Hot Vs Cold Cryptocurrency Wallet
When researching your investment options, one of the newest assets available involves the currency of the future: cryptocurrency.
In the ever-changing technological world, it’s crucial to remain on top of the next big thing, and digital currency, like Bitcoin is a resource that shouldn’t be ignored. When exploring this new age investment, keep your eye on the long-term as it evolves and do your research as you open your digital wallet.
Investing in cryptocurrency means opening a wallet, but there is more to consider before you pick just any program. There are many different digital wallets available and, based on your preference, some may be more useful for your. Before selecting the wallet that right for you, it’s crucial to know what to look for. As you venture into the digital world of investing, here are some things to consider when choosing a cryptocurrency wallet.
Why do I need a Cryptocurrency Wallet?
Essentially, to be able to use and exchange cryptocurrency, you must select a wallet first. Wallets are a software program designed to store private and public keys. Private keys are equivalent to your account PIN, while the public key is the account number. This software interacts with a program called “blockchain” which allows for the flow of digital information. It’s distributed, but not copied. Having a wallet allows you to send and receive your cryptocurrency and monitor your balance.
Wallets don’t “store” the currency you have, but the software records any transaction, sends the funds, and monitors the activity. Without an actual account, you cannot send or receive any cryptocurrency of any kind. Wallets are also used based on a pseudonym, but all transactions are public. When selecting one, keep in mind what you would require as far as security, exchanges, and your type of digital currency.
Hot Wallets vs Cold Wallets
When selecting a wallet, the terms “hot” and “cold” may be mentioned. Hot wallets are connected to the internet. While this allows an owner to spend their cryptocurrency at any time, being connected leaves the account vulnerable to cyber-attacks. The biggest downfall of digital currency is account security. Once a transaction is complete or an account is hacked, there is almost no way of getting your fund restored. A hot account, though convenient, could also carry high-risk.
Cold wallets, on the other hand, need to be connected to be used. Often, this form of wallet takes more time, but it can be unplugged from the digital world adding to the security. Funds can also be put into what’s called “deep cold storage” where the account is never connected to the internet at all. While this method has added securities benefits, digital currency needs to be online to be exchanged. The best method is to find a happy medium and select a wallet that will allow for increased security and easy access.
The Difference Between Wallet Types
When considering a digital wallet, there are three different options: software, hardware, and paper. Each has its advantages and disadvantages, so be vigilant when settling on your digital wallet.
Software is the most common type. It can be accessed via desktop, mobile or be solely online. While desktop and mobile options are only accessible by your device, an online based wallet can be accessed anywhere on the cloud. However, online wallets are typically managed by a third party, making them more vulnerable to hacks.
Desktop wallets may allow for more security, but they are only accessible by your main computer. Mobile wallets, however, allow for an on-the-go access to your funds, but with limited space. The common issue across all software-based wallets is security due to constant connectivity.
A more secure option for storage involves hardware. These options can be unplugged and stored offline, but you can used them at any port to make online transactions. This type of wallet allows you to store private keys on a USB device, or other hardware. This gives cryptocurrency owners added security and cold storage. Of course, you need to have the hardware to complete transactions, and not all programs are compatible.
Paper wallets have the highest level of security and are very easy to use. They are an actual physical copy of your public and private keys, and they often refer to the software used to print them. These funds are transferred from your software wallet to your public address. While this is the most secure way, you still need to have a software wallet to transfer funds. To scan in your keys, the software uses a technique called “sweeping” that pulls the information from the hardcopy to the digital software.
Whichever wallet you decide on, consider what technology you have open to you and how quickly you wish to access your funds.
Importance of Security Measures
When selecting your wallet, security is the key factor. Depending on the type of wallet you use and the service provider, your newest investment could be at high-risk. If you are considering a hot wallet, though readily available, your account is vulnerable. Online accounts are more exposed, while offline accounts are less convenient. It’s also important to note that any private keys that are hacked, lost, or sent to scammer are lost for good. There is no way to recover that loss. In addition to choosing the right wallet type, it’s crucial to have a backup of your wallet. Also, keeping your software up-to-date and adding security layers can provide much needed protection.
The Perfect Wallet for You
Aside from security issues and hardware factors, here are a few things to consider: how do you plan to use your cryptocurrency, do you need constant access, and are you planning on using one type? As you research wallet types, keep in mind what you want to get out of your investment.
Many wallet types are either single currency based or multi-based. If you plan on investing in one type of cryptocurrency, like Bitcoin, it may not be in your best interest to use a wallet that has a multi-option.
Are you buying and holding onto your fund to accumulate? It might be best to select a wallet option that will allow for cold storage to protect against any cyber-attacks. Are you afraid of transaction and processing fees? It’s possible to set up your exchange for little to no fee, but that could have a backlash depending on how quickly you want your transaction to go through. Before making your final choice, consider these questions and select the best wallet for you.
Cryptocurrency Wallets: What to Look For
As you zero in on your digital wallet, the main goal is to find an option that works well for your lifestyle. If you are a beginner, it might be in your best interest to use something simple like Copay or Exodus. Find a provider that fits your preferences whether you want to invest on your own, or with multiple people like with Armory. If you are heavily investing in digital currency, avoid hot wallets like Bread Wallet or Mycelium.
Also, consider the technical support and how user-friendly the software is. Having a no-cost sign-up is also a bonus. As always, before making any investment, perform your due diligence to find the option that works best for you. Invest in the future and always know what to look for.