5 July 2020
So, you’ve bought your first Cryptocurrency, and now it is sitting in your exchange account. Congratulations on being the proud owner of some Crypto! Now, what do you do? This article will tell you how and where to store your Crypto securely and safely.
The first thing you should know is that there are two options when it comes to storing Crypto; Hot Wallets and Cold Wallets. We are going to review the pros and cons of each in the next section.
The first thing you need to know about Hot Wallets is that they are software. They are an app you can download on your phone or on your computer. These Hot Wallets have to be connected to the internet to work.
Hot Wallets definitely have their pros. They can provide you with instant access to all of your funds at any time, as long as you are connected to the internet. They tend to be available free of cost, and they also tend to have substantial security measures to ensure that your Crypto is safe. Hot Wallets are also extremely beginner-friendly for these reasons.
The downside to Hot Wallets is that they do not offer the same level of security that is provided by Cold Wallets, because they continuously have to be connected to the internet. This can increase the risk of your Hot Wallet being hacked by individuals with malicious intent and could result in you losing your Crypto. For us though, the worst part of Hot Wallets is that the providers of the Hot Wallets usually distribute and manage your access keys for you. When starting out in the crypto market, this can be deemed a blessing in disguise because your wallet is so easy to access, and you don’t have to worry about managing a bunch of different codes. But, the truth is that this is not as great as it may seem. If you are not the only owner of your public and private keys (the service provider owns them), they are technically not your keys. It is someone’s else keys – the service provider is just loaning them to you.
This means that technically, you do not have total control of your money. This is contradictory to the entire concept of Cryptocurrency, as Crypto is all about ensuring that you own your money. Remember: Not your keys, not your coins.
Overall though, Hot Wallets are incredibly easy to access and are therefore super beneficial for beginners who are starting out in the Crypto space. Some of the security issues that come with using a Hot Wallet also won’t necessarily affect you if you are just storing small amounts of Cryptocurrency. However, if you are planning to make large trades with Crypto or plan on storing large quantities, it is recommended that you use what is called a Cold Wallet. You can also switch over to using a Cold Wallet at any time, so there is no reason to say that you can’t start with a Hot Wallet and transfer over after you have reached a certain point.
A Cold Wallet, or hardware wallet is one of the most secure ways to store your Cryptocurrency. A Cold Wallet stores your private keys entirely offline. It does not need to connect to the internet. Cold wallets tend to look like a little USB device that you plug into your computer.
Now, how do you process transactions if you do not have to connect to the internet? Well, the transaction is done online, but the signature for the transaction is generated offline. That way, the private key is not exposed to the internet, preventing the possibility of it being accessed by unauthorized individuals. Additionally, since your wallet is a physical storage device, you are now in control of your wallet at all times; you decide where to store it and where to keep it. This creates an extra layer of security for the users.
The best part of Cold Wallets is that they are compatible with several cryptocurrencies, and using your Cold Wallet is quite simple. To make a transaction, you simply plug in your wallet into your computer, enter the pin to access the wallet, enter the address and other transaction details, and hit confirm to send.
Therefore, the Cold Wallet is reasonably similar to the Hot Wallet, and almost just as easy to use, only with increased security for the user.
The cons of a Cold Wallet are usually due to user-side mistakes. In this sense, it can be simple things such as forgetting your passwords, your seed words, etc. Since you are in control of all of your passwords, address, and keys, you have to remember this information and store it somewhere secure. Errors can also occur when the user is setting up their wallet for use. However, there are great videos and resources online providing step-by-step tutorials on the set-up process.
When you are storing your Bitcoin or other cryptocurrencies, you should always keep them in a wallet. Under any circumstances, it is not recommended to store your Crypto in your exchange account or broker, as these are the least secure platforms for storage. This would expose you to unnecessary risk – you could have problems with the platform, lose access to your account, or get hacked. However, since you must use the exchange or broker to purchase or trade Crypto, just put the amount you need for the single transaction in, complete the transaction and transfer out your Crypto. Do not use the exchange or broker for storage, just for trading.