Home Cryptocurrencies News How to Think About Cryptocurrency Wallets, Part II

How to Think About Cryptocurrency Wallets, Part II

How to Think About Cryptocurrency Wallets, Part II

In a previous article I introduced the types of “wallets” (hot and cold storage) used to hold your cryptocurrencies.

Selecting a wallet type will depend on the level of control you want to have over your private keys (crypto addresses) that identify your crypto holdings, and what form of protection you want. You can read Part I of this article at Wallets, Part I

As mentioned in Part 1,
you can break wallets down into cold (offline) and hot (online) and each type
can be further broken down as such:

Cold Wallets:

  • Paper wallets
  • Hardware wallets

Hot Wallets:

  • Web wallets
  • Mobile wallets
  • Computer wallets

The easiest cold wallet
is a simple piece of paper on which you write down your private and public keys
for your cryptocurrency. For long-term holders, this is the safest storage
method, provided you protect and back up the piece of paper.

Using BTC as an example,
you could use a program like bitaddress.org to create a public and private BTC
address (including a QR code for each). You would write/print both addresses onto
a piece of paper.  You can then transfer
BTC from an exchange to your newly created public address.

A paper wallet can be
considered the safest because there’s no way for anyone to access your private
key except by physically seeing it. It’s also the cheapest cold storage method
since it doesn’t require any hardware purchase, which brings us to the next
cold wallet.

A hardware wallet is a physical
device, similar to a USB stick. It has built-in software to store your
cryptocurrency – you transfer your crypto from an exchange to the public
address in your hardware wallet. Common ones are the Ledger, Trezor, and
keepkey but there are several more choices.

The hardware wallet is
designed to be kept offline and the only time it’s online is when you plug it
into your computer, which is connected to the internet. The device is often PIN
protected and has buttons on the device that you use to confirm transaction

Just as with a paper
wallet, it’s very important that you properly secure your hardware wallet. If
you lose it, you permanently lose the crypto that’s on it.

A hot wallet is one that
is connected to the internet. Because it’s connected to the internet it’s
easier and faster to use. But with that ease comes a less secure wallet since
you’re exposed to hackers, phishing scams, and other nefarious players.

Because hot wallets are
more vulnerable than cold wallets, you should minimize the amount of crypto you
hold in hot wallets. If you want to store your crypto for longer term, it’s
best to keep them in a cold wallet.

A web hot wallet exists on the internet and typically is a website or browser extension. It’s very important to use a secure username and password in order to thwart hackers. Be sure to use Two-Factor Authentication (2FA) and/or mobile phone text verification.

Using your wallet

Mobile hot wallets are
apps on your smart phone, such as Abra, Jaxx, Voyager, and MyEtherWallet (MEW).
If you’re using a public Wi-Fi connection, use a Virtual Private Network (VPN)
to protect your identity. Again, usernames and passwords must be very difficult
to guess.

Computer wallets are
very similar to mobile wallets and have the same advantages (ease of access and
speed) but also have the same vulnerabilities to hackers and phishing scams.
Use strong anti-virus and anti-malware programs, a VPN, and strong usernames
and passwords.

Summarizing, all wallets are used similarly. The differences are in the speed and ease of use and the security of each.

Use a hot wallet if you want quick access to your crypto holdings for trading and spending. Use a cold wallet for storage of cryptos that you don’t intend to move anytime soon.

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