Storing Your Cryptocurrency: A Beginner’s Guide
The cryptocurrency market is booming, but how do you keep your digital assets secure? Cryptocurrency has already been stolen from users who did not take the proper precautions when storing their digital currency. This guide will walk you through the purpose of securing your cryptocurrency as well as the pros and cons for each type of available cryptocurrency wallet.
What is a Cryptocurrency Wallet?
A cryptocurrency wallet is a storage location for your digital holdings that allows you to store, receive, and send your coins. Different types of wallets offer different features, so depending on what type of coins you own and how much you plan to hold for the long term, there are several things to consider when choosing the best wallet for you.
Types of Cryptocurrency Wallets
There are several different options to store cryptocurrency, but the four main types of wallets you’ll see in use today are custodial wallets, hardware wallets, software wallets, and paper wallets. Once you know the benefits behind each storage option, you can choose the best wallet to keep your cryptocurrency safe.
Custodial wallets are considered by many to be the default option for coin storage. This refers to when a third party, such as a cryptocurrency exchange like Coinbase, holds your cryptocurrency for you. In many cases, the cryptocurrency platform will allow you to transfer your coins to your own hardware or software wallet so that you have full control over them, but not every platform offers this option.
- Most convenient option as the cryptocurrency platform manages your storage for you
- Your coins are easy to access if you want to trade
- If you forget your password, you can recover it if you meet the account recovery requirements
- A third party controls your cryptocurrency
- Your account or the exchange could be hacked
- You may get locked out of your account
A hardware wallet, sometimes called a cold wallet, is an offline cryptocurrency storage option. These wallets are small devices, like a USB, that connect to your computer. They can connect to the internet when receiving or sending your coins, but aside from that, they are entirely offline. Hardware wallets are widely considered the most secure option since offline cryptocurrency can’t be stolen by hackers, although they do come with a price tag. Most available hardware wallets can be purchased for between $50 and $150.
- Most secure in terms of lessening your risk of coin theft or your account being hacked
- Portable – can be plugged into any computer to confirm transactions or send currency
- Comes with a recovery seed that allows you to recover your coins if you lose the device
- Can be costly
- Less convenient – hooking up your wallet to move cryptocurrency can be a slower process
Software wallets, also known as hot wallets, is an application that stores cryptocurrency online. They are typically downloaded and installed on a computer or mobile phone and allow users to easily manage their funds. They are generally very safe, but because they store your cryptocurrency online, there is always a risk of being hacked.
- You have full control over your cryptocurrency
- Easy to use and allow you to send cryptocurrency quickly
- Typically free
- Comes with a recovery seed that allows you to recover your coins if you lose access
- Risk of being hacked
- Susceptible to online viruses
Paper wallets are considered a type of cold storage. This type of wallet refers to keeping your cryptocurrency on paper, but some people laminate their copy for additional security. Cryptocurrency keys are typically written or typed out, which means that only you will have the information. However, if you damage or lose a paper wallet, you are generally out of luck when it comes to accessing your coins again.
- Only you have a copy
- Free to make your own
- Offline which means you have greater security against hacking
- Least user-friendly option – must enter your public and private keys to send cryptocurrency
- Susceptible to being lost or damaged
As you can see, there are many different options for securely storing your cryptocurrency. Hardware wallets typically provide the most security for a cost, while software wallets are a convenient option for easily accessing your cryptocurrency. Now that you’ve learned the pros and cons of each type of cryptocurrency wallet, you can make an informed choice about which option works best for you and your investment needs.
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