While the cryptocurrency market has seen rapid changes and blockchain technology has evolved, one thing that has always remained the same is the importance of storing your cryptocurrencies securely. This journal will explain the different storage solutions and their pros and cons.
The difference between a hot wallet and cold storage
One of the most popular types of cryptocurrency wallets is called a hot wallet. The difference between a hot wallet and cold storage is that hot wallets are connected to the internet, while cold storage is not. Examples of a hot wallet can be Trust Wallet, Metamask or Exodus wallet. The reason why hot wallets are so popular is because they are free and easier to set up, access and accept more tokens. On the other hand, hot wallets are also more vulnerable to hacking, possible regulation, and other technical vulnerabilities. Because of the risk that comes with a hot wallet, there are also investors who choose to put their cryptocurrencies in cold storage. Generally, cold storage is more secure, but they do not accept as many cryptocurrencies as the hot wallets do. Examples of cold storage devices are Ledger or Trezor.
The importance of your private key
A private key is an encrypted alphanumeric code that gives access to your bitcoins and cryptocurrencies. It is the only real way to prove that you own your coins. To have your coins stored securely, it is important to store the seed phrase or private key very carefully. It also is very dangerous to store your private key on an online device because a PC, laptop and even a phone can be hacked. The most common way to store a key is just by writing it down and hiding it at home. In some cases, people hide their private keys in a safe at the bank. It’s also worth considering having a duplicate of your private key stored in a separate, safe location. If you were to lose one copy of your private key, then you would always have a back-up, ensuring the safety of your wallet.
An example of a private key : E9873D79C6D87DC0FB6A5778633389F4453213303DA61F20BD67FC233AA33262
An example of a seed phrase: cat idle attack blur shallow base popular kitchen clever artwork shoulder abuse
Never share your private key or seed phrase with anyone on the internet
What is a web wallet?
Online wallets, by definition, are hot. Using a web wallet, your funds can be accessed from any computer, device, or location. They are super convenient, they store your private key online and could be controlled by third-parties. Therefore, they are more vulnerable to attacks and theft by design. The main reason people use a web wallet like MetaMask or Phantom Wallet is to interact with DeFi protocols or NFT marketplaces. They are very easy to use and require less time setting up than a hardware wallet. However, as they are less secure, you wouldn’t want to have large amounts of crypto on them.
Having your crypto stored on your mobile phone
Mobile wallets are generally safer than web wallets. This is mainly because of the likelihood that hackers would target a computer rather than your mobile phone. Take an iPhone, for example, an iPhone happens to have better security than your wallet on a Windows PC. But just like Web wallets mobile phone wallets are still connected to the internet and vulnerable to an attack of a hacker. The main reason people use mobile phone wallets is because they are very easy to use, and you can just look at your crypto portfolio anywhere. Two very popular app wallets are Trust Wallet and Exodus.
Hardware wallets and their use case
A hardware wallet is typically a USB drive device that stores a user’s private key securely. This has serious advantages over a hot wallet as it is unaffected by viruses that could be on one’s computer, this is because private keys never come into contact with your network-connected computer or potentially vulnerable software. These devices are also typically open-source, allowing the community to determine its safety, rather than a company declaring that it is safe to use. The most popular hardware wallets are Trezor and Ledger. It is very important to buy your hardware wallet directly from the company’s official website. On reselling sites such as Amazon, there is a chance that the wallet, you buy could be a counterfeit or someone could have already accessed the private key. This could result in you losing your crypto. Whilst scammers have previously managed to access information of Ledger customers, they are now targeting Ledger costumers in an unorthodox way, if you would like to read more about that, click here