Cryptocurrencies continue to surpass the expectations of critics, reaching new all-time highs. With more money and a larger pot up for grabs, the appeal to hackers has only increased as a result. For seasoned investors, stolen cryptocurrency is nothing new. However, navigating a new system and keeping hard-earned funds secure can seem daunting for those new to the market. There are two main places to store your cryptocurrency, a hot wallet and a cold wallet, each with its own benefits and drawbacks. Rather than using one or the other, many find both useful depending on their current trading goals and how they choose to use each.
Below, we will compare the different methods to store cryptocurrency safely.
A hot wallet can be accessed by connected services such as computers, phones, or tablets. These wallets generate private keys for your crypto online and are offered securely through the exchange itself. For hot wallets, the user technically does not hold the private key with access to their wallet. Exchanges like CryptoExchange.com use necessary precautions to ensure they offer users a safe, quick and easy way to store their cryptocurrency and make transactions. They also provide added security by obtaining licenses and regulating services that are required by local authorities.
As most traders have come to know, bitcoin has earned its reputation by being one of the most volatile assets around. While this is great for those who are chasing short or mid-term swings, those looking at safely storing their wealth must be conscious of these fluctuations.
For those waiting for a new opportunity to enter the market, it is often safer to store funds in an offline market.
When users store their cryptocurrency in an exchange, they hand over the security of their assets to the exchange as well. Many caution against this because if the currency or company goes down, so do your coins.
That said, after monumental hacks like Mt.Gox, exchanges tightened their regulations, offering increased cryptography and audits by third-parties. Other exchanges have implemented anti-fraud systems to ensure the security of their users. The bottom line is that leaving your cryptocurrency in the hands of an exchange might not be the worst idea. After all, we trust banks with our fiat money.
Many suggest that a cold wallet is by far the most secure. A cold wallet (also known as a hardware wallet) is defined as an offline wallet that is not connected to the Internet. Since it is offline, a cold wallet is believed to be at less risk of being compromised by hackers. The wallet itself stores a user’s address and private key on a software, piece of paper or hard drive.
Limited Cryptocurrency Storage
While there is greater security using a cold software wallet, there are some drawbacks. The main one being that this storage method has limited availability of what cryptocurrencies can be stored. Typically, a cold wallet will only support the storage of popular currencies like Bitcoin and Ethereum. For traders looking at trading new altcoins, alternative storage methods may be required.
Misplacing Your Wallet
An alternative is storing your cryptocurrency in a paper wallet. Paper wallets can be created off certain websites, providing the user with a public and private key printed on a piece of paper. The paper can then be placed at the bank or in a safe place at home. A paper wallet is an excellent method to keep cryptocurrencies out of the public eye; however, it also increases traders’ risk of losing their wallets. In some rare cases, a user has passed away without letting anyone know about their wallet, letting these coins disappear from the public altogether.
Trade Your Cryptocurrency with Confidence
You will likely use both methods of storage at some point in your cryptocurrency career. To ensure you manage your coins with utmost security, traders can take a couple of additional precautions.
First, it is recommended that you back up your digital wallet frequently. Computers do fail on occasion, and regular backups may be the only way to recover these coins later on. Secure locations for backups may include a USB or hard drive, which can be viewed with a secure password.
Secondly, software should always be up to date. Hackers often seek out opportunities to compromise out of date software.