Blockchain Wallets

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I am Pavel Bogush, Deputy COO at Platinum, where we provide a full range of services which any STO requires. Get your free consultation and project review on our site:

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We know how to be successful in this sphere and that’s why we created a number of courses at the UBAI, the very first online university in blockchain sphere. How to create wallets by following a clear step-by-step guide? How to transfer and monitor the funds in and out of your blockchain wallet? The answers to these questions are in this lesson!

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1.5 Case Study: Good Practice

Binance, the Attempted Hack

During the 2017 bull run, China-based exchange Binance quickly rose to the status of biggest altcoin exchange in the world, boasting daily volumes that surged to over $4 billion per day in late December.


Unfortunately, this success attracted the attention of some crafty hackers. These hackers purchased domain names that were confusingly similar to “binance.com”. And then they created sufficiently convincing replica websites so they could phish traders for their login information. After obtaining this vital info, the scammers created API keys to place large buy orders for VIAcoin, an obscure, low volume digital currency. Those large buy orders spiked VIA’s price. Within minutes they traded the artificially high-priced VIA for BTC. Then they immediately made withdrawal requests from the hacked BTC wallets to wallets outside of the exchange. Almost a perfect fait accompli! But, Binance’s “automating risk management system” kicked in, as it should, and all withdrawals were temporarily suspended, resulting in a foiled hacking attempt.

Wallet Evaluation

Advantages of each Wallet Technology & Venue

With no trusted third party to mediate disputes or to help you attempt to reclaim any funds you have lost by misadventure or fraud, you as an individual must take total responsibility for the safety of your assets. When weighing the various pros and cons of each method of storage, security is obviously of paramount importance. Convenience and speed of transfer, as important as they are, only come into play when you regularly need to transfer funds from your wallet to an exchange, etc. The balance between security and convenience must be carefully considered by those people engaged in frequent trading. Prudence dictates that the most secure methods of crypto storage (e.g. in an offline hardware wallet) are recommended for beginners and seasoned pros alike.

2.1 Software Wallets
Web/Desktop/Phone/Exchange Advantages and Limitations

As we said before, it is inadvisable to store crypto assets in exchange wallets, and, to a lesser extent, Web Wallets. The specific reason we say that is because you need to deliver your private keys into the hands of another party, and rely on that website or exchange to keep your private key, and thus your assets, safe. The advantages of the less-secure exchange or web wallets, are the speed at which you can transfer assets into another currency, or into another exchange for sale or for arbitrage purposes.

Despite the convenience factor, all software wallets will at some point have been connected to the internet or a network. So, you can never be 100% sure that your system has not been infected with malware, or some kind of keylogging software, that will allow a third party to record your passwords or private keys.

How well the type of storage method limits your contact with such hazards is a good way to rate the security of said variety of wallet.

Of all the software wallets, desktop and mobile wallets are the most secure because you download and store your own private key, preferably on a different system. By taking the responsibility of private key storage you can be sure that only one person has possession of it, and that is you! Thereby greatly increasing the security of your crypto assets. By having their assets in a desktop wallet, traders can guard their private key and enjoy the associated heightened security levels, as well keep their assets just one swift transfer away from an exchange.

2.1 Hardware Wallets

Advantages and Limitations

We briefly touched on the features and operation of the two most popular hardware wallets currently on the market, the Ledger and Trezor wallets. Now it will be helpful to take a closer look into the pros and cons of the hardware wallet storage method.

With hardware wallets, the private keys are stored within a protected area of the microcontroller, and they are prevented from being exported out of the device in plain text. They are fortified with state-of-the-art cryptography that makes them immune to computer viruses and malware. And much of the time, the software is open source, which allows user validation of the entire performance of the device.

The advantages of a hardware wallet over the perhaps more secure paper wallet method of crypto storage is the interactive user experience, and also the fact that the private key must at some stage be downloaded in order to use the paper wallet.

The main disadvantage of a hardware wallet is the time-consuming extra steps needed to transfer funds out of this mode of storage to an exchange, which could conceivably result in some traders missing out on profits. But with security being the main concern of the vast majority of holders, investors and traders too, this slight drawback is largely inconsequential in most situations.

2.1 Paper Wallets

Advantages and Limitations

Paper wallets are thought by some to be the safest way to store your crypto assets, or more specifically, the best method of guarding the pathways to your assets on the Blockchain. By printing out your private key information, the route to your assets on the Blockchain is stored 100% offline (apart from the act of printing the private key out, the entire process is totally offline). This means that you will not run the risk of being infected with malware or become the victim of keylogging scams. The main drawback of using paper wallets is that you are in effect putting all your eggs in one basket, and if the physical document is destroyed, you will lose access to your crypto assets forever.

3.

3.1 Wallet Creation

3.1 Where and How to create a Wallet: My Ether Wallet

If you go to https://www.myetherwallet.com/, before you actually approach the section where you are given all the instructions how to open your wallet, and how to download your private key, you will have read through the many security disclaimers. These disclaimers make it clear that the ultimate responsibility for your cryptocurrency safety rests with you as the crypto asset holder.

It is highly recommended that you download Metamask, the MEW chrome extension, or an alternative, to protect you from malicious sites (more on that later).

3.1 Where and How to create a Wallet: My Ether Wallet

Before you open a Wallet, you should certainly backup your private key, so if you lose your login credentials you are not locked out of your wallet.

If you are going to be using the MEW website alone as the pathway to your wallet, you also must be careful to back up the private key and JSON file that you are prompted to download just before the wallet is created.

Store these details in a safe location, preferably not on the personal computer you use day to day. After the security advice has been given and understood, it is an easy process to create your wallet and begin transferring funds to and from your MEW wallet.

But you must also bear in mind, it is essential that you have enough “Gas” to fund the transaction. The gas that is used to process the transaction on the Ethereum Blockchain is taken in the form of ether from the ether you must have inside the MEW wallet. It is best to log in to any web wallet or desktop wallet with a hardware wallet to create two factors of authentication. Enabling 2 Factor Authentication (e.g. by using Google authenticator) is not yet possible with MEW wallets.

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3.2 Desktop: Neon Download, Installation and Operation

The Neon Wallet is an application that can be downloaded from the officialhttps://neonwallet.com/ website. The wallet is solely for the storage of NEO and its associated tokens. The wallet will also have a separate section for the “Gas” that accrues when you store NEO in your NEON wallet.

As with all of the most secure varieties of wallets, you store your private key yourself when you create the wallet. You will need to create both a password and a private key when creating the wallet, both of which will be required to access the wallet (assuming you are not logging in with a hardware wallet).

The least safe way to store a NEON wallet private key is in a file on your desktop. When or if you proceed to copy and paste your private key from your desktop file into the private key field, that leaves you open for attacks from keylogging software. Any security conscious cryptocurrency trader or holder would strenuously advise against logging into a desktop or web wallet by physically typing or copying a private key into the key field. The most secure way to access this wallet would be by using a Ledger or Trezor, which you obviously have to connect to the internet, and then key in your PIN to unlock the wallet. By logging into desktop wallets with hardware wallets you can also avoid the laborious and hazardous process of typing out a lengthy private key.

3.2 Hardware: Ledger buying/setup process

The most popular hardware wallet on the market is currently the Ledger Nano S, which can be purchased from Amazon for approximately $120USD. The hardware wallet is simply a USB-like device that securely stores the private key for your crypto wallets.

First, you must update the device’s firmware (complete directions are on the www.ledgerwallet.com site).Next, you select a PIN with the 2 buttons on the ledger device after it has been connected your laptop. To set it up you will need to program the ledger by writing down and storing 20 words which constitute your “recovery phrase”. You do this by connecting it to your laptop or PC and following the instructions that are written in the set-up guide which comes with the associated packaging. written in the set-up guide which comes with the associated packaging.

To fully initiate the wallet and to make it ready for use, you will be asked to input a series of words from the recovery phrase into the display on the screen. It is quite straightforward, easy to use and navigate. There are yes/no selections with the 2 buttons on the ledger (the left one for back, right one for forward, and both for confirm). You now must install the relevant apps on your computer for whichever individual cryptocurrency you hold. Currently only BTC, ETH and LTC support are pre-installed on the ledger, but you can access MEW with it too, which will take care of all ether tokens. There are also rumors of Monero and Nano support coming soon.

3.3 Key things to keep in mind about your Wallet

Security: Recovery Phrases/Private Key Storage/2FA/Email Security

1

Recovery phrases

are used to recover the on-chain location for your wallet with your assets for hardware wallets like ledgers and Trezors that have been lost. When you purchase a new ledger for example, you just have to set it up again by entering the recovery phrase into the display and the lost wallets will appear with your assets intact.2

Private key storage

is of paramount importance to maintain the safety of your on-chain assets! This should be done in paper wallet form, or stored offline on a different computer, or USB device, from the one you would typically use to connect to the internet.

3.3 Key things to keep in mind about your Wallet
2 Factor Authentication (2FA)

sometimes known as “two step authentication”. This feature offers an extra security layer when withdrawing funds from cryptocurrency wallets. A specialized app, most commonly Google Authenticator, is synced up to the exchange to provide a constantly changing code. This code must be entered within a short time window to initiate transfers, or to log into an exchange, if it has also been enabled for that purpose.

3.3 Keys: Deterministic Wallet/Non-Deterministic Wallet

A deterministic wallet is a system of master and child keys which are derived from a single starting point known as a “seed”. The seed can be used to regenerate a wallet without the need for any other information. It is even possible to create public addresses without using private keys. Seeds are typically serialized into human-readable words in a Mnemonic phrase.

3.3 Keylogging

Keyloggers or keystroke loggers are software programs or hardware devices that track the activities (keys pressed) of a keyboard.

Keyloggers are a form of spyware whereby users are unaware their actions are being tracked. Keyloggers can be used for a variety of purposes. Hackers may use them to maliciously gain access to your private information. Employers might use them to monitor employee activities. Some keyloggers can also capture your screen at random intervals; these are known as “screen recorders”. Keylogger software typically stores your keystrokes in a small file, which is either accessed later or automatically emailed to the person monitoring your actions.

Keyloggers are a direct threat to crypto asset holders as they might enable malicious parties to steal your private key or login credentials. This is one more reason to use 2FA and hardware wallets such as Ledger. These are appropriate, wise and critically important precautions.

4.

Wallet Transfers

4.1 Introduction

Though there are a few different methods to transfer from one cryptocurrency wallet to another, they all share the same basic function. You are transferring from one wallet address to another, and asking the network to ratify the transaction by paying either the miner fees in the case of a bitcoin, or other Proof of Work type of crypto, or paying the gas fees in the case of Ethereum or another Proof of Stake style of cryptocurrency.

If you are transferring Ethereum from the Binance exchange online wallet into your MEW wallet (Desktop PC) you would simply copy and paste the recipient Ethereum address into the address field, then enter the 2 factor authenticator code if enabled & click send. You would then verify the transaction by accepting the verification email.

If you are sending Ethereum using your phone, you are able to scan the associated QR code in place of copying the recipient’s wallet address. All of the other steps remain the same.

4.1 Introduction

4.2 Notable Considerations

You must always consider the level of fees, or the amount of Gas, that will be needed to carry out the transaction. In times of high network activity Gas prices can be quite high. In fact, in December 2017 network fees became so high that some Bitcoin transactions became absolutely unfeasible. But that was basically due to the anomalous network congestion caused by frantic trading of Bitcoin as it was skyrocketing in value.

When copying wallet addresses, double check and triple check that they are correct. If you make a mistake and enter an incorrect address, it is most likely your funds will be irretrievably lost; you will never see those particular assets again.

Also check that you haven’t input the address of another one of your wallets that is designed to hold a different variety of cryptocurrency. You would similarly run the very great risk of losing your funds forever. Or, at the very least, if you have sent the wrong crypto to a large exchange wallet, for example on Coinbase, maybe you could eventually get those funds back, but it would still entail a long and unenjoyable wait.

4.3 How to Monitor Funds

There are two ways to monitor you funds and your wallets. The first is by searching for individual wallet addresses on websites specifically designed to let you view all the transactions on a particular Blockchain. The other is to store a copy of your wallet contents on an application that tracks the prices of all cryptocurrencies.

Blockchain.info is the block explorer for Bitcoin, and it allows you to track all wallet movements so you can view your holdings and all the historical transactions within the wallet.

The Ethereum blockchain’s block explorer is called Ether scanner, and it functions in the same way.

There is a rival to Ether scanner produced by the Jibrel Network, called JSearch which will be released soon. JSearch will aim to offer a more streamlined and faster search method for Ethereum blockchain transactions. There are many different kinds of block explorer for each individual crypto currency, including nanoexplorer.io for Nano (formerly Rai Blocks) and Neotracker for NEO.

If you simply want to view the value of your portfolio, the Delta and Blockfolio apps allow you to easily do that. But they are not actually linked to your specific wallet address, they just show price movements and total value of the coins you want to monitor.

Lesson Three Summary:

Purpose of Wallets

  • Wallets in the cryptocurrency sphere are different types of software programs that store your public and private keys and allow you to interact with various Blockchains so that you, as the wallet holder can view your balance, send and receive funds and manage other operations.
  • To be able to spend or send those tokens or coins the private key must correspond exactly to the public address to which the coins or tokens are allocated.
  • In the simplest possible terms, the public key is the key you give to someone who will transfer ownership of a unit of cryptocurrency to you into your wallet; and a private key is what you need to be able to unlock your wallet so you can transfer a unit of a cryptocurrency to someone else.
  • There are less common, yet still potentially beneficial means of storing private keys, including paper wallets and brain wallets.
  • The level of security even stronger than cold recently been implemented by the Regal RA DMCC.
  • Web Wallets: A hot wallet by definition, Web Wallets are accessible through the browser on your phone or your computer.
  • Exchange Wallets: A form of Web Wallet contained within an exchange. An exchange will hold a wallet for each individual variety of cryptocurrency you hold on that particular exchange.
  • Desktop Wallets: A software program downloaded onto your computer or tablet hard drive that usually holds only one kind of cryptocurrency. The Nano Wallet (Formerly Raiwallet) and Neon wallet for storage of NEO and NEP-5 tokens are notable examples of desktop wallets
  • Phone Wallets: These are apps downloaded onto a mobile phone that function in the same manner as a desktop wallet. But phone wallets can hold many different kinds of cryptocurrency. The Eidoo Wallet for storing Ethereum and its associated tokens, and Blockchain Wallet which is currently configured to hold BTC, ETH and Bitcoin Cash, are some of the most widely used examples.
  • Paper Wallets are an offline form of crypto storage, that is free to set up, and probably the most secure way for users from beginners to experts to hold on to their crypto assets.
  • A wallet without any private keys or seed in it, is called a Watch Only Wallet.
  • Multi-Signature wallets are primarily used by people, normally traders or exchanges, that are pooling their crypto assets together.

Got interested? Buy the full basic course to become a real professional in the blockchain league.

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