your private keys also poses a security risk to your cryptocurrency. This is because anyone with access to your keys can steal your crypto.
These wallets are, as the name suggests, downloadable as apps to your smartphone, tablet, or other mobile device. They are generally compatible with either iOS or Android.
NFC technology. Most mobile wallets are able to facilitate payments in physical stores through ‘near field communication’ (NFC) technology or by scanning QR codes. This means that you are able to spend your crypto easily where it is accepted via your mobile device.
Provide user control. No one else has access to your crypto or private keys with a mobile wallet, unlike a web wallet.
User friendly. These wallets are easy to download, with simple user interfaces. They are generally considered to be the easiest form of wallet to use.
High risk. If you lose your phone, you risk losing your crypto. That being said, you can opt for an app that allows you to back up your wallet with 12 or 24-word password protection, which will mitigate this risk.
These wallets, similar to mobile wallets, are hot wallets that you can download and install on your laptop or desktop computer. While they are hot wallets, any of these blockchain wallets offer cold storage options too. Essentially this is the same wallet, but it is not connected to the internet when it is considered “cold”.
User friendly. Desktop apps are usually considered to be easy to use.
Provide user control. No one else has access to your private keys with a desktop wallet.
Free to download. You often don’t have to pay for desktop wallets.
Secure. These apps are generally considered to be the most secure of the hot wallet options.
Cold wallet options. Desktop hot wallets generally have the option to also be cold wallets.
Virus risk. These apps can be susceptible to viruses and malware.
Lack of freedom. Unlike mobile apps or web apps, you can’t access your crypto easily on the go with a desktop wallet.
Cold wallets, also known as “hardware wallets” are physical devices in which you can store your crypto that are not connected to the internet. These can be on desktop apps, as mentioned above, or physical storage devices that are similar to USB sticks.
These wallets are particularly useful for people who have a lot of crypto, because of their high security levels.
Security. Cold wallets are by far the most secure way to store your crypto. This is because they are not connected to the internet and therefore cannot be hacked, and are not susceptible to viruses or malware.
User control. No one else has access to your private keys with a hardware wallet.
Cost. Cold hardware wallets are the highest cost crypto wallets on the market. They generally cost upwards of $100.
Physical theft risk. If someone steals your hardware device, you risk losing all of your crypto.
Less convenient. Unlike web wallets and mobile devices, you can’t access your crypto on the go with a hardware wallet. You must also transfer your crypto to a trading platform from your device in order to use it.
Earn rewards on your cryptocurrency by putting it to work on the blockchain.
“Staking” is a means of buying crypto in order to keep and hold (or “hodl“) it. The simplest possible explanation for what “staking” your crypto is to compare it directly to keeping your money in a high-interest savings account. You put your staking-compatible crypto in a cryptocurrency wallet that earns you a passive interest rate over time. This might require a bonding period. Once your crypto has successfully bonded, it will be viable for staking under the “Proof of Stake” process.
Still confused? Find out everything you need to know below.
Proof of Stake vs Proof of Work
Proof of Work (PoW) and Proof of Stake (PoS) are both means of verifying cryptocurrency. Because of the decentralised nature of cryptocurrency, it requires a consensus mechanism, such as PoW or PoS, in order to be produced.
A consensus mechanism is something that allows networks of nodes and application servers to successfully and securely work together.
Proof of Work
You might’ve heard of PoW in regards to Bitcoin’s mining process. PoW is a data solving problem that facilitates the mining of cryptocurrency, such as Bitcoin.
PoW is a means of adding new blocks of transactions to a cryptocurrency’s blockchain. This work requires generating a 256-bit number, or a “hash” that matches the current block’s target hash, which identifies it. Miners who succeed in solving these computational maths problems in order to generate this number are rewarded with a block of bitcoins.
PoW is a complex, labour intensive and energy resource consuming process. Mining requires extremely powerful computers that need to run constantly in order to generate a sufficient number of hashes to find the right combination. This uses vast amounts of electricity annually – more than some entire countries produce in the same timeframe.
Proof of Stake
PoS, on the other hand, is different form of consensus mechanism. It is a forging process that involves minting new coins, as opposed to mining them. To mint the new coins, staking compatible coins belonging to various owners are held in wallets on the blockchain. The transactions of the coins are verified when a PoS protocol chooses a validator node to review the block. If the transactions in question are all accurate, they add a block to the blockchain.
Once a new block has been added to the blockchain, the owners of the stakes coins receive crypto rewards for their contribution. The owners of active wallets are rewarded with roughly 10% of the value of the distributed coins. How much each owner receives will depend on the value of their stake and the rewards in question.
PoS is a much more energy efficient means of verifying cryptocurrency. This is because it requires much less electricity than mining. Staking can for instance be run from a simple home desktop or laptop computer.
Which cryptocurrencies are compatible with staking?
Cryptocurrencies that are currently compatible with staking include:
How much you can earn from staking crypto is based on a number of factors. These can include how much crypto you have, where you’re staking the crypto, what coins you have and the performance of those coins in a year.
Some of the larger cryptocurrencies, such as ETH, ADA and DOT average an annual return from 5% to around 20%. Some of the smaller cryptocurrencies, however, can make upwards of 20% per year, and sometimes even as high as 100%.
Is there any risk involved with staking?
Staking is generally considered to be a low-risk method of making a passive income on your crypto. That being said, this doesn’t make it completely risk-free. These risks include:
Validator faults. If the validator node that reviews the block finds inconsistencies with the transactions in the wallet(s) where your staked crypto is being held, you may lose some of your assets (or simply not earn money from them).
Hacking and breaches. If your wallet gets hacked, you could lose some, or all of your crypto.
Volatility. Crypto prices are notoriously volatile and can shoot up or down rapidly. If the crypto that you have purchased goes down in value, it will ultimately reduce its worth, losing you money.
How to stake crypto
There are 3 easy steps to staking cryptocurrency:
Choose a coin. You must first do your research on the best staking crypto for your goals. Once you’ve chosen, you need to then purchase the desired amount. In order to do this, you must first learn the minimum staking requirement for that currency. For example, ETH has a minimum staking requirement of 32 ETH. At the time of writing this article, that equates to about $134,324 AUD.
Download the wallet for the desired coin. Compare crypto wallets and choose one in which to store your coins for staking. This could require you to go directly to the main website of your specific chosen crypto and downloading its corresponding wallet.
Choose your hardware. Staking crypto requires you to have a 24/7 uninterrupted internet connection. While your run-of-the-mill desktop computer may be up to the task, this might be a less cost effective and environmentally friendly piece of hardware than others, due to the heavy electrical consumption. Therefore, it’s worth doing your research into what hardware could work best for you.
Once you’ve achieved all of the above, you can start to stake your crypto.
A guide to buying ETH on the Ethereum network. Is it a good investment for you?
If you’ve heard of ETH or Ethereum, you likely know something of the part it plays in the creation and sale of NFTs. You may also know that it is currently ranked as one of the highest performing cryptocurrencies currently on the market. But what exactly is Ethereum, how does it differ from Ether, and most importantly, how do you buy it?
What is Ethereum?
Contrary to popular belief, Ethereum is in fact not a cryptocurrency. Ethereum is the name for the blockchain on which the native cryptocurrency Ether, or ETH, is held and distributed from. If you’re new to the world of crypto, a blockchain is a decentralised public ledger that exists to securely facilitate and keep a record of multistep transactions. These transactions are known as “smart contracts”.
Smart contracts are created and issued by ERC-20 tokens. ERC stands for “Ethereum request for comment” and it is the standard token used for issuing smart contracts on the Ethereum blockchain.
Users of the Ethereum blockchain must purchase and spend Ether to make transactions on the Ethereum platform. This includes the purchase or trading of NFTs (though NFTs are now available on several blockchains).
Users who wish to purchase and trade Ether must have an Ethereum wallet in order to do so. Ethereum wallets are secure and can be downloaded and set up onto a computer, smartphone or other mobile device.
What is ETH?
ETH is a decentralised cryptocurrency, launched in 2015, which is available on the Ethereum blockchain. It can be used as a purchasable investment and to trade via a centralised or decentralised market platform. The value of ETH, much like any other crypto, fluctuates in line with the current market. At the time of writing this article, the value of a single ETH is roughly $4,064 AUD, $2,960 USD, or £2,215.
ETH is currently the second largest cryptocurrency after Bitcoin (BTC). This is largely due to the role it plays in the NFT market. Unlike BTC, however, ETH has a much larger circulation supply. While Bitcoin’s circulation will only ever be 21 million, ETH’s current circulation supply stands at 119.7 million.
A number of renowned digital currencies use the ERC-20 standard. These include Augur (REP), Basic Attention Token (BAT), Maker (MKR), and OMG Network (OMG).
How do you buy Ethereum/Ether/ETH?
Buying ETH is much the same as buying any other cryptocurrency. Most exchanges, both centralised and decentralised, offer ETH on their platforms.
In our last article “How to buy Bitcoin” I outlined a step-by-step guide to purchasing a cryptocurrency. Purchasing ETH follows the same steps:
Choose an exchange
Opt for either a centralised exchange (CEX) such as Coinbase, eToro, Binance, or a decentralised cryptocurrency exchange (DEX) such as Uniswap, SushiSwap, or Bancor.
In some instances, you may also be able to buy ETH directly via an Ethereum wallet.
Costs, such as service fees, will also vary between platforms. Therefore it’s worth doing your research and comparing exchanges to find the best fit for you.
Create and verify an account
Once you’ve found the right exchange for you, you’ll need to set up an account. This process will vary from platform to platform, but usually only involves giving a few personal details to the service provider.
You may also be required to verify your identity with the exchange platform. This might include submitting a photo of your driver’s licence or passport.
Add funds to your account
You will need to link a bank account, or a debit/credit card in order to buy your ETH. If you already own crypto, you will also likely be able to trade your current crypto for ETH, depending on the currency you own and the exchange you are using.
Once your account is funded you will be able to purchase ETH and other cryptocurrencies via your chosen platform. Be aware that because of the decentralised nature of the currency, the price of ETH may vary somewhat between exchanges. Processing times may also vary.
Withdraw and store your ETH
Once you have purchased your ETH, you will want to store it securely. You can do this in either a hot or a cold digital wallet. Centralised exchanges often offer to store your crypto for you. However, it’s a good idea to check the security of the platform in question before you decide whether or not you want to leave your money where it is.
Is investing in Ethereum a good idea?
As mentioned earlier, ETH is, at the time of writing, currently booming across the crypto market. This is largely down to its necessity in the purchase of NFTs, it’s secure blockchain (and therefore more secure currency than most cryptos), and Ethereum’s role as a network hub for emerging markets.
But does that necessarily make it a good investment?
A potential downside to buying ETH and investing in the Ethereum blockchain could include it’s unlimited nature. Unlike BTC, ETH’s circulation limit is not capped. This means that it is still being produced, and this could, in theory, bring its value down, because it lacks scarcity.
That being said, the uncapped nature of ETH is also a positive in some respects. Transactions come with practical utility, self-executing contracts and fast transaction times. ETH does not face the same constraints as Bitcoin or other limited currencies.
If you think that investing in Ethereum is right for you, it’s definitely worth considering the points outlined in this article, as well as doing your own research.