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Cryptocurrency Regulation Around the World Report

by Iulia Vasile | Jan 22, 2019 | News

This report surveys the legal and policy landscape surrounding cryptocurrency regulation around the world. This report covers 130 countries as well as some regional organizations that have issued laws or policies on the subject.

After analysing how various jurisdictions, it would be possible to identify emerging patterns, as this report is trying to describe. The country surveys are also organized regionally to allow for region-specific comparisons.

The terminology used to describe cryptocurrency

One first aspect the report has revealed is the variety and fluidity of the terminology used to describe cryptocurrency.

Some of the terms used by countries to reference cryptocurrency include: digital currency (Argentina, Thailand, and Australia), virtual commodity (Canada, China, Taiwan), crypto-token (Germany), payment token (Switzerland), cyber currency (Italy and Lebanon), electronic currency (Colombia and Lebanon), and virtual asset (Honduras and Mexico).

Cryptocurrency regulation: Cryptocurrency warnings and approach

One common action was identified across the surveyed jurisdictions: the government-issued notices about the pitfalls of investing in the cryptocurrency markets. Such warnings, mostly issued by central banks, are designed to educate people about the difference between actual currencies, which are issued and guaranteed by the state, and cryptocurrencies, which are not.

Most government warnings include the following: the investment risk resulting from the high volatility, many of the organizations that facilitate such transactions are unregulated, investing is done as a personal risk and some even add that cryptocurrency was created for illegal activities, such as money laundering and terrorism.

Some of the countries surveyed go beyond simply warning the public and have expanded their laws on money laundering, counterterrorism, and organized crimes to include cryptocurrency markets, and require banks and other financial institutions to ban or limit any type of activity that cannot be tolerated under such laws.

For instance, Australia, Canada, and the Isle of Man recently enacted laws to bring cryptocurrency transactions and institutions that facilitate them under the ambit of money laundering and counter-terrorist financing laws.

Some countries (Algeria, Bolivia, Morocco, Nepal, Pakistan, and Vietnam) ban any and all activities involving cryptocurrencies. Qatar and Bahrain have a slightly different approach in that they forbid their citizens from engaging in any kind of activities involving cryptocurrencies locally but allow citizens to do so outside their borders.

Other countries are indirectly imposing restrictions, by restricting cryptocurrency transactions of the financial institutions (Bangladesh, Iran, Thailand, Lithuania, Lesotho, China, and Colombia).

Cryptocurrency regulation: ICOs

Cryptocurrency regulation is not the only concern for some. Only a limited number of countries surveyed regulate initial coin offerings (ICOs). Some of these countries ban ICOs altogether (mainly China, Macau, and Pakistan), while most tend to focus on regulating them.

For the rest of the countries that do address ICOs, its regulations depend on how an ICO is categorized. For instance, in New Zealand, particular obligations may apply depending on whether the token offered is categorized as a debt security, equity security, managed investment product, or derivative. In the Netherlands, the rules applicable to a specific ICO depend on whether the token offered is considered a security or a unit in a collective investment, an assessment made on a case-by-case basis.

Cryptocurrency regulation: Blockchain technology

Some of the jurisdiction surveyed for this report, while not recognizing cryptocurrencies as legal tender, see potential in the blockchain technology behind it and are developing a cryptocurrency-friendly regulatory regime as a means to attract investment in technology companies that excel in this sector. In this class are countries like Spain, Belarus, the Cayman Islands, and Luxemburg.

Some jurisdictions are seeking to develop their own system of cryptocurrencies. This category includes a diverse list of countries, such as the Marshall Islands, Venezuela, the Eastern Caribbean Central Bank (ECCB) member states, and Lithuania.

Belgium, South Africa, and the United Kingdom stated that the size of the cryptocurrency market is too small to be cause for sufficient concern to warrant regulation but have issued warnings to the public about the pitfalls of such investments.

Cryptocurrency regulation: Cryptocurrency taxation

The challenge appears to be how to categorize cryptocurrencies and the specific activities involving them for purposes of taxation.

Transactions must first get classified either as income or capital gains to determine the applicable type of tax.

The surveyed countries have categorized cryptocurrencies differently for tax purposes, as illustrated by the following examples:

Israel	→	taxed as asset
Bulgaria	→	taxed as financial asset
Switzerland	→	taxed as foreign currency
Argentina & Spain	→	subject to income tax
Denmark	→	subject to income tax and losses are deductible
United Kingdom:	→	corporations pay corporate tax, unincorporated businesses pay income tax, individuals pay capital gains tax

Mainly due to a 2015 decision of the European Court of Justice (ECJ), gains in cryptocurrency investments are not subject to value added tax in the European Union Member States.

Cryptocurrency mining is exempt from taxation in most surveyed countries. However, in Russia mining that exceeds a certain energy consumption threshold is taxable.

Cryptocurrency regulation: Cryptocurrency payments

In a small number of jurisdictions, cryptocurrency regulation permits cryptocurrencies as a means of payment.

In the Swiss Cantons of Zug and a municipality within Ticino, cryptocurrencies are accepted as a means of payment even by government agencies. The Isle of Man and Mexico also permit the use of cryptocurrencies as a means of payment along with their national currency. Much like governments around the world that fund various projects by selling government bonds, the government of Antigua and Barbuda allows the funding of projects and charities through government-supported ICOs.

← Mining Cryptocurrency: Crypto Mining Business Model Used Worldwide The Economics of Cryptocurrencies →

Mining Cryptocurrency: Crypto Mining Business Model Used Worldwide

by Iulia Vasile | Jan 21, 2019 | Blockchain, Cryptocurrency, News

The most popular way to get into crypto is to start mining crypto. There are a few other ways in which you can earn crypto without spending any fiat money, but serious money is made by mining cryptocurrency.

Mining cryptocurrency like Bitcoin is an automatic process, a decentralized mechanism that creates Bitcoin out of thin air to provide rewards to miners for processing transactions. The result: a booming business in mining.

All you need to get into the business of mining cryptocurrency is a rack of high-speed computers and access to electricity anywhere in the world and you can essentially create cryptocurrency, simply by running free software.

Crypto Mining Business Model #1: Legal, Competitive Mining

In the early days of crypto, mining was a business for small-time entrepreneurs. The business soon became increasingly competitive, as miners purchased massively powerful computers while scaling up their operations to remain profitable.

Risks seemed low, as the original Bitcoin software was supposed to account for falling prices, making it easier to mine as the number of miners remaining in the game dropped, thus ensuring that there would always be enough miners to process all the transactions.

Then the Bitcoin crash came, severely limiting the ability for miners to churn out crypto while still making a profit. As it turns out, inefficiencies in the mining algorithm, combined with market pressure on the transaction fees that were supposed to partially compensate miners, has led to a squeeze on the ability for anyone to mine at a profit.

Legal crypto mining using electricity at market rates is now becoming increasingly unfeasible, even in places like Iceland, which have exceptionally low electricity rates combined with temperatures conducive for data centres filled with heat-generating computers.

Crypto Mining Business Model #2: Subsidized Electricity Mining

In Washington State, hydroelectric power generates far more juice than locals can consume, thus attracting a booming business in crypto mining.

“The region’s five huge hydroelectric dams, all owned by public utility districts, generate nearly six times as much power as the region’s residents and businesses can use,”

Explains Politico journalist Paul Roberts. “Most of the surplus is exported, at high prices, to markets like Seattle or Los Angeles, which allows the utilities to sell power locally at well below its cost of production.”

By 2015, however, the Washington Bitcoin mining craze had run its course. “Margins grew so thin—and, in fact, occasionally went negative—that miners had to spend their coins as soon as they mined them to pay their power bills,” Roberts adds.

If not Washington, then, what about Iran? “I come across some very interesting cases,” notes Mohsen Rajabi, an Iranian blockchain entrepreneur. “I recently set up a rig for a middle-aged customer who was not tech-savvy at all and had simply heard of mining and its potential profits. He wanted to start with ten devices installed at his factory because it can legally use extremely cheap industrial electricity.”

Crypto Mining Business Model #3: Steal Electricity

The electricity is the greatest cost of the mining business. If you can manage to cut that out, that chances of making a profit increase at once. In the early days of Bitcoin, college kids would use the university electricity to power their rigs from their dorm.

Today, in contrast, stealing electricity is serious business. “A Shanxi Datong [China] man named Xu Xinghua stole power from the poles near the West Second Plant of the Kouquan Railway, which was borrowed from November to December 2017,” reports Liu Yulin, writing in Chinese for The Paper.

“The coin ‘mining machine’ and three electric fans were operated for 24 hours,” she continues. “Xu Xinghua mined a total of 3.2 bitcoins, earning 120,000 yuan [$17,700], and the electricity generated by the stolen electricity was 104,000 [$15,340] yuan.”

What happened to the thief? “Xu Xinghua was sentenced to three years and six months in prison for committing theft and was fined 100,000 yuan [$14,750],” she reports. He also had to reimburse the electric company for the stolen power and forfeit his equipment.

This story is one of many, notable merely for the fact that the perpetrator was caught and the story appeared in the local paper. Many more instances are sure to be out there, as yet unreported.

Another popular, if potentially unintentional, way to steal electricity: set up a mining operation, take the profits, and then go out of business.

This is the story of one of the Washington State mining companies. “U.S.-based bitcoin mining firm Giga Watt has declared bankruptcy with millions still owed to creditors,” writes Yogita Khatri for Coindesk. “Creditors include the utilities provider in its Douglas County [Washington] base, having a claim of over $310,000, and electricity provider Neppel Electric, which is owed almost half a million dollars.”

One silver lining: there may be a possibility these stiffed utilities will eventually get some of their money back, as Giga Watt raised about $22 million in its ICO – and it’s possible the scammers were unable to spend or secret away all of the proceeds before the bankruptcy shut them down.

Crypto Mining Business Model #4: Cryptojacking

Illicit cryptocurrency mining (known as cryptojacking), has surpassed ransomware as the most popular form of cybercrime targeting enterprises.

Cryptojacking means introducing crypto mining software onto a target victim’s computer without their knowledge. The software starts generating crypto for the hacker while stealing processing power and electricity from the victim.

The cryptojacking problem, in fact, is much worse than it was when I wrote my article Top Cyberthreat Of 2018: Illicit Cryptomining in March 2018.

“Despite the volatility in the value of various cryptocurrencies, the trend of illicit cryptocurrency mining activity among cybercriminals shows no signs of abating,” according to David Liebenberg, senior threat analyst at Cisco Talos.

One of the reasons why the cryptojacking problem is getting worse is because the malware is getting better. One such package: Rocke. “Talos assesses with high confidence that Rocke will continue to leverage Git repositories to download and execute illicit mining onto victim machines,” continues Liebenberg.

Git repositories are where most of today’s enterprise software developers store and manage their source code – but such repositories are not Rocke’s creators’ only target. “It is interesting to note that they are expanding their toolset to include browser-based miners, difficult-to-detect trojans, and the Cobalt Strike malware [malware that leverages Cobalt Strike penetration testing software].”

Crypto Mining Business Model #5: Evading Sanctions

Another cryptocurrency mining business model is to evade sanctions.

For example, a pair of Iranian Bitcoin miners tried to take advantage of their local USD exchange rate: “At the time we bought the mining device, the rate of the US dollar in Iran was still quite high, so we figured we would make about $90 to $100 a month,” explains Ali Hosseini, an Iranian miner. “The cost of electricity is relatively low in Iran, so the math seemed viable.”

Hosseini’s cousin also spoke up. “Foreign exchange rates and Bitcoin prices have fallen and our profits have been slashed, but we’re not seeing losses yet,” says Pedram Ghasemi, another Iranian miner. “According to my calculations, the US dollar must drop below 110,000 Rials [about $2.60] and Bitcoin must be down to $2,000 for us to really lose.”

Another example is North Korea. Priscilla Moriuchi, a former top National Security Agency official and now director of strategic threat development at Recorded Future, estimates that North Korea may have earned up to $200 million in 2017 mining crypto.

How, then, would North Korea turn that crypto into hard currency? “North Korea has such extensive criminal networks that have been well-established for decades to facilitate illegal activities,” Moriuchi says. “If Pyongyang were able to cash out into physical currency, it would be relatively easy for them to move that currency back into North Korea and to buy things with the physical currency. I would bet that these coins are being turned into something — currency or physical goods — that are supporting North Korea’s nuclear and ballistic missile program.”

Crypto Mining Business Model #6: Mining at a Loss

This doesn’t come out as a rational business model, unless ensuring that crypto transactions can be completed is your primary motivation.

We know that crypto is (or at least use to be) essential to the operation of the Darknet. Many illegal businesses and organized crime syndicates depend on the successful exchange of crypto to move their contraband.

Should the value of Bitcoin or any other crypto drop to the point that no one could make money mining it, then such syndicates would likely step in to fill the void – mining at a loss to keep the crypto running.

For all the crypto fanatics out there, therefore, there is a reason to take heart – there’s no way crypto values will ever drop far enough for mining to cease. Organized crime wouldn’t let that happen.

← Blockchain: How A 51% Attack Works (double spend attack) Cryptocurrency Regulation Around the World Report →

Blockchain: How A 51% Attack Works (double spend attack)

by Iulia Vasile | Jan 16, 2019 | Blockchain

Let’s give a simple example to illustrate how a 51% attack works (double spend attack):

You spend 10 Bitcoin on a luxurious car. The car gets delivered a few days later, and the Bitcoins are transferred from you to the car company. By performing a 51% attack on the Bitcoin blockchain, you can now try to reverse this Bitcoin transfer. If you succeed, you will possess both the luxurious car and the Bitcoins, allowing you to spend those Bitcoins again.

Before explaining how this can happen, you should be acquainted with the blockchain mining process and technology.

51% Blockchain Attack (double spend attack) Definition

The ability of someone controlling a majority of network hash rate to revise transaction history and prevent new transactions from confirming.

What does this mean?

A 51% attack or double-spend attack is a miner or group of miners on a blockchain trying to spend their crypto’s on that blockchain twice. They try to ‘double spend’ them, hence the name. The goal of this isn’t always to double spend crypto’s, but more often to cast discredit over a certain crypto or blockchain by affecting its integrity.

Why can a 51% blockchain attack theoretically work?

As we have banks and the states central institution, the blockchain governs using a distributed ledger, where it can store all kind of information, like transactional data, in the case of cryptocurrency. That is why we call blockchains to be decentralised.

The protocol of the Bitcoin blockchain is based on democracy, meaning that the majority of the participants (miners) on the network will get to decide what version of the blockchain represents the truth.

How does a 51% PoW attack work?

Each transaction sent by a bitcoin owner is put into a pool of unconfirmed transactions. The miners select the transactions which will be part of the block. The miners need to find the solution to a very difficult mathematical problem (using computational power) to be able to add this block to the blockchain. This is the process of hashing.

Of course, the bigger the computational power of a miner, the better the chances are for him to be the first to find a solution. When a miner finds a solution, it will be broadcasted (along with their block) to the other miners and they will only verify it if all transactions inside the block are valid according to the existing record of transactions on the blockchain.

Note that even a corrupted miner can never create a transaction for someone else because they would need the digital signature of that person in order to do that (their private key). Sending Bitcoin from someone else’s account is therefore simply impossible without access to the corresponding private key.

How does a 51% blockchain attack start? With a corrupt miner!

A corrupt miner will try to reverse transactions. Why is a miner called malicious? Because when a miner finds a solution, it is supposed to be broadcasted to all other miners so that they can verify it whereafter the block is added to the blockchain (the miners reach consensus). a corrupt miner can create his own version of the blockchain by not broadcasting the solutions of his blocks to the rest of the network. There are now two versions of the blockchain.

The corrupted miner is now working on his own version of that blockchain and is not broadcasting it to the rest of the network. The rest of the network doesn’t pick up on this chain, because it hasn’t been broadcasted. It is isolated of the rest of the network.

The corrupted miner can now spend all his Bitcoins on the truthful version of the blockchain, the one that all the other miners are working on. On the truthful blockchain, his Bitcoins are now spent. Meanwhile, he does not include these transactions on his isolated version of the blockchain. On his isolated version of the blockchain, he still has those Bitcoins.

Meanwhile, he is still picking up blocks and he verifies them all by himself on his isolated version of the blockchain. This is where all trouble starts… The blockchain is programmed to follow a model of democratic governance (the majority).

The blockchain does this by always following the longest chain, after all, the majority of the miners add blocks to their version of the blockchain faster than the rest of the network (longest chain = majority). This is how the blockchain determines which version of its chain is the truth, and in turn what all balances of wallets are based on. A race has now started. Whoever has the most hashing power will add blocks to their version of the chain faster.

The corrupted miner will now try to add blocks to his isolated blockchain faster than the other miners add blocks to their blockchain (the truthful one). As soon as the corrupted miner creates a longer blockchain, he suddenly broadcasts this version of the blockchain to the rest of the network. The rest of the network will now detect that this (corrupt) version of the blockchain is actually longer than the one they were working on, and the protocol forces them to switch to this chain.

The corrupted blockchain is now considered the truthful blockchain, and all transactions that are not included on this chain will be reversed immediately. The attacker has spent his Bitcoins on a Lamborghini before, but this transaction was not included in his stealth chain, the chain that is now in control, and so he is now once again in control of those Bitcoins. He is able to spend them again.

This is a double-spend attack. It is commonly referred to as a 51% attack because the malicious miner will require more hashing power than the rest of the network combined (thus 51% of the hashing power) in order to add blocks to his version of the blockchain faster, eventually allowing him to build a longer chain.

And just for the fun of it, check the cost of the Proof-of-Work 51% Attack for some top cryptocurrencies.

← What Can You Buy Using Cryptocurrency? Mining Cryptocurrency: Crypto Mining Business Model Used Worldwide →

What Can You Buy Using Cryptocurrency?

by Iulia Vasile | Jan 14, 2019 | Crypto wiki, News

Rumours of merchants accepting Bitcoin have been circulating for years. After all, everyone knows at least one-foot soldier who spreads the good word of Satoshi wherever they can find a listening ear.

So then, what can you actually buy with cryptocurrency? If you’re not counting on holding for that Lambo anytime soon, let’s see what you can get for a few satoshis.

Flights and hotels

Due to the explosive growth of the cryptocurrency ecosystem in the past nine years, it is now possible to travel the world by spending cryptocurrency.

Established travel agents such as CheapAir, Destinia Expedia and Surf Air accept bitcoin as a payment method to book flights, car rentals, and hotels and for those who prefer to stay in an apartment when travelling can book accommodation using bitcoin (BTC) or ether (ETH) on CryptoCribs.

The growth of the bitcoin ATM market also means travellers are now able to convert their cryptocurrency into local currency in most major cities around the world.

Movies, games and app-based services

Microsoft dipped its toes in the waters back in 2014, when it started accepting Bitcoin for online game and app purchases on its Windows and Xbox online stores. After a lover’s quarrel over volatility last year, the tech powerhouse stalled payments but has since rekindled the flame and picked up where it left off. While the tech giant is yet to accept BTC across the board, their support carries some serious weight.

While you won’t be getting the latest Windows from Microsoft, there’s always a back door – Newegg will proudly sell PCs, hardware, software, and an arsenal of miscellaneous equipment for bitcoins. Whether you’re in the market for a mining motherboard or a fly-fishing rod, Newegg seems to have it.

Some musicians (Bjork, Imogen Heep) will let you download their music in exchange for cryptocurrency.

Did you know you can Play blockchain games for free and win cryptocurrency?

Online Services

Your classic offline businesses are usually the last to jump on the bandwagon, while traditionally web-based businesses are quicker to catch on to tech trends.

Web services seem to be leading the pack, and you can just about create an entire website using Bitcoin. First, grab yourself a domain name on Namecheap, and if you won’t settle for their hosting package, try HostWinds, GlowHost or HawkHost.

Once you’ve laid out the bones for your new site you’ll want a fresh installation of WordPress, where you can lock down a sexy theme and plugins galore – all purchased using Bitcoin, naturally. If all of this sounds a bit too much, you can jump the queue over on Reddit and launch your project as a premium feature.

Bitcoins also jangle around the darker corners of the world wide web, where romance comes at a price. There’s SuicideGirls, an eerily named “adult” community, or if you’d rather do things the old-fashioned way jump on OKCupid for some online dating action – both accept Bitcoin as payment for membership.

Furniture

Need to furnish your house or buy a special present for someone? Overstock was one of the first big retailers to start accepting bitcoin, back in 2014, and its founder – Patrick Byrne – is still one of the technology’s most active proponents.

Gold

Fancy some gold? Sharps Pixley, APMEX and JM Bullion will take bitcoin off your hands in exchange for bullion.

Food

The first Bitcoin transaction ever recorded was for pizza, and apparently, the novelty never wore off. Accepting bitcoin for pizza since 2013, Pizzaforcoins is a third-party intermediary that will happily take your BTC and convert that into doughy, cheesy goodness made by your vendor of choice. (If you live in the US.)

If you’ve got a hankering for something less greasy, there’s a chance your local Subway will convert your crypto-assets into a foot-long classic. One punter t raded 0 .04 BTC for a Chicken Bacon Ranch 4 years ago- that said, BTC payments don’t seem to be a franchise-wide policy (being left to the discretion of individual store owners).

School

If it’s knowledge you’re hungry for, several private and public universities, as well as a couple of New York preschools, accept bitcoin. I bet you would have never guessed what you can buy using cryptocurrency.

Legal and accounting

Some legal and accounting firms also accept payment for their services in the cryptocurrency.

Presents

If you want to use bitcoin to buy presents, the most obvious solution is gift cards, via Gyft or eGifter. The recipient will then be able to spend the gift card at one of a wide range of retailers.

Charities

Whether you’re looking to bolster transparency with WikiLeaks, build clean water solutions in Sub-Saharan Africa with The W a ter Proj ect, or S ave The Children, the number of charities and nonprofits accepting Bitcoin is growing every day. Take your pick from art, entertainment, NGOs, open-source projects, activism, and even religion- you can find a full, up-to-date list on Bitcoin Wiki.

Of course, you could always buy yourself some happiness by donating to one of the bitcoin-accepting charities or crowdfunding sites, such as BitHope, BitGive or Fidelity Charitable.

Search for offline shops

For a list of offline stores near you that accept bitcoin, check this list of resources to help you spend BTC away from the keyboard:

Where to Spend Bitcoins UK – An all-encompassing directory of shops, pubs, websites and places that accept Bitcoin as payment, complete with a map function.
Use Bitcoins – A directory platform listing 5,000 registered businesses that accept BTC.
CoinMap – An interactive map of worldwide businesses accepting Bitcoin.
Spendabit – A search engine to help you find a retailer for a specific good (that accepts BTC).

What can you buy using cryptocurrency? – Conclusion

Slowly but surely, merchants are warming to the idea of our old friend Bitcoin and slapping up their “Bitcoin Accepted Here” stickers with glee. That said, the process will certainly take some time, with the full force of FUD, regulation, and tech challenges all holding back your average Joe from seeing Bitcoin as a credible payment method.

Before spending, sometimes you also need to think about how to acquire it. Earning Bitcoins might seem like a daunting task if you leave out the option of buying Bitcoin. Check out some platforms which will help you earn free cryptocurrency and Bitcoin.

As an early adopter, sometimes you have to count the wins. While we are a long way off from BTC being as good as cash, there are some heavy hitters on this list that are bound to put the scent of FOMO in the air, jump-starting a mad scramble for competitors to join the crypto revolution.

Until that glorious day, your best bet is a Bitcoin debit card, which you can use just about anywhere that accepts regular old Visa. Try SpectroCoin, Uquid or Cryptopay, and you’ll be swiping and spending your satoshis like nobody’s business.

← The best cryptocurrency exchanges for beginners (updated 2020) Blockchain: How A 51% Attack Works (double spend attack) →

How To Keep Your Cryptocurrency Safe In Crypto Wallets

by Iulia Vasile | Dec 27, 2018 | Cryptocurrency

Crypto wallets are software programs that store private and public keys and interact with various blockchain to enable users to send and receive digital currency and monitor their balance. If you want to use Bitcoin or any other cryptocurrency, you will need to use crypto-wallets.

What you need to remember is that all transactions are recorded and stored on the blockchain.

Some cryptocurrencies offer their own official wallets, while other products allow you to store multiple currencies within the same cryptocurrency wallet.

But different digital currencies have different address types, and you’re usually able to send coins between like wallet addresses only. For example, you’ll need to send Bitcoin to a Bitcoin wallet address and Ethereum to an Ethereum wallet address.

What is a cryptocurrency wallet used for?

What is a cryptocurrency wallet used for? A crypto wallet (or more generically, an electronic wallet) keeps tabs on security keys used to sign transactions digitally, but also, it stores the address onto a blockchain in which a specific asset resides.

There are two varieties of crypto wallets: hardware and software (also called hot and cold storage pockets ( respectively). Hot storage pockets are available via an online service like Coinbase, among the most significant cryptocurrency exchanges which provide online wallets for consumers, and it may be further segregated into online wallets and client-side wallets handled locally on an individual’s personal computer or mobile device.

Additionally, there are paper pocket generators, which make keys which may be printed out or left as QR codes.

Cold storage pockets are downloaded and live offline onto a piece of hardware like a USB drive or a smartphone. Exodus.io and Dash QT are two examples of cold storage wallet software. Cold storage pockets may also be bought as devices using the applications already installed; vendors like Trezor and Ledger offer these sorts of devices.

Hardware pockets can be divided into crypto-assist type wallets, which deal with the keys and registering of random data and are occasionally referred to as hardware security modules (HSMs). “And then there are hardware wallets that handle generating and signing complete transactions that are then sent to the distributed ledger network,” Huseby said.

When you speak with all the blockchain, the hardware communicates via the codes onto the apparatus.

There are 2 kinds of wallets: Cold and hot crypto wallets

A cold storage pocket is more secure than the usual hot wallet since it is not on the web. Many cryptocurrency heists have happened when a hacker strikes an internet wallet support and transports the critical keys to their wallet. Basically, transferring the related funds.

In 2014, as an instance, the Japanese online crypto trade Mt. Gox endured the theft from the hot wallet of 850,000 bitcoins valued at over $450 million. In 2018, bitcoin exchange support Coincheck suffered a theft of nearly $1 billion worth of cryptocurrency out of its alluring wallet support. Many smaller thefts have happened within the previous five decades, mainly through the hacks of internet wallets.

How To Keep Your Cryptocurrency Safe In Crypto Wallets: How do crypto wallets work?

Instead of holding physical coins, a cryptocurrency wallet is electronic and includes a public and private key.

Public key. This is a long sequence of letters and numbers that forms the wallet address. With this, people can send money to your wallet. It’s similar to a bank account number in that it’s used to send money to an account only.
Private key. This is used to access the funds stored in the wallet. With this, people can control the funds tied to that wallet’s address. Like a PIN, you’ll need to keep your private key secret and secure. However, not all wallets give you sole ownership of your private key, which means you don’t have full control over your coins.

What are the desired traits of a crypto wallet and how hard can choose a wallet to be?

Cost. Is it free? What are the drawbacks of using this wallet?
Security. Does the company have a track record of security excellence?
Mobility. Is it easy to keep and difficult to lose? Is it accessible anytime, anywhere?
User-friendliness. Is the wallet UI intuitively designed? Can I store a range of altcoins?
Convenience. Am I able to make a fast purchase when the time calls for it?
Style. Do I have a weakness for cool tech gadgets?

What are the different types of crypto wallets?

Wallets can be broken down into three distinct categories – software, hardware, and paper. Software wallets can be a desktop, mobile or online.

Desktop: wallets are downloaded and installed on a PC or laptop. They are only accessible from the single computer in which they are downloaded. Desktop wallets offer one of the highest levels of security however if your computer is hacked or gets a virus there is the possibility that you may lose all your funds.
Online: wallets run on the cloud and are accessible from any computing device in any location. While they are more convenient to access, online wallets store your private keys online and are controlled by a third party which makes them more vulnerable to hacking attacks and theft.
Mobile: wallets run on an app on your phone and are useful because they can be used anywhere including retail stores. Mobile wallets are usually much smaller and simpler than desktop wallets because of the limited space available on a mobile.
Hardware: wallets differ from software wallets in that they store a user’s private keys on a hardware device like a USB. Although hardware wallets make transactions online, they are stored offline which delivers increased security. Hardware wallets can be compatible with several web interfaces and can support different currencies; it just depends on which one you decide to use. What’s more, making a transaction is easy. Users simply plug in their device to any internet-enabled computer or device, enter a pin, send currency and confirm. Hardware wallets make it possible to easily transact while also keeping your money offline and away from danger.
Paper: wallets 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. Using a paper wallet is relatively straightforward. 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.

How to send cryptocurrency from your crypto wallet

To send funds from your wallet, you’ll need a wallet address — or the recipient’s public key. These addresses are either:

A long alphanumeric string of numbers and letters.
A QR code for smartphone wallets.
A URL-like web link that’s clickable and opens your wallet automatically.

Once you have this address, you will need to:

Log in to your wallet.
Click Send.
Enter the recipient’s wallet address. You can generally only send and receive like coins — for example, bitcoin to bitcoin or Ethereum to Ethereum. You can’t send bitcoin to an Ethereum wallet address.
Specify the amount, and possibly the currency, you want to transfer.
Check any transaction fees that apply, and make sure you have enough coins in your wallet to pay the fees.
Review the details of the transaction to make sure you’ve correctly entered all the information.
Click Send.

Note that the exact process varies depending on the brand of wallet you choose. For example, hardware wallet users typically need to connect their wallet device, enter a PIN or password and manually verify the transaction on the device.

How to keep your crypto wallet safe

Most experts recommend keeping crypto keys in a colt wallet. This means creating a paper copy of these keys and keeping that newspaper in a safe place like a bank safety deposit box.

Paper may also be utilised as a kind of wallet via applications that produce a QR code which may be scanned to allow blockchain transactions. Otherwise, Gartner urges the use an internet exchange with a pocket service which enforces two-factor authentication through drive technology. Push technology evolves the next aspect to some documented cellular phone so that an operator’s telephone can accept an entry request pushed out from the market wallet’s authentication support.

However, cryptocurrency hackers also have successfully stolen the SIM identity of a cell phone using a phone-based wallet onto it.

It is crucial to realise that hackers can circumvent most mobile authentication techniques utilising an assortment of technologies, according to Gartner. These include “SIM swaps,” in which a hacker registers an existing to their telephone so that it pushes messages or notifications to be delivered to this phone, rather than to the valid owner. Hackers do so typically through social technology of cell phone customer support agents, Gartner’s report stated.

There are ways to mitigate all of these attacks, but the best solution so far is to use some hardware wallet and also to have a hard copy backup of your secret keys somewhere safe,” Huseby said. “The hardest part of wallets is that they are responsible for the secure storage of small, highly sensitive data. Most people are not familiar with the levels of security and paranoia that is required to truly defend against people determined to steal your keys.”

Wallet security is crucial for any crypto owner, so keep these tips in mind to keep your funds as safe as possible:

Research before you choose. Don’t just choose the first bitcoin wallet you come across. Thoroughly research the security features and development team behind a range of wallets before making your final decision.
Enable two-factor authentication. This simple security feature is available on an increasing number of wallets. It’s simple to use and provides an extra layer of protection for your wallet.
Pick your password carefully. Make sure all usernames, PINs and passwords related to your crypto wallet strong.
Consider a multisignature wallet. Multisig wallets require more than one private key to authorize a transaction, which means another user or users will need to sign each transaction before it can be sent. It can take longer to send funds, but you may find that extra peace of mind is worth the minor hassle.
Update your antivirus protection. Your PC, laptop, smartphone or tablet should have the latest antivirus and anti-malware software installed. Set up a secure firewall on your computer, and never install software from companies you don’t know.
Update your wallet software. Regularly update your wallet software to the latest security upgrades and protections.
Make a backup. Store a wallet backup in a safe place so that you can recover your crypto funds if something goes wrong — like if you lose your smartphone.
Check the address. When sending or receiving funds, use the correct wallet address. Similarly, if using an online wallet, make sure it’s secure by checking that the URL starts with “https.”
Don’t use public Wi-Fi. Never access your wallet over a public Wi-Fi network.
Split your holdings. Consider splitting up your crypto coins between online and offline storage. For example, keep a small portion of your funds in online storage for quick and convenient access, and store the bulk of your holdings offline for extra security.
Private key protection. Never share your private key with anyone. Check whether the wallet you choose allows you to keep full control of your private keys, or if you have to surrender ownership to a third party, such as an exchange.

TWO-FACTOR AUTHENTICATION CRYPTO WALLET

Used by the most secure and trustworthy wallets, two-factor authentication requires a regular username and password combination and another authentication method.

It’s often a PIN code texted to your smartphone, expiring after a set time and different every time you log in. This means that an attacker would need to know your username and password and also have your phone.

Some crypto wallets require you to install a secondary app on your smartphone that generates these PIN codes for you, adding another layer of security.

The threat of losing your access keys to your crypto wallets

The most critical problem with a cold pocket, however, is in case you have not backed up the info on it or saved a hard copy of it somewhere secure, and you also lose that device, you shed your electronic assets once and for all. In other words, you do not understand where your cryptocurrency resides to a blockchain or possess the keys to authenticate that those assets belong to you.

Hot storage wallets, by comparison, have the advantage of the support of the provider. Should you lose your access code into the wallet, you will find challenge-and-answer queries which will make it possible for you to regain them.

There are limited procedures for recovering private keys at a cold storage pocket that’s been missing, and they’re generally not simple to use. By way of instance, Coinbase permits consumers a restore mechanism which is composed of 24 arbitrary word retrieval phrase users should record when they produce their own wallet.

Blockchain ledgers work predicated on a trustless consensus mechanism, which means that you do not need to be aware of the individual or people you are transacting with about the ledger. A dispersed ledger will anticipate any trade properly signed with a legitimate secret key.

“Wallets serve the purpose of storing those keys securely and doing the digital signing necessary for the distributed ledger to accept the transaction,” Huseby said.

Beyond electronic money: additional applications for crypto wallets

While the vast majority of crypto wallet software is utilised to store cryptocurrencies like Bitcoin, Ethereum, Ripple or even Litecoin, the program may also save the keys to fungible and non-fungible digital tokens representing products, monetary resources, securities, and services.

By way of instance, a token saved in a crypto wallet can signify concert or airplane tickets, unique art or products in a supply chain. Practically anything using an electronic value attached to it.

All distributed ledgers with decentralised consensus mechanics trust the capacity security model, meaning possession of an encryption key, demonstrated with an electronic signature over a trade, authorises the actions the trade represents.

“So any application modelled on a distributed ledger requires users to have wallets that they use to sign transactions that work for that application,” Huseby said. For Bitcoin, the transactions just transfer bitcoins to another encryption key and therefore to another owner. For things like a supply chain, they sign transactions that track the asset being managed (e.g., electronic parts, raw materials, etc.).”

Later on, a brand new, “trustless” global market could be contingent upon blockchain and crypto wallets which allow everything from individual professional or financial histories, tax info, medical advice, or customer tastes to corporations preserving employee or spouse electronic identities and controlling program access.

How To Keep Your Cryptocurrency Safe In Crypto Wallets: Conclusion

There’s no one-size-fits-all cryptocurrency wallet. The right crypto wallet for you is the one that matches your needs. If security is your No. 1 concern, you’ll likely choose a different wallet than someone who wants fast and easy access to their coins.

Do your research and compare wallets. Start with our crypto wallet reviews to get an idea of what’s available and key features to consider.

← The differences between cryptocurrency coins and tokens 2018: What happened with cryptocurrency? →

The differences between cryptocurrency coins and tokens

by Iulia Vasile | Dec 24, 2018 | Cryptocurrency

Cryptocurrency, tokens or stablecoins? You can classify every digital currency in existence as one of these types of cryptocurrency. These distinctions determine what exactly you’re investing in, and who can invest in the first place. Let’s talk about coins, tokens, stablecoins, utility and security tokens, and their main characteristics. So, what is the difference between cryptocurrency coins and tokens?

What is the difference between cryptocurrency coins and tokens?

How do you know if a cryptocurrency is a coin or a token? Cryptocurrency is either a coin or a token. Here’s the main difference between coins and tokens:

Coins have their own blockchain. Tokens do not.

Most big-name cryptocurrencies (Bitcoin BTC, Ethereum ETH, and Ripple XRP) are coins. These coins have their own blockchain, meaning that a decentralised, peer-to-peer network records all transactions on a digital ledger.

A token does not have its own blockchain.

The Ethereum blockchain is the most popular platform for token creation, though you can theoretically create a token on any blockchain. 0x (ZRX), Maker (MKR) and Basic Attention Token (BAT) are examples of ERC-20 tokens, meaning a specific type of Ethereum-based token. In other words, their protocol exists ‘on top of’ the Ethereum blockchain.

Difference between cryptocurrency coins and tokens: Coins function as currency. Tokens give access to a product.

Since coins have their own blockchains, it makes sense that they serve as currency, a means of exchange, within that network.

This is why Bitcoin is called digital gold and Ripple is known for its fast transactions: Bitcoin is a store of value, like gold, and Ripple facilitates cross-border bank transactions.

Also, it’s easier to exchange USD for a coin, rather than a token. Investing in a token usually requires exchanging USD for a coin first.

The value of a token is a little more complicated. Tokens are typically released in ICO, which stands for Initial Coin Offering. ICOs are like IPOs for cryptocurrency. ICOs give the investor access to tokenised services or products or represent a stake in a cryptocurrency company.

This is where tokens get a little confusing: Tokens fall under different SEC regulations depending on what they represent. You can separate tokens into two types of cryptocurrency that represent either a utility or a security.

Read more on Why Should You Use Cryptocurrency?

Utility Tokens vs Security Tokens

Understanding the distinction between these two types of cryptocurrency is absolutely necessary for investors, cryptocurrency companies and the government.

In other words, the SEC (U.S. Securities and Exchange Commission) has much stricter regulations for security tokens than it does for utility tokens because, as their name suggests, they’re considered to be digital securities.

Most Tokens Are Utility Tokens

If you can buy or trade a token on a cryptocurrency exchange without being an accredited investor, then it’s a utility token. In broad terms, a utility token gives an investor access to a service or product. This can mean that a token can represent exclusive access, a discounted rate, or early access.

When you hear about smart contracts and DApps, you should assume that a utility token is involved.

Basic Attention Token (BAT) is a utility token that has received a lot of press. It’s a means of exchange for digital advertising attention, hence the name. Integrated with the browser Brave, BAT works in three ways:

Users receive BAT for consenting to view ads.
Content creators receive BAT when users view ads on their site.
Advertisers buy ad space with BAT.

BAT represents attention, not stock or currency, making it a utility token. This means that anyone can trade utility tokens on a cryptocurrency exchange.

Security tokens are securities that exist on the blockchain

Security Tokens are different.

Like securities, security tokens represent part-ownership in a tradeable, real-world asset external to the blockchain. And because security tokens are regulated by the SEC like securities, you have to be an accredited investor to participate in STOs, meaning Security Token Offerings.

The SEC decides whether something is a security token using the Howey Test. In simple terms, the Howey Test determines whether a cryptocurrency investment is ‘speculative’, meaning that the investor makes money based on the labour of a third party.

Investing in security tokens is slightly more difficult. Investors must use a security token issuance platform, like Polymath or Swarm, to buy and trade tokenized securities.

Unlike Coinbase or Binance, which are cryptocurrency exchanges that allow anyone to create an account, security token issuance platforms require their users to meet specific requirements. This typically means having your accredited investor status confirmed by a KYC provider. The platform will then create a customized profile that specifies how and how much each investor can trade.

Converging Types of Cryptocurrency

Since companies have access to a much smaller investment pool with security tokens, some try to pass off their security tokens for utility tokens. There is also debate over whether tokens can represent currency, like coins, rather than access to a service. To make matters less clear, stablecoins are often technically ‘stabletokens’.

What is a Stablecoin?

Stablecoins are an increasingly popular type of cryptocurrency, especially in a Bitcoin bear market. This is because stablecoins are “pegged” to traditional assets like fiat (meaning government-backed currency like the US Dollar or Euro) or gold.

For example, the theoretical exchange rate between a stablecoin pegged to the USD and the US Dollar itself is 1 to 1. In theory, the company behind a stablecoin has the same exact amount in assets, stored in bank accounts, as they do tokens.

The advantage of stablecoins is that in a bear market, crypto investors can move their money from volatile cryptocurrency to stablecoins, a more ‘stable’ asset class in theory. This is instead of converting it back to USD, which can be a two-step process that incurs transaction fees. When a bull market returns, investors can convert their stablecoin back into other more volatile currencies at little to no cost.

Historically, however, stablecoins have ‘broken their peg’ in both directions. For example, controversial stablecoin Tether (USDT) has been worth less than a dollar, and Gemini Coin (GUSD) has exceeded the value of a dollar.

This highlights another feature of stablecoins: Most have “USD” in their name. But keep in mind that not all do. For example, Maker (MKR), another stablecoin, does not.

Stablecoins Are Generally Tokens

Despite being called stablecoins, stablecoins are usually tokens, meaning that they don’t have their own blockchain.

Maker (MKR) exists on the Ethereum blockchain. Tether (USDT) was built on the Bitcoin blockchain. Similarly, both these “tokens” function as “currency,” which is a characteristic of coins, not tokens.

As we develop new applications for digital currencies, distinctions between types of cryptocurrency become increasingly blurred, which makes SEC regulation even more uncertain.

Distinctions between types of cryptocurrency matter

Why should you care whether something is a coin or a token, a utility token or a security token?

Though the world of digital currency appears new and unclear, every prospective investor should know the value of the crypto they’re considering and, above all, how current and future SEC regulation will affect it.

Furthermore, the distinction between coins and tokens represents two potential forks in the evolution of cryptocurrency: cryptocurrency as tokenized securities and cryptocurrency as a payment method.

Will crypto replace the stock market, the US Dollar or both? As it stands, both revolutionary applications of cryptocurrency are making headway.

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