Cryptocurrencies have undoubtedly captured the imagination of the world at large.
From eccentric billionaire inventors to the common person on the street, never would we have expected digital assets to take off in such a big way.
By their very nature, cryptocurrencies defy any form of logic whatsoever. Since the dawn of civilization mankind has used physical items be it beads or precious metals as a medium of exchange.
Even with the introduction of fiat currencies, the value of paper money was backed by the government that issued it – with a few exceptions of course.
Cryptocurrencies: Decentralized and Unregulated
On the other hand, the actual value of cryptocurrencies are not guaranteed by any single entity. In fact, cryptocurrencies are entirely decentralized – meaning that these assets are not issued by a single monetary authority or government.
Instead, cryptocurrencies can be mined by anyone with the right equipment and infrastructure. And thus allowing its users to circumvent banks and financial institutions internationally.
Cryptocurrencies such as Bitcoin (BTC) and Ethereum (ETH) are powered by what is known as the blockchain – a digital database that stores information such as transactions and proof of ownership.
Because of this, a crypto user can transfer funds to anyone located anywhere in the world nearly immediately and at an affordable price. Hence allowing people around the world to operate independently of any financial institution.
This however has not gone unnoticed by the government; who have taken steps to regulate cryptocurrency and its use. Countries such as China have taken a draconian stance on the use of cryptocurrencies – banning mining operations and cracking down on its use as a medium of exchange.
While worrisome, all of this merely shows the potential that cryptocurrencies truly possess. That topic however is not why we’re here today.
Rather, we’re looking at the best ways to store your cryptocurrencies. As anyone knows, cryptocurrencies can be sent and received by anyone without having to make use of a bank’s financial services.
But how exactly do you go about doing so?
Storing Digital Assets: Cryptocurrency Wallets and Security
Unlike traditional assets, cryptocurrencies do not exist in a physical form. Rather they are stored on what is known as cryptocurrency wallets.
These wallets don’t exactly store cryptocurrency, rather they are used to store the digital keys used to verify transactions. This is done by keeping a record of the address on the blockchain in which a user’s cryptocurrencies are being stored on.
If you intend to regularly use or invest in cryptocurrencies, it’s highly recommended that you take as many precautions as possible to protect yourself. The last thing you want to do is to get careless and somehow lose access to your crypto assets.
Choosing a Wallet
With that out of the way, let’s take a look at the types of wallets that are available on the market. For simplicity’s sake, we’ll be looking at the most common/reliable types of crypto wallets that you can get your hands on.
- Hardware wallets
- Software wallets
- Paper wallets
Also known as cold wallets, a hardware wallet is a physical storage device that is not connected to the internet. The most common type of hardware wallets are USB sticks or an external hard disk.
A cold or hardware wallet stores your cryptocurrency encryption keys offline. This gives it a huge advantage over a software wallet that needs to be connected to the internet at all times.
Because a hardware wallet does not come into contact with your network, it is also unaffected by viruses.
Of course, a hardware wallet is not entirely perfect. For starters, you will still have to connect it to your computer in order to gain access to your cryptocurrencies. But this risk can still be avoided by simply hooking your cold wallet to a computer with no internet access. From here, the user will be able to print out his/her crypto encryption keys on a piece of paper.
Besides needing to be connected to a computer, hardware wallets can be physically stolen or damaged – thus cutting you off from access to your assets.
Again, these risks can be mitigated by making backups of your cold wallet and storing your device in a safe location.
Can be physically secured and does not need to be connected to the internet.
Still needs to be connected to the internet to access cryptocurrencies. More expensive compared to a software wallet.
App wallets or hot wallets are the most common type of crypto wallets available on the market. These are online services that store your crypto encryption keys on a server for easy access.
The main advantage of an app wallet is the degree of flexibility that it affords users with. With an app wallet, it’s extremely easy to transfer or receive cryptocurrencies. Thus making it ideal for an individual who regularly transacts in cryptocurrencies.
Hot wallets also usually provide crypto exchange services that allow users to trade fiat currencies for cryptos at any time.
Besides that, many app wallets are free-to-use services that can be easily accessed by just about anyone. Unlike a cold wallet, you won’t have to invest in an actual physical device just to store your crypto assets.
Despite all this convenience, hot wallets are a rather risky method of storing large quantities of cryptocurrencies. As they are online all the time, this makes them extremely vulnerable to cyber-attacks from hackers looking to steal cryptos stored on the site.
No matter how reputable a site is, the high value of cryptocurrencies makes these sites a favourite target for cyber criminals.
A quick Google search will show you how often cyber criminals routinely hack and steal untold billions of dollars in crypto. Given how difficult it is to track down these thieves, it is nearly impossible to protect against attacks or trace stolen cryptocurrency.
Convenient and affordable way to send and receive cryptocurrencies.
High-risk exposure to cyber criminals
As a rule of thumb, you’d be better served making use of both hardware and app wallets. Hot wallets can be a fast and convenient way to send and receive cryptos – but should never be used to store large quantities of funds.
You can find some of the most interesting crypto wallets apps in this article by Tezro: https://blog.tezro.com/best-crypto-wallet-apps/
Instead, store the bulk of your holdings in a secure cold wallet, locked away in a safe location. This will make it next to impossible for thieves to get their hands on your cryptos.