People in the cryptocurrency industry often say, “not your keys, not your Bitcoin”. The idea behind this phrase is that if you don’t control your private keys, then you don’t control your Bitcoin. Wallets are a very personal choice when it comes to storing funds, so which are the best wallets for your cryptocurrency needs?
Below, we take a look at the differences between hot and cold storage and the benefits of using these different types. There are several trade-offs, benefits, and negatives to both and it all comes down to your own priorities.
Cold wallets: offline and secure
If you highly value security and you’re wary of losing your Bitcoin, then using a cold wallet is the way to go. By keeping your Bitcoins offline, there is a much reduced threat of being hacked. If you have or plan to buy Bitcoin, or any other currency, and “hodl” for the foreseeable future without trading then a cold wallet could be one of the best wallets for your cryptocurrency.
One of the most secure ways of setting up a cold wallet is by using a paper wallet. By using a paper wallet, the only way to access your Bitcoin would be through this piece of paper where your key is written down. The main risks are if you lose that piece of paper in a fire or through bad housekeeping, then accessing your Bitcoin is impossible. Having a few spare copies in places you and only people you trust know about could be one way to counteract this.
If setting up a paper wallet sounds like too much hassle for you, then there is a more expensive but easier option. Buying a hardware wallet provides a great amount of security but for a financial cost. Depending on the make and model, you could expect to spend up to $100, if not more.
One essential tip when buying a hardware wallet is to ensure you are buying from a reputable vendor. When you receive your wallet, make sure that the wallet hasn’t been tampered with or opened in any way. Malicious actors could upload malware onto these wallets if they are able to get their hands on the hardware before you yourself do. The best wallets for cryptocurrency will be supported by positive reviews from other users.
Hot wallets: online and easy to use
Storing your Bitcoin in a hot wallet comes with a lot more risk, but it is simpler than setting up a cold wallet. Some of the best online wallets boast easy-to-use interfaces, high availability and instant transfer times.
But be warned, keeping all of your crypto in an online wallet creates a larger surface attack area, which means there is an increased risk of being hacked.
If you plan to consistently move your Bitcoin around to different exchanges for trading purposes, then a hot wallet might be for you. To protect yourself a little more, you can install two-factor authentication, but even then you are not guaranteed to be 100% protected.
Hot wallets generally provide a more user-friendly experience, which is why many who are not heavily knowledgeable about cryptocurrencies generally use them. If you want to use a hot wallet, the recommended method would be to store a minimal amount. By storing the majority of your Bitcoin in a cold wallet and just a small amount in a hot wallet, you can get the best of both worlds — ease and quickness of use as well as the security the cold wallet provides.
There are positives and negatives to both hot and cold storage. If you want quickness and ease of use, go for a hot wallet. If you want security and long-term storage, use a cold wallet. Completing your own research before purchasing cryptocurrency is essential for your own security, and storing your it safely is key to protecting your investment.
If you’re looking to find out more about cryptocurrency wallets, read our dedicated eGuides.