Can You Trust Your Cryptocurrency Tools?
There are a number of factors to consider when you choose a cryptocurrency wallet, exchange, or payment processor. Here are a few key considerations, with a little extra focus on wallets.
1. Company Reputation
Consider how long the company has been around, who’s running it, how securely they store your data on their servers, who holds your private keys, if they’re insured, or whether or not they have prior incidents of insider hacking and cryptocurrency losses due to poor data management practices or glitchy software.
Seek reviews and do your homework to choose the most reputable one.
2. Technologies Used
Open source wallets allow third parties to review their code in its entirety, meaning that if there’s anything amiss, it will be widely reported; traditionally cryptocurrency users feel less secure when they use wallets with proprietary code and they can’t see what’s under the hood. Many new wallets are often buggy and aren’t quite ready for mass consumption.
Additionally, you’ll also want to know how your private key is stored –do you hold it, or is it held on their server? The latter is riskier than the former. And of course, do they use 2-factor authentication?
On top of all that, some cryptocurrency holders are also vehemently obsessed with privacy –if that sounds like you, read their FAQ to learn whether or not your wallet of choice can work seamlessly over the TOR Network.
3. Backup Features
As luck would have it, my third laptop in four years abroad died over this past weekend. Yes, some of my friends are beginning to wonder what the hell I am doing to my hardware –but corroded computer guts are a fact of life when you spend all of your time within a kilometer or two of the ocean, and rainy season can make a laptop perspire as much as my pale ass or the cold beer next to it.
With that in mind, ensure that your prospective wallets have a proper backup mechanism. I currently use Exodus on my deceased laptop which is a software wallet with a decent backup procedure that consists of a rescue link, password, and a number of pass phrases to get everything back up and running again. And soon they’re going to up their security features with 2FA (2-factor authentication), among others.
Even without a laptop, I’m still able to increase my Ether balance and verify it reached my wallet with tools like Etherscan.io. When I got a new laptop a couple of weeks later, I was able to re-install Exodus and pick up where I left off.
4. Multiple Cryptocurrencies
Many wallets and exchanges will allow you to work with many different cryptocurrencies under one roof. Before you verify your account on an exchange or open a new wallet, I suggest you become familiar with which cryptocurrencies they support.
Some wallets are purpose-built, just for one cryptocurrency, and some exchanges will only work with more mainstream altcoins. For example, Mycelium is a very robust Bitcoin-only wallet whereas Coinomi is a popular multi-coin mobile wallet.
5. Cryptocurrency Conversion
Converting one cryptocurrency into another is a really handy integration to have built right into your wallet. This is another feature I love about Exodus, which uses ShapeShift to make this possible. I can’t stress how useful this feature is to have integrated within your wallet, as it also makes cryptocurrency arbitrage very easy.
6. Shared Account
If you’re sharing your crypto wallet with another user, it’s possible to require all parties to confirm a transaction. This is called a “MultiSig” account.
This relatively new feature allows users to setup multiple private keys for a single wallet and is ideal for families or business partners.
This one’s a no-brainer; do you want to access a single wallet across multiple platforms? If so, check out their availability. Personally, I use entirely different wallets on different devices to protect my assets, that way if one wallet gets compromised I don’t lose my entire savings in one go.
8. QR Code Scanner
If you’re looking for a mobile wallet, a QR code scanner is a must. The best mobile crypto wallets will be able to generate and scan a QR code for coin transfers, which will prevent you from having to type out your long public key to send or receive funds. Anything can go wrong, as any old school Windows user will know –remember those annoying license keys?
This is what my Ethereum address looks like: 0x57f70FfbaDcD2d94a15AB6FB4849c7738aB4B110
One day I’m sure that these addresses will be converted into something as easy to remember as an email address, but for now, this is what we’re stuck with.
A QR code is much easier to scan than typing out your entire public key on a tiny mobile device touch screen. The process of using a QR code is almost fool proof. Almost.
You can find an example of crypto QR codes below, which we use to make it easy for readers to make a small donation to our website. Although it is advisable you don’t share the public key of wallets where you store the majority of your cryptocurrency, so setup additional wallets like we did for the QR codes below.
9. Customer Service
When the market value of a cryptocurrency can rise and fall very quickly, the speed of any platform’s customer service is very important should anything go wrong –and this is particularly important for cryptocurrency exchanges. When doing your research, always be sure to include the “customer service” search term for any exchange, trading tool, or wallet.
10. Liquidity Risk
Funding or cash flow liquidity risk is another factor that can negatively affect your ability to make a trade expediently when trading volume is at its peak. You can learn more about liquidity risk on Investopedia, and view detailed information about exchanges on Coinmarketcap.com.
11. Blockchain Evolution
Ensure that both your wallet provider and exchanges you use are ready to manage systemic improvements like “segregated witness” (segwit) or occasional hard forks as blockchain technologies emerge and evolve over time.
When in doubt, keep your cryptocurrency on a hardware wallet in cold storage until changes like these settle.
You will learn about changes to the blockchain over time, so don’t burn too many mental cycles on them today –you’ve already got a lot of ground to cover.
Free Online Cryptocurrency CourseLearn about cryptocurrency at your own pace! We took a more conversational approach to explaining cryptocurrency, pointing out tools and resources as we go along, in context of real-world situations.
The articles below are listed in the order of our own learning experience, moving through the different layers of cryptocurrency adoption from understanding criticisms and myths to the wide range of technologies that underpin it.
We've continuously updated and expanded on each article over time to ensure relevance. The last content review was February, 2020.
What do you think?
What other things do you think one should consider before they start using cryptocurrency tools, exchanges, or buying into an ICO? Let everyone know in the comments below.
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