Cryptocurrency has been a booming market for many years now, with bitcoin rocking back and forth to new all-time highs of, frankly, insane amounts of money. Cryptocurrency, while being an extremely risky investment, is also one of the fastest growing investments around, with 13% of American adults having invested in cryptocurrency at some point within the last year.
This brings up questions about the safety of your money being stored as a cryptocurrency. While a lot of people are investing in crypto, a lot of them are doing so on crypto exchange platforms which house your money for you.
A crypto exchange, while generally considered safe, is not the last word in security and should not be trusted with large amounts of money. So, what are the alternatives to storing, and should you be using them? We discuss crypto storage in the below.
Hot wallets are considered to be any wallet that has constant internet access. Two examples of hot wallets are:
- Cloud wallets – An online wallet from which you can have access from any smart device that is able to use an internet explorer. Cloud wallets can be standalone but are mostly used as part of a crypto exchange or investment service.
- Software wallets – A software wallet is a dedicated piece of software on your phone or computer that will store all of your crypto keys while also giving you quick access to invest or make payments.
Hot wallets in themselves come with some inherent advantages, and drawbacks.
Advantages of a hot wallet:
- Quick and easy to make payments out.
- Quick and easy to receive payments.
- Speed when investing in a volatile market.
- Easy access makes budgeting simple.
Disadvantages of a hot wallet:
- Less security, an attack on your wallet provider or malware on your computer could cost you all of your funds.
- Most hot wallets have no access to private keys, meaning you are never truly in control of your funds.
A cold wallet is a wallet that is kept privately with no constant access to the internet. Two examples of cold wallets are:
- Paper wallet – having a physical copy of your cryptocurrency private keys to keep offline and in a secure location.
- Hardware wallet – usually taking the form of an external hard drive or a thumb drive, these are specially designed wallets to store your cryptocurrency keys offline and in a secure location.
As with hot wallets, cold wallets to have positive and negative attributes.
Advantages of a cold wallet:
- The best security. Any nature of attack to try and steal your cryptocurrency would need to be a physical one, in which case they would not only need to steal your hardware wallet but attain sign in keys for it as well.
Disadvantages of a cold wallet:
- A cold wallet has very little in terms of the convenience of a hot wallet. Making payments, receiving payments, or even investing from your hot wallet will be time-consuming and sometimes difficult.
Which Should You Use?
The short answer is both.
Most professional traders, investors and even online gambling casino enthusiasts will have a mixture of hot and cold wallets. The bulk of your funds stored in a cold offline wallet for safe keeping, while still having some funds in an easy to access hot wallet.
There is no need to have all your funds in one place, provided you keep only what you feel necessary in the hot wallet, as it is not common, but cyberattacks do happen. All of your funds in a hot wallet is an unnecessary risk to take.