There are a number of aspects to learn before you become a cryptocurrency holder. Perhaps, one question that will always strike your mind while on this path is hot wallet vs cold wallet, what is the difference? Where should I store my newly acquired cryptocurrency? There is an array of option when it comes to securing your digital asses.
This makes the process confusing and keeps users worried when they try to choose a good method to use. Keep in mind that it is your money after all hence choose your storage decision carefully. That is why it is vital to consider both cold and hot wallets as each one-offer pros and cons.
What is a crypto wallet?
A cryptocurrency wallet is simply an app developed for crypto users to store as well as retrieve their digital assets. Convectional currency does not require a wallet but still, it helps to store the currency in one place. When you acquire a cryptocurrency such Ethereum, you will store it in your wallet and thereafter use it to complete your transactions.
A cryptocurrency wallet is just like any other app that we use on our smartphones as well as laptops. Would you like to feel a tangible experience of holding a wallet? Well, you can also buy a physical device that runs a wallet app.
Keep in mind that a wallet can hold multiple cryptocurrencies. A wallet plays a vital role for any user who wants to acquire a cryptocurrency. It issues a cryptographic address that the user will use to acquire the coin.
Did you know that using the right wallet helps to store your crypto safely? It helps to prevent Crypto exchange hack thus securing your investment. It is worth mentioning that virtual currencies are at high risk of hackers’ target. They can easily hide their tracks as well as erase the footprints digitally. Carry out a detailed background check on various wallets before you create and store cons in one.
How to store crypto in a wallet safely?
- Download wallets executable application from known sources or just the company website
- Learn how to create a cold wallet
- Store your coins in cold wallets
- Do not store all your coins in one basket
- Store your cryptocurrency using private keys, consider a multi-signature wallet
- Back up the crypto private keys in a secure place
- Use strong passwords and avoid using the same password that you have been using online
- Use trusted secure networks
- Do not share information about your investment
- Go for smaller trades
Acquiring cryptocurrency is one thing and keeping it safe from hackers requires different strategies and skills. It is vital to learn how to protect your funds by choosing the right wallet to avoid popular hazards of crypto security.
Hot wallet vs cold wallet
One thing is for sure about the two, hot wallets have a connection with internet while cold wallets activities remain offline. You can easily access funds stored in a hot wallet as compared to cold wallets. In a hot wallet, you leave the crypto custody part to the exchange which is risky. Each one of them has its pros and cons.
When digging deep into hot wallet vs cold wallet, it is vital that you look into their accessibility and security. Note that it is not necessary to choose between the two as you can store your fund in both and monitor the risks as you maintain accessibility.
If you buy a cryptocurrency asset that does not require instant accessibility, it is best-stored offline in a cold wallet. This will help you maintain high levels of security, a key to crypto. There are different options in cold wallets such as paper and hardware wallet.
A hardware wallet is an external device such as Trezor that keeps your private keys. You have to push a button to complete your transactions. Its access is locked behind a pin as well as password. The funds within it are accessible as long as you have the wallet.
Paper wallet is a simple printout of the public address and the private key on a sheet. It is a risky form of cold storage. The probability of losing the paper is very high.
Cold storage also offers another option that employs a secure crypto exchange such as liquid. You can liquid all your funds to ensure their safety in a custody solution.
As long as your wallet is connected to the internet then it is a hot wallet. These wallets are common because of their ease of accessibility, but they are higher risk. Did you know that most exchanges use these wallets to some extend? This ensures ease to accessibility hence you can seal a smart contract anytime.
In other words, it is like you are storing your funds on an exchange thus putting them at risk. These wallets are connected to the internet hence they are a perfect target by hackers.
What is a multi-signature wallet?
A multisig, shared or multi signature wallet is a wallet shared by two or more users, copayers. Based on the terms and conditions of your wallet, here, the number of signature required to execute a transaction is lower or equal to the number of copayers.
For instance, a 4-4 wallet s a shared wallet among four people and requires four signatures. A 4-3 is a multisig wallet shared among four people but requires three signatures. You can also come across “3 of 4” to show the number of copayers needed to complete a transaction.
Features of a multi-signature wallet
- Requires one or more co-payers or co-signatures to sign a transaction successfully
- All the copayers can access the wallet and monitor transactions
- There is unique recovery phrase for each of the copayers
Reputed Crypto Wallet Companies
There are so many reputed crypto wallet companies that has all your concerns and worries about digital assets’ safety at heart. They work tirelessly to provide flexible solutions to all the issues without compromising security. So, you can be sure that your cryptocurrency investment is totally safe if you store your crypto assets with them.
The defacto standard leaders in Crypto wallets are
- Ledger Nano X and S : hardware wallet
- Trezor One and Model T : hardware wallet
- KeepKey Wallet : hardware wallet
- Binance Trust Wallet : mobile software wallet
- Electrum Wallet : software wallet
- Coinbase : online and software wallet
Cryptocurrency market is fast gaining popularity in the 21st century. It attracts millions of players from other industries such as cryptocurrency insurance. Bloomberg report shows that crypto insurance has become a “big opportunity”.
Even though cryptocurrency market is highly volatile, the coins are “becoming more relevant, vital, and prevalent on the real economy. That is why it is vital to work with an insurance company.
Did you know that Coinbase, North America’s largest cryptocurrency exchange holds two percent of its coins insured with a Lloyd’s of London? Due to instabilities in this ecosystem such as skyrocketing valuation, an exchange requires proper insurance.
Conclusion – Hot wallet or cold wallet?
I cannot provide a simple answer for this as it all depends on your requirements as a user. If you only want to hold your asset then cold storage is the best option. In case, you were planning to execute a number of transactions in future then a hot storage would do. If you are going to hold and execute trades then you can consider both as you mitigate the risks.
Storing your crypto in hot wallet does not mean that they are unsafe. It is only that it renders them vulnerable to hackers. Keeping them in cold storage does not mean that they are safe as well. It only reduces the risks of fraud.
I am a data analyst by profession who loves to crunch numbers at daytime and come home wondering how my passive income numbers for the day look like. I believe in being rich rather than looking rich. Follow me for Cryptocurrency, FIRE, Personal Finance, Credit Cards and Digital Nomad updates