It’s not surprising to see so many people flock to Bitcoin and other cryptocurrencies after Bitcoin’s highest peak in December 2017.
After all, it’s so hard to stay away from the temptation of gaining large profits brought about from investing in cryptocurrencies.
Along with the profits, investing in digital assets has its own sets of risks. One of those risks is the potential loss you’d get when hackers attack your crypto coin storage.
Those with evil intent are focusing their efforts on crypto exchanges and wallets. If you’re planning on investing in cryptocurrencies, then you should know the important features of crypto brokers and wallets in order to manage risks.
This article talks about the features of a crypto wallet you should consider before owning one. But before we go into that, let’s review first what a crypto wallet is and why it is important.
Crypto Wallet and Its Importance
A crypto wallet is where you store your digital coins. However, it’s not as literal as it sounds.
As you know, a cryptocurrency doesn’t have a physical form or appearance. Same goes for the wallet — it doesn’t literally store any digital coins.
Instead, what digital wallet stores are public and private keys. These keys are important as they provide access to those who have them ownership of coins.
Because of that, having a safe, secure and reliable crypto wallet is important in housing the keys of your coins. One small mistake and you could lose all your coins in an instant.
That’s the summary and a very simple explanation o what a crypto wallet is, what it does, and why it is important. If you want to know more, feel free to read this article dedicated to just that.
Now that it’s out of the way…
Here are features of crypto wallets you should consider before owning one to manage potential risks:
In terms of online capability, there are two kinds of crypto wallets:
From the word itself, these wallets are internet-ready. They run on the cloud and let you access the crypto wallet anywhere and anytime with the appropriate device.
Yes, online wallets are very convenient. However, you’re exchanging the security for convenience. Because online wallets run on the cloud, they are vulnerable to attacks from hackers.
In comparison, offline wallets are not connected to the internet –they don’t run on the cloud. And because of that, hackers would not be able to touch your keys and coins. An offline wallet is a safer option as they don’t rely on the internet or other third-party security applications.
However, if you plan on investing in cryptocurrency long-term without having to check your wallet day by day, you should go with online wallets.
But if you’re the day-trader type, you have no choice but to opt with offline wallets. What you can do to stay secure is to release only the amount you have to use. Keep the large portion of your investment secured in the offline wallets.
Many software companies allow crowds to check their codes in hopes of improving their software.
Wallet companies are not an exception. However, this possesses a lot of problems in the future.
For instance, if there’s an error on the code that could compromise the wallet’s security, those will evil intentions can exploit it. Furthermore, knowledge of such a flaw in the code could result in a widespread leakage to others.
On the other hand, there are lots of cryptocurrency users, (especially those with experience in coding) who prefer to see what’s under the wallet’s hood.
If you like to check whether a wallet is an open source or not, simply find the wallet’s website and check its FAQ.
The ability to access your wallet with different platforms is a great convenience.
Online wallets, by nature, is accessible by any internet-capable devices. These wallets run in the cloud so browsers are able to access them.
When it comes to offline wallets, it’s the developers who decided whether the wallets are a cross-platform or not.
Once again, there’s security in offline wallets. A hacker can’t hack a wallet if it’s not connected online. More or less, you would always have to choose between security and convenience.
A crypto wallet with MultiSig feature means users can set up a wallet with multiple signatures.
If you are investing as a group, this is ideal and a no-brainer. You can’t finish a transaction unless the others confirm it by giving their private keys as well.
Applying this to your wallet multiplies the security and safety of your group’s coins. It would almost be impossible for you to get mistaken with your transactions since it needs multiple signatures to get confirmed.
As of the moment, Bitcoin, Ethereum, and Ripple are the most popular cryptocurrencies.
However, there are lots of coins being made every day who also have bright futures. These coins are being dubbed as “altcoins” or alternative coins. Some of these coins “project” themselves as better substitutes or replacements to Bitcoin.
Whatever the case is, wallets are either coin-specific or have multi-currency support.
If you’re planning in investing in different cryptocurrencies, then choose the wallets with multi-currency support. Always check the wallet’s FAQ page t to know what coins it supports.
It’s still debatable whether coin-specific wallets are more secure than multi-currency wallets. One of the things you can do is to always check and research the company’s reputation. See if there were hacking incidents and if there were, find out what actions they’ve taken to prevent the hacking and other security issues from happening again.
Perhaps one of the most important features you should consider in choosing a crypto wallet is the backup feature.
There’s nothing much you should worry about online wallets. Your coins are automatically backed up in the cloud. The companies behind these wallets indicated how the backup feature is only accessible via the software or app.
On the negative side, this could turn really bad. In the world of technology and investments, the only thing you can be certain of is uncertainty. You never know when the hackers will attack. They might be able to overcome the encryptions and overpower the updates of these companies.
To be sure, do some precautions too. Always transfer your coins to offline wallets to cut off any possible access from hackers.
Manage Liquidity Risks
No matter how long you’ve been investing in cryptocurrency, your assets are vulnerable to liquidity risks.
If you don’t know what liquidity risk is, it’s the risk of not being able to sell or turn your assets into cash according to its value (or close to it).
For instance, you have a mansion and you’re looking forward to selling it. But, because of the state of the market, you won’t be able to sell it at the price even close to the property’s real value. Of course, the mansion has value but you won’t be able to realize it.
That’s liquidity risk. Check the strategies of your chosen wallet against liquidity risks.
QR Code Generation and Scanner
Admit it, it’s not always easy and convenient to share your public keys every time you need to make a transaction.
If a wallet is capable of generating and scanning QR codes, you won’t have to type your long public keys every time you’ll have a transaction. Image how tedious it would be for those who are using their mobile devices for transactions.
Another advantage of QR Codes is the minimization of the typo errors in sending public keys. You never know what could go wrong in typing those long phrases. One mistake and that could be a huge loss.
By the way, there’s nothing to worry about in showing your public keys. There’s nothing a hacker can do if that hacker doesn’t have your private keys.
But for your safety and security, use designated wallets for these purposes.
Crypto Coin Conversion
Here’s the thing:
Most crypto exchanges have their own crypto wallets as well.
That brings convenience and safety to your coins. You don’t have to take your coins in and out every time you need to convert your coins into another coin.
Once your coin is out, you never know what could happen. You could’ve entered the wrong address or the wrong amount and you’ll never have your money again.
With a wallet that’s capable of converting your cryptocurrency into another, you’re confident with the safety of your coins.
When checking and researching for what crypto wallets to use, don’t forget to check the company’s customer service.
No matter how perfect the software, application or tool seems to be, there will always be unexpected problems, errors, outages, and failure. The important matter is how the company will be able to help or provide service to you if anything goes wrong.
Always research how the company resolves concerns. Here are some questions to guide you so you’ll know if the company has good customer support.
How active is their customer service?
Is the support available 24/7?
What is the type of company’s Customer Support? Is it via phone, email, or live chat support?
Is the wallet’s customer service manned or just automated?
How does the company help users with problems?
Aside from choosing which cryptocurrency you should invest in, you should also pay attention to the crypto wallet you would be using. After all, the safety and storage of your coins heavily depend on the wallet.