Investing in the cryptocurrency space is easier now than it’s ever been before. But before you can start buying Bitcoin, Ethereum, Litecoin, or any other digital asset, you need a safe place to store it. Unlike traditional currency, cryptocurrency isn’t issued or maintained by governments or financial institutions, and it has no physical form. That means it’s up to you, the individual investor, to keep your coins safe and secure.
How do you do that? By choosing the right cryptocurrency wallet for your needs.
There are many different ways to store digital assets, but crypto storage can generally be broken down into two main categories: hot and cold wallets.
What is a Hot Storage Wallet?
Hot wallets are cryptocurrency storage solutions that are connected to the internet. They can take many different forms, including desktop software, mobile apps, and even web-based services.
The main advantage of hot storage wallets is that they’re easy to use and convenient. Some hot wallets give you access to your coins from anywhere in the world so long as you have an internet connection, while others allow you to make transactions quickly and easily from a dedicated device, like a phone or tablet.
Hot wallets are typically easy to set up. In many cases, you may only need a username and password, or to download an app to your phone. Some cases, like exchange-based wallets may require a KYC verification process, such as providing a phone number, email address, and uploading an ID document.
The convenience of being easily accessible does come at a price, though. Because hot wallets are connected to the internet, they’re also more vulnerable to hacking attempts. If a hot wallet’s security is breached, your coins could be stolen. This is why it’s important to choose a hot wallet provider that has a good reputation for security.
Here’s a recap of the benefits and disadvantages of hot crypto wallets:
Hot Wallet Benefits
- Easy to use and convenient
- May be accessible from anywhere in the world, or from a dedicated device
- Best suited for smaller amounts of cryptocurrency and everyday use
Hot Wallet Disadvantages
- More vulnerable to hacking attempts
- Not suitable for large amounts of cryptocurrency
- May require KYC verification depending on the solution you choose
What’s a Cold Storage Wallet?
Cold storage wallets are cryptocurrency wallets that keep your funds offline. They can take many different forms, including hardware devices, paper wallets, and offline software programs.
Cold storage devices are much more secure than hot storage solutions. If you think of your hot storage wallet as your actual wallet, think of cold storage as a your safe or vault. Just like you wouldn’t store your life savings in your physical wallet, you also probably wouldn’t want to carry around a safe all day either.
This is because just as convenience comes at the price of security for hot wallets, security comes at a price of convenience for cold wallets. Depending on the storage solution, most cold wallets require you to physically connect your device to a computer or phone to access your funds, making them impractical for everyday transactions.
For long-term cryptocurrency investors, cold storage wallets offer an attractive combination of security and peace of mind. If you’re planning on holding onto your coins for a while, a cold storage wallet is probably the right choice for you.
Read about how you can swap your crypto through FTX and Ledger Live.
Cold Storage Benefits
- Much more secure than hot wallets
- Highly resistant to hacking attempts
- Best solution for holding large amounts of cryptocurrency
Cold Storage Disadvantages
- Less convenient than hot wallets
- Not used for everyday purchases
- May require more advanced setup than hot wallets
Types of Hot Wallets
Desktop Software Wallets: Hot wallets that you download and install on your computer. One of the most popular is Exodus, which supports a wide range of cryptocurrencies.
Mobile Apps: Hot wallets that you can download onto your smartphone. They’re very convenient because they allow you to use your coins while you’re on the go. Breadwallet and The Bitcoin.com wallet are popular mobile app solutions that support Bitcoin and Ethereum.
Web-Based Services: Hot wallets that you access through a web browser. They’re easy to use because all you need is an internet connection. These wallets can be standalone storage solutions, or part of wider cryptocurrency platforms, like FTX.
Types of Cold Storage Wallets
Hardware Devices: Cold storage wallets that you can connect to a computer or another device when you need to access your coins. They’re popular because they’re highly secure. Ledger Nano S and Trezor are two of the most popular hardware wallets on the market.
Paper Wallets: Cold storage wallets that you can generate offline. They consist of a piece of paper with a public address and private key printed on them. Because they’re not stored digitally, they’re very difficult to hack. However, paper wallets can be lost or damaged, so they’re not the most convenient option.
Offline Software Wallets: Cold storage wallets that you download and install on your computer or phone. They’re similar to desktop software wallets, but they’re not connected to the internet. Armory is an offline software wallet that supports Bitcoin, Ethereum and several other assets.
How to Choose the Right Wallet
Choosing the best cryptocurrency wallet for you depends on your individual needs and preferences. If you’re just getting started in the world of crypto, a hot storage wallet is probably a good place to start. They’re easy to use and convenient, and you can always move your coins to a cold storage wallet later on.
For large amounts of cryptocurrency, or for investors who want the highest possible level of security, cold storage wallets are the way to go. Hardware devices and offline software programs offer the best security, but they can be more expensive and less user-friendly than most hot wallets.
Ultimately, the decision comes down to your own personal circumstances. Just make sure to do your research before deciding on a wallet, and always remember to keep your private keys and passphrase in a safe place.
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