When dealing with cryptocurrencies such as Bitcoin (BTC), Ethereum (ETH), and other altcoins, you need a way to keep your funds safe. Cryptocurrencies can’t be physically stored in a wallet and they can’t even be stored in a traditional bank account, since banks still don’t accept crypto assets as a store of value.
Using cryptocurrencies for payment or money transfers involves a certain risk. These transactions happen on the blockchain of the cryptocurrency you are transferring and this technology is fairly safe. What isn’t always safe is the initial procedure when you are sending funds from, let’s say, a crypto exchange platform account to a third party. Cryptocurrency exchanges deal with large amounts of digital currency and are therefore an attractive target for hackers and cyber attacks.
This is why it isn’t recommended to keep large amounts of cryptocurrency on your exchange platform accounts. It is far safer to store your crypto in cryptocurrency wallets which are designed to securely store your digital assets.
We are going to take a look at the types of crypto wallets that exist and how they work.
A Bitcoin wallet comes in various forms. Which one is right for you depends on whether you put security first or you want an easy, practical way to access your funds in a few clicks. If you want to use your BTC for everyday expenses and buy products or services on the internet it’s practical to keep small amounts of BTC in online, hot wallets. However, if you plan to store large amounts of Bitcoin, then an offline storage option is a better method for keeping your funds safe.
Cold storage is regarded as the safest type of Bitcoin storage since it has no web connection and it stores your private keys offline. Cold wallets are unhackable and can’t be accessed by cyber attacks since they aren’t connected to the web. They are literally off the grid. The two main types of cold wallets are paper wallets and hardware wallets. Both options are great for storing large amounts of BTC.
A hardware wallet is a special type of USB device designed for the sole purpose of securely storing your Bitcoin addresses behind top-of-the-line encryption in a state-of-the-art device. Hardware wallets have no connection to the web and they have several layers of protection such as two-factor authentication, PIN codes, passphrases, and passwords that make sure your funds are protected even if you happen to lose your hardware wallet or it gets stolen. In the hardware wallet industry, Trezor and Ledger Nano X are the top players on the market today.
These devices will provide you with the most advanced cryptography solutions and what is even better is that they work fantastically with the most popular and trusted hot wallets, creating a powerful crypto storage pair of hot and cold wallets. This means that even if you are using a hot wallet that’s connected to the internet, your BTC is still protected because the private keys are under the hardware wallet’s protection. Also, hardware wallets might look like some space-tech devices, but they are actually very user-friendly and easy to manage.
So, if you want to store large amounts of BTC but also have smaller sums for everyday expenses available at your fingertips, a good hardware wallet paired with reliable hot (online) storage is a winning combination.
A BTC paper wallet is simply a piece of paper on which your private keys and public keys are printed. Paper wallets also include your keys in the form of QR codes, making them easy to scan with a mobile device. Since your private keys are on a piece of paper, they are obviously safe from cyber attacks; however, a paper wallet isn’t risk-free.
When using a paper wallet, you should pay attention to its physical condition. If it gets torn, ripped apart, lost, faded, or you spill some liquid over it, you will lose access to your funds. Also, you should make sure to keep in a secret location that only you are familiar with, because if someone steals your paper wallet, the BTC behind the private keys will be compromised.
Hot Crypto Storage
Hot storage is also referred to as hot wallets. These wallets are connected to the internet at all times and depend on an internet connection to work. Hot wallets work based on software solutions that provide storage services for cryptocurrencies. Some of these wallets are focused on only the most popular cryptos like ETH and BTC, and others are multi-currency wallets that support various digital assets. Given the fact that hot wallets use software solutions to facilitate transfers of funds and store your private keys, they run the risk of being attacked by hackers and other malicious individuals that want to steal your funds.
This is why it’s very important to choose the right hot wallet for your needs, based on the security and reliability of the wallet in question. If you just want to trade small sums of BTC on a daily basis or use your coins for everyday expenses, a good solution is to have a hot wallet handy. However, if you want to store serious amounts of money, it’s highly advisable to connect your hot wallet to a hardware wallet.
Let’s check the different types of hot storage available for your BTC.
Software wallets are hot crypto wallets, also called desktop wallets. They work like desktop apps for PCs and laptops. In order to use a software wallet, you need to install the program on your computer. Some software wallets store your BTC addresses on their servers and others store the private keys directly on the user’s (i.e. your) device, which means that in the event of a server hacking, your private keys would still be safe because they aren’t kept on the wallet’s server.
It is highly advisable, however, to avoid keeping your private keys on your PC or laptop. It’s better to add an additional level of security by keeping your private keys and passphrases on an external USB device, hard drive, or piece of paper. This is a good way to keep your assets from getting compromised in case of cyber attacks or malware infections.
Some of the top software wallets on the market are Exodus and Wasabi as they are fast, reliable, and have great security measures. Many software wallets also have their mobile wallet editions in the form of mobile apps that are Android and iOS-compatible.
Online wallets work similar to software wallets, but there is a key difference. In order to access an online wallet, you need to use a browser. These wallets are also referred to as web wallets and they have their special online platforms, which dismiss the need to install any program on your computer. This makes these wallets easily accessible on your smartphone, as they aren’t tied to desktop apps. However, make sure not to keep your passphrase or private keys on the same device you are using to access your wallet because, in the event of a cyber attack, it could easily get compromised.
Multi-signature wallets are a special kind of cryptocurrency wallets. They use a type of hot storage but they are highly secure because they generate several private keys which are necessary in order to access your funds. Many crypto investment funds, venture capitalists. and companies that store large amounts of BTC use this type of wallet. A multi-signature wallet requires several persons to enter their private keys in order to unlock access to the cryptos stored within. Bitcoin Armory is one of the most popular multi-signature wallets on the market.
A Few Words Before You Go…
Keeping your BTC safe and secure is one of the most important aspects of dealing with crypto assets, because it doesn’t really matter how successful you are in trading cryptos or making great business deals if your funds aren’t safe. This is why you need to decide on what kind of storage fits your needs and use it wisely to keep your BTC safe.