Cryptocurrency has gone mainstream in recent years, with numerous people investing in it. It looks like a great deal on paper with no middlemen taking a cut, no banks or credit cards needed, just you and your currency.
Reality is much more complex. The wild volatility of the value of cryptocurrencies makes it a risky investment. There are countless horror stories of those who have lost thousands or even millions in bad investments.
The answer is good backups. The best way to protect your money is to keep it stored somewhere other than where you’re currently spending it. Much options are available for storage after buying cryptocurrencies. However, they all come down to two broad categories: hot wallets and cold storage.
It is hard to ignore the buzz surrounding blockchain technology and cryptocurrencies. News outlets are covering stories about Bitcoin and other cryptocurrencies since its rise in popularity in 2017.
But how do you store your digital currency?
This article highlights three types of cryptocurrency storage methods: software, paper, and hardware wallets. We’ll go over the pros and cons of each method and what situations they’re best suited for.
Before planning to buy cryptocurrencies, make sure you do your research first! It is worth mentioning that there are numerous ways to finance your purchase. You can buy cryptocurrencies with a credit card or convert cryptocurrencies (fiat) to US dollars and transfer them back.
Blockchain Basics for Cryptocurrency Storage
The block chain is a revolutionary concept that is gaining momentum in recent years. It is essentially a public ledger of the history of all cryptocurrency transactions, where each transaction is recorded and verified by the network. It’s like a web-based spreadsheet but with added security measures to ensure that no one tries to edit or delete any information.
Blockchain technology can be used in many different ways:
- To record financial transactions and track payments
- To keep track of inventory and product supply chains.
- For voting systems (such as bitcoin)
- For anonymous and encrypted digital voting protocols
- To create smart contracts (like Ethereum)
- To stream music files
- To share 3D models over the Internet, without any intermediary (such as Thingiverse)
- As a way to store files online anonymously.
How does a hardware wallet work?
Now that you’ve picked up and read this article, the first thing you’ll want to do is set up your wallet. A hardware wallet is like any other software wallet in its essence. You will need an internet connection, a device with a screen (such as a phone or a computer), and some bitcoins to store.
There are many places on the web where you can buy bitcoins, but most require you to give them your money before they send it to you. It used to work fine in the early days when Bitcoin was cheaper and lower in value than it is today.
What are hot and cold wallets?
Hot and cold wallets are commonly used in cryptocurrencies, but may not be as familiar to the general public. Both are essential if you accumulate crypto, so let us know what they are and why you might want one.
Cryptocurrencies can be stored in a hot wallet, which means that it remains connected to the Internet (usually via a smartphone, computer, or digital wallet). If a hacker breaks into your home or business, he can simply steal everything in your hot wallet first. All they would need is to find it, and with the growing popularity of cryptocurrencies and hackers looking for ways to steal them.
Hot wallets are also susceptible to attacks due to their ability to easily download any information (such as passwords) should someone find them online.
You store cryptocurrencies in a cold wallet when you want to keep them safe from hacking attempts and theft. A cold wallet is completely disconnected from the Internet and is usually connected through encryption.
Cold wallets are more secure than hot wallets because they are much harder for an attacker to find. They have to analyze every piece of information in their path until they stumble upon yours. It makes theft much less likely, as there is no easy way to collect this information by using malicious code or stealing web traffic with spyware.
Software Wallets (popular)
Although cryptocurrency started on the internet, it has since moved into real life. You can now use cryptocurrency to pay for things you buy in stores and online with a credit or debit card.
One of the main ways that people use cryptocurrency is with what is known as a software wallet. A software wallet is an application on your PC or mobile device that allows you to send and receive coins (or sometimes tokens). Most software wallets allow you to control them using private keys that only you have access to.
Software wallets are useful tools for spending crypto, but they are also very insecure! One of the biggest risks of cryptocurrencies is how easily they can be lost through software wallets. Because software wallets are vulnerable to attack, many experts recommend staying away from them altogether. It is advisable to practice safe computer hygiene when storing digital currencies.
Paper Wallets (Cold)
Paper wallets are a form of offline cryptocurrency storage. They are often preferred because they are cheap to manufacture and do not rely on software or hardware. However, they can also be more difficult to use and carry more risks than other options. Paper wallets are a great option if you want to store your crypto long-term but still move it around occasionally.
Crypto Wallets: the safest method to store cryptocurrencies?
The popularity of cryptocurrencies has been growing steadily since its inception in 2009. Since then, it has come out of the underground and is a viable means of making purchases. However, with this new viability comes various risks, security breaches, server downtime, etc. It makes the storage of your cryptocurrency safe at a very high price.
A cryptocurrency wallet is a software application or digital currency address that stores your cryptocurrency. You can think of it like a bank account but for digital currencies. A wallet stores your private keys, the unique combinations needed to access your funds.
In order to know which private keys to use to access those funds, you need a backup phrase, a secret phrase that serves as the password to your crypto wallet. There are multiple types of wallets, and you should choose the type that best suits your needs and expected level of security. Additionally, there are multiple storage solutions within each wallet type depending on how secure you want to keep your funds.