Contrary to what you are used to with traditional banks or services such as PayPal, you are entirely responsible for the storage and security of your digital assets. You have to take this very seriously. There is no central authority that has access to your cryptocurrencies. There are different ways to save and secure your money. When you first receive cryptocurrencies, you probably bought it through an exchange. Keep in mind that saving your digital assets on an exchange is unsafe. Of course your exchange will do everything to guarantee the safety of your money. However, they can’t. Exchanges are in fact central, and everything stored centrally can be hacked. Decentralized exchanges are on the rise, but as long as trade takes place largely at central exchanges, we can not warn you often enough. Never store money on an exchange, unless you want to make a trade. Make sure you transfer your assets back into your own wallets after you have made a trade.
First we give you a simple explanation of public and private keys, before we explain how you store your coins in a safe way.
Private key & Public key
Sending and receiving crypto payments is regulated by security keys. The private key is needed to send money and the public key to receive money. What key are people allowed to know and which key is absolutely not?
The security of crypto transactions is based on cryptography. To send and receive a payment you need your own unique address. This address consists of a series of numbers and letters and is randomly generated. Each address has its own unique key, in other words a private key.
A private key is normally a 256-bit code consisting of 64 characters. This is an example of a private key:
With this private key you put a digital signature with which you can prove that you are the owner of these cryptocurrencies. It also keeps track of transactions, so that you can see for yourself which addresses have been transferred.
It is very important that you keep the private key at all times for yourself as everyone who owns the private key can come into your wallet. See it as a bank account. If you do not know your private key anymore, it is also no longer possible to get into your wallet, and your cryptocurrencies will be lost forever. There is no central authority that has access to your keys if you have lost them. It is in fact your pin code from your bank account that no one else knows.
A public key is generated from a private key and can be made known to everyone. This key is used to receive cryptocurrencies. You can see it as your IBAN number (or Account Number in de US). Every cryptocurrency has its own address, so it is very important that you do not send different types of coins to the same address. Nowadays, people are talking about a crypto address instead of a public key. This address is a hash of the public key and this has been done to provide extra security. An example of an Bitcoin address is:
Public keys can be generated from the private key but not vice versa. It is impossible that someone with your public key can also retrieve your private key. The key is generated by means of an algorithm and it only works one way.
A software wallet stores private and public keys and interacts with the blockchain enabling users to send or receive the digital currency/asset. If one want to use any cryptocurrency, one will have to do so by using their digital wallet.
Different types of software wallets
Software wallets can be broken down into three different categories: desktop-, mobile or online wallets.
Are used for a PC or laptop. The only location to access them is via the computer on which the wallet is installed. Desktop wallets are very secure. However you are the gatekeeper. If your computer gets hacked or infected with a virus you may lose all your funds.
Are wallets that run as an app on your phone. Mobile wallets are useful because they can be used in a lot of places including some retail stores. Mobile wallets are usually much simpler than desktop wallets because of the limited space available on a mobile.
Online wallets run on the cloud which makes them accessible from any computing device in any location with internet. While they are more convenient to access, online wallets store your private keys online and are controlled by a ‘trusted’ third party which makes them more vulnerable to hacking attacks and theft.
The difference between hardware and software wallets is that with a hardware wallet the user stores their private keys on a hardware device like for example a USB. This way the users are able to store their wallets offline which delivers increased security. Most hardware wallets are compatible with several web interfaces and support different cryptocurrencies. It gets better, making a transaction is easy. Users simply plug in their hardware device to any internet-enabled computer or device, enter a pin, send their currency of choice and confirm. Hardware wallets make it possible to easily transact while also keeping your money offline and away from danger.
Nano Ledger S
If you own cryptocurrencies, what you really own are the ‘private keys’ to access them. With a Ledger Nano S these private keys are safeguarded into the secure chips of the ledger hardware wallet. These private keys are backed up by the 24 word recovery phase which you will obtain by configuring your device. Once you have stored your cryptocurrencies on your hardware wallet the only way to do a transaction is through physical access to the ledger Nano S and by confirming the transaction with the pin code you created by configuring the device. Many cryptocurrencies are supported on the Ledger Nano S, a list of them can be viewed here.
We strongly support the use of a hardware wallet like the Ledger Nano S. The cryptocurrencies are always stored on the Ledger Nano S, and even if your PC is compromised the hacker cannot steal the coins. You need physical access to the device and know the pin code to do a transaction, which makes it very secure.
Configuring the device
Once you connect your ledger device with your PC you can start to configure your device. This is an easy process. It consists of the following five steps and it is very important you carefully do these steps and save certain information:
Memorize your pin code and keep the paper file with the 24 words somewhere safe. The paper file is the only way you can regain your cryptocurrencies in case of losing your ledger or theft of your ledger.
A Ledger Nano S can be bought on the official website of Ledger. You can also buy the Ledger through various resellers, but do make sure that the reseller is on Ledger’s retailers network list, to be certain that the device has not been tampered with.
Using a paper wallet is relatively straightforward. They are easy to use and provide a very high level of security. While the term paper wallet can simply refer to a physical copy or printout of your public and private keys, it can also refer to a piece of software that is used to securely generate a pair of keys which are then printed.
Transferring Bitcoin or any other currency to your paper wallet is accomplished by the transfer of funds from your software wallet to the public address shown on your paper wallet. Alternatively, if you want to withdraw or spend currency, all you need to do is transfer funds from your paper wallet to your software wallet. This process, often referred to as ‘sweeping,’ can either be done manually by entering your private keys or by scanning the QR code on the paper wallet into your software wallet.