It is estimated that a massive $9 million a day is lost due to cryptocurrency scams, hacking, phishing, fraud, and theft. So if you’d rather not become a part of this statistic, you should be extremely careful with your private keys when investing in cryptocurrencies.
Yet cryptocurrency storage is really just a metaphor, since bitcoin and other virtual currencies don’t really have a physical form and can’t be “stored” in the conventional sense. What you do store though is the history of your transactions in a cryptocurrency wallet.
Cryptocurrency wallets are software or hardware entities that allow you to keep your public and private keys safe and even buy, sell, and monitor alt-assets in real time.
Depending on how much you plan to invest, you may need both a hot wallet and a cold wallet to protect your financial future. Check out below, the pros and cons of both these storage options.
Hot wallets are always connected to the internet, so they’re easy to access from anywhere and allow you to track and make transactions from any device.
They may refer to both, the cloud-based account you create with an online service and the software or app that you have downloaded on your device. In either case, your investment is at risk, and you could lose your money quickly.
Since the provider stores your personal key on their servers, your wallet is vulnerable to technical errors, regulations, and, more specifically, hackers.
When you download the software or app to your desktop or smartphone, you’re still at risk. Each time you connect your device to the internet, you open a gate for hackers to break in and drain your funds.
So, why use a hot wallet?
Well, they have some key advantages. They usually accept more types of tokens, have user-friendly interfaces, and give you immediate access to your crypto funds. They’re also free and you can create one in a couple of minutes.
Cold wallets are more secure because you store your data offline. Most of them are physical devices (similar to a flash drive) that you need to plug into your computer to get access to the data.
Since they are not connected to the internet, no one but the owner has access to the information about their crypto funds.
Cold wallets are excellent for storage, but many of them don’t accept all types of tokens and give you limited options for transactions of any kind. Plus, they can be expensive to buy, with the cheapest one costing around $80.
Which One Should You Use?
It all depends on the value of your cryptocurrencies and what you do with your tokens.
Cold wallets are the right choice for savings and investments, similar to your bank account. As they’re expensive, you should buy one only when the value of your cryptocurrencies is significantly higher than the price of the gadget.
Hot wallets are excellent for transactions. So, even if you keep most of your crypto funds in a cold wallet, it’s a good idea to keep some in your account for quick transactions and payments.
Either way, do your best to keep your data safe from hackers and cyber attacks. Take care of your passwords, don’t share your personal keys, and always protect your devices against viruses.
And if you want to get serious about your cryptocurrency investments, using a cold wallet is definitely the safest way to go.