Quick Guide on How to Use Cryptocurrencies!!!
After purchase is before use
The purchase at an exchange office or exchange first “deposits” the purchased coins in a wallet of the user account. Each account usually has several wallets, and there is a separate repository for each crypto currency. Purchased BTC flows into the Bitcoin wallet, ETH into the Ethereum wallet, etc.
the coins in the in-house wallet has the advantage that the user does not have to worry about the safe storage of his coins for the time being. On the other hand, the coin owner needs to trust the provider to guarantee access to the coins at all times. Most of the negative headlines in the past about Bitcoin & Co had to do with security holes or stolen coins on exchanges. Since stock exchanges are always potential targets for hackers, no investor should store large amounts there for long periods of time. For this reason, all providers offer the option of paying out the purchased cryptocurrencies to their own wallet.
Types of Wallets
With online wallets, the user simply logs into their account in the browser. Usually they are part of the account at an exchange or exchange office. In this way, the owner of the platform keeps the coins for the user. Since it is not guaranteed that providers cannot go bankrupt or be hacked, an online wallet does not represent a secure deposit. The recommendation is to only have coins there in the amount that is necessary for buying and selling.
Browser / web wallets
Web wallets also use the browser or a browser extension to manage cryptocurrencies. In contrast to the online wallet, the owner does not entrust the coins to a provider, but always holds them himself. Web wallets such as Metamask for Ethereum are perfect for payments that should be made directly in the browser. The security of this type of wallet depends on the security of the entire computer. It is therefore equally advisable to only store smaller amounts here.
Mobile wallets are apps that users can use to manage their coins on their smartphones or tablets. They most closely resemble the purses that one is used to from normal money. They can be used to pay for products and services on the go or conveniently send money to friends. The great advantage of mobile wallets is that they are easy to install and use. The disadvantage is that most cryptocurrencies can only be used with their own wallet. This increases the number of apps on the phone.
Desktop wallets are programs for installation on home computers. In many cases they also form so-called full nodes, i.e. active nodes in the network of a cryptocurrency. Full nodes store the entire blockchain locally and thus contribute to the maintenance of decentralized structures. They can also validate transactions. Desktop wallets are not recommended for beginners.
Hardware wallets cost quite a bit and therefore represent a considerable initial investment. However, they are ideal for managing larger amounts of crypto currencies. Similar to a USB stick, they are offline most of the time. Hardware wallet owners only connect them to the Internet to carry out transactions. Hardware wallets can even be used on virus-infected devices. More information about hardware wallets is available here .
A paper wallet is exactly what the name suggests — a paper wallet. “Storing” coins on paper is the safest option and is strongly recommended for large sums of cryptocurrencies.
But how can you keep Bitcoin & Co. on paper? In principle, no wallet stores the actual coins. Only access to the coins is stored in the digital wallet (private key). Anyone who knows him can send and receive the coins.
Excursus: private key and public key
Each wallet has a key pair, consisting of the private and the public key. The latter is nothing more than the “address” of the wallet. It acts as a kind of account number. The private key is only known to the wallet owner. It is the most sacred thing in the field of cryptocurrencies and should never be given to anyone. If the private key is no longer available, access to the coins is lost. Both keys are noted on the paper wallet. If you need access to the coins contained, the paper can be read out using wallet apps. In the following example of a paper wallet, the private key is on the right (written out and as a QR code).
Crypto enthusiasts differentiate wallets into “hot” and “cold storage”. The former means that the wallet is connected to the Internet, as is the case with a mobile or desktop wallet, for example. With “cold storage”, the private key is stored without a connection to the Internet, for example on a paper wallet.
If a coin owner wants to send his credit back and forth between different wallets, he can direct the shipment in the wallet to the corresponding destination address. To do this, he simply enters the desired address or scans a QR code with his mobile phone. Almost all cryptocurrencies incur fees during these “transfers”. This is due to the basic principle of the blockchain. The fees are usually in the cent range, but can cost several euros depending on the level of use of the cryptocurrency. Such a transaction is usually completed in a few seconds to a few minutes. After that, only the recipient can dispose of the sent coins.
Tips & Tricks
- Given the fees involved, it is advisable to plan coin transfers as well as possible. Many small transactions would otherwise use up a significant portion of the coins purchased. Some wallets also allow you to set the range of fees yourself. The transaction may not be executed immediately. However, if you can wait a little, you can optimize your negative items.
- It is best for the sender to double-check the destination address for all transactions. Some cryptocurrencies recognize when an invalid address has been entered as the destination address. For some, however, this is not the case. So if ETH is sent to a wrong Ethereum address, it is lost forever.
- Regardless of the type of wallet used, the proposed security and backup methods should be used. This includes 2-factor authentication and recovery using a seed.
- Only wallets from the official app stores with good ratings and many downloads are recommended.
Over time, some standards have become established. Most of the tokens are based on the ERC-20, an Ethereum standard.
The information contained herein is for informational purposes only. Nothing herein shall be construed to be financial, legal, or tax advice. The content of this article is solely the opinions of the writer who is not a licensed financial advisor or registered investment advisor. Trading cryptocurrencies/commodities/foreign exchange/equity market poses a considerable risk of loss. The speaker does not guarantee any particular outcome.