Polkadot is a next-generation blockchain launched in 2016 by Gavin Wood, one of Ethereum’s founders. Polkadot is different from other blockchains in that it uses an aggregated set of validators that use different shard components to store, secure, and retrieve information on the protocol. Polkadot’s blockchain is made up of a main relay chain, parachains that mint and transfer tokens, and bridges that connect the Polkadot protocol to other blockchains.
Polkadot is a potential gamechanger on a mission to unlock unprecedented economic scalability in the blockchain ecosystem providing a way to use a single set of validators to secure multiple blockchains.
Unsurprisingly, the cryptocurrency market seems to agree that Polkadot might be onto something, and it is now valued as one of the top 10 blockchain projects in the world. If you are new to Polkadot, you most likely would have bought your DOT tokens on an exchange. This piece provides information on the different options available to you for storing DOT token securely.
How does a cryptocurrency wallet work?
Cryptocurrency wallets are simply tools for keeping cryptocurrencies such as Bitcoin, Ethereum, Polkadot and others secure. Cryptocurrency wallets are different from traditional wallets in that they do not hold your cryptocurrency in the same way your wallet holds your cash or cards. Rather, cryptocurrency wallets store the private key that you can use to receive, send, or spend cryptocurrencies.
Cryptocurrency wallets typically fall into broad categories of;
- Desktop wallets: wallets applications that live on your computer
- Mobile wallets: crypto wallets applications that live on your smartphone
- Hardware wallets: dedicated hardware for storing cryptocurrencies
- Browser wallets: crypto wallets applications designed as browser extensions
- Paper wallets: simple printouts of your private and public keys
All the wallet types listed above can be grouped as hot wallets or cold wallets depending on the level of security and accessibility that they provide.
Storing DOT tokens on hot wallets
You can store Polkadot tokens on hot wallets, which are simply online services that provide third-party storage of cryptocurrencies. When you use a hot wallet, your private keys will be kept securely by the wallet provider similarly to the same way fiat money is kept securely in a bank. You can access your account with the wallet provider from any internet-enabled device to view your balances and to initiate transactions. Most cryptocurrency exchanges and some wallets such as Ownbit Wallet provide hot wallet functionalities to people holding Polkadot tokens.
However, there’s a general saying the cryptocurrency industry “not your keys, not your coins” which suggests that you are not fully in control of what happens to your cryptocurrency tokens if the private keys to those tokens aren’t under your direct control. For instance, a hack, data breach, or outright theft on an exchange or other third-party providers could cause your tokens to be lost and you may not get any reprieve because cryptocurrency transactions are irreversible.
The general understanding is that hot wallets should only be used if you are buying cryptocurrencies from an exchange and the tokens should be transferred to a wallet you control once the purchase is completed. Also, you’ll need to use the hot wallets provided by exchanges if you are actively trading cryptocurrencies. Nonetheless, it is necessary that you take your time to research different wallet providers and read user reviews before you decide on which hot wallet service to use.
Storing DOT tokens on cold storage wallets
Storing your Polkadot tokens on cold storage means that the DOT tokens will be stored on an offline medium that only becomes available when you need to access it. Cold storage wallets provide more security to cryptocurrency tokens than hot storage wallets because you are responsible for the private keys to your coins. Also cold wallets are offline and they are not at risk of being compromised by a hack or other security breaches.
To store your Polkadot tokens in cold storage, you can use;
Polkadot.js is a wallet built on the Polkadot.js stack as browser-based vault for management DOT tokens directly through a browser. You can create your account externally and store your access information externally as well. The wallet only provides a browser interface through which you can use DOT tokens. The wallet helps you manage your account keys, keep several wallet accounts, and see the balances of the different wallet accounts that you own. The wallet is non-custodial, meaning that it doesn’t access or control the private keys to your DOT coins. Also, the wallet also enables you to participate in staking DOT tokens for additional gains.
You start by creating an account which generates a mnemonic seed phrase that you need to keep secure. You will need this mnemonic seed phrase to restore your wallet if you somehow lose access to the wallet.
Afterwards, you name the account and type in your preferred secure password.
Lastly, the account is created and a JSON file containing the credentials to your account will be downloaded.
You can create as many accounts as you want, delegate democracy votes, add proxies or download backups to the account from the main account page.
It is meant to be used alongside wallets such as the apps UI
Polkadot js browser extension is similar to the Polkadot.js user interface except that it lives on your browser as an extension. Hence, you do not need to always navigate to a web address before you can access your Polkadot tokens. The extension is also a non-custodial wallet in that the creators do not access or store your DOT tokens. Also, the browser extension has the functionality for staking DOT tokens.
However, the wallet extension doesn’t have the full wallet capability and what it does best is helping you manage your accounts and managing access to other solutions that might need to interface with your wallet.
If you want to store DOT tokens in a full-fledged cold wallet storage without having to buy a hardware wallet, then Parity has got you covered. Parity enables you to transform an old smartphone into a dedicated hardware cold storage solution for DOT tokens.
To start using Parity, you can download it on the App Store for iOS devices or Play Store for Android devices. Once the app is downloaded, you’ll restore the smartphone to its factory setting, then turn off all Bluetooth and WiFi connections and then put the phone into Airplane mode.
You can then use another connected device to connect with the Polkadot network to enter amounts you want to send and wallets into which they’ll be sent. You then verify and sign the transactions with a QR code Parity Signer app on the old smartphone without ever needing to connect the device to the internet.