You need a wallet to keep your cash safe, but you also need to know where your crypto is going to be stored, given the high rate of crypto adoption.
You may be able to store the keys to your digital currency in the account when you purchase it on a trading platform or exchange. You can move your coins off the platform to a personal cryptocurrency wallet. This could be software connected to an Internet device (hot wallet) or offline (cold storage).
This is what you need to know to understand cryptocurrency wallets and how to choose the right storage option for you.
What is a Cryptocurrency wallet?
A crypto wallet, like a regular wallet that stores your physical currency but isn’t being used, can be used to store digital currency.
“Really, all you need in order to transact crypto is your wallet address, also known as your public key and then your private key,” Nicole DeCicco, founder and CEO of CryptoConsultz. This consulting firm is for individuals and companies interested in blockchain and crypto technology.
Public keys are similar to your bank account number. It can be shared with other institutions or people so that they can send you money or take money out of your account. They view your public keys as a wallet adress — a hashed or compressed version of the public key.
A private key can be used to access your bank account password, or your PIN for your debit card. DeCicco states, “You wouldn’t want to give it to me because that would allow me to access your account.”
Crypto is a digital currency and cannot be stored in your wallet. Instead, your wallet holds information about your private and public keys that will allow you to determine your ownership stake. These keys allow you to send and receive cryptocurrency, while keeping your private key secure.
Different types of Crypto Wallets
Depending on your purpose, different crypto storage options may be suitable for different purposes. For example, long-term Bitcoin investors who intend to keep it as a reserve of value for a while may prefer the security and convenience of an offline cold storage wallet. For those who are more actively involved in crypto trading, an online hot wallet may be more convenient.
These devices are also known as cold storage or cold wallets. They store your keys offline on a device that is not connected to the Internet. Many cold wallets look very similar to USB drives. Cold storage can also be used by paper wallets, where you write information about your private and public keys on a sheet paper.
Cold storage is often regarded as the best option for protecting digital assets by crypto enthusiasts. Hardware wallets are among the most difficult types of wallet to hack because they’re offline. However, there are still risks.
Hardware wallets are easy to lose or misplace. How many times have your lost a USB drive containing only documents? This is a huge inconvenience. However, losing the device that holds your investments keys — which can prove to be impossible to recover once lost — can be devastating financially.
Hacking is still a possibility. DeCicco suggests that you buy a cold-storage device directly from the manufacturer and not secondhand. You could be at risk of the device being altered by hackers who might have purchased it and compromised it before repackaging it for sale.
These are also known as hot wallets. A software wallet is similar to a physical wallet.
DeCicco states that they are often connected to an exchange and are often user-friendly. “They have really opened up this space to a larger market,” he says. But there are many risks when you keep your funds online.
There are many ways to access hot wallets. One can access it through the cryptocurrency exchange that you used to purchase your coins. Another option is to download a program to your desktop or use a smartphone application. However, each option leaves your private and public keys connected to the internet so you could be at greater risk of being hacked than if cold storage is used.
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