Storing Cryptocurrency
It’s extremely important to be diligent in keeping your cryptocurrency investments protected. With a history of centralized cryptocurrency exchanges being hacked, locking fund transfers, or going insolvent, investors are wise to be diligent about what type of digital wallet their assets are being stored.
Cryptocurrency wallets allows you to store, send and receive cryptocurrency, while often times being in sole possession of the underlying assets. It is essentially a digital bank account for your cryptocurrency.
A hot wallet is any cryptocurrency wallet that is connected to the internet, such as a mobile app, exchange wallet, or software-based desktop wallet. Considered less safe compared to a cold wallet.
A cold wallet is not connected to the internet and allows investors to store your funds offline, either through a hardware device, USB, or even written down on a protected piece of paper.
Types of Wallets
Online Wallets
· Online wallets are a form of hot wallet where your funds can be accessed from any computer, device, or location.
· These are generally considered the least secure wallets, but also the most utilized form of digital wallets.
o Exchange wallets such as Coinbase, Binance, Kraken, etc.
o BlockFi
o Robinhood
o CashApp
o Metamask
· They are extremely convenient for non-technical and everyday users, but store your private keys online and controlled through that third party, making them more vulnerable to hacks or theft.
o While rare for refutable online providers like those listed above, it is a risk worth mentioning with any hot wallet.
· They are ideal for small investments and allow quick transactions
Hardware Wallets
· A type of cold wallet that stores your cryptocurrency’ on an external device, such as a USB that is purchased.
o Ledger
o Trezor
o KeepKey
· With a hardware wallet, you can send and receive cryptocurrencies to and from external addresses.
· Some hardware wallets are compatible with web interfaces that allow for support of multiple cryptocurrencies on one hardware device - making these the safest and most versatile method of storing your digital assets long term.
· Along with their password, users must be diligent in keeping their backup seed phrase safe (a combination of random words that enable you to access your digital assets).
o Without this backup seed phrase your cryptocurrency could be be lost forever. It is the wallets private key.
Paper Wallets
· A type of cold wallet that can be generates a public key and private key off a website and printed out on a piece of paper for free.
o paperwallet.bitcoin.com
o bitcoinpaperwallet.com
· You can receive cryptocurrencies to your cryptocurrency address (public key), but can not send, and limited to only storing one type of cryptocurrency on a given paper wallet.
· It is essential to store this paper in a safe place as the private key is the only way to access your cryptocurrency.
o If the paper is lost, the cryptocurrency will also be lost forever.
Software Wallets
· Software wallets are hot wallets downloaded and installed on a personal computer or mobile device.
o Exodus
o Coinomi
o Mycelium
· Both desktop and mobile software wallets offer a high level of security because users are in sole possession of their private keys and seed phrase
o However they cannot protect you against hacks and viruses like offline cold wallets can.
