It seems like more people adopt the use of cryptocurrency with every year. Many of these people see the benefits of crypto coins, but they are often uninformed when it comes to the risks.
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One of the biggest risks with crypto is the potential for coins to get stolen. Whether you are using cryptocurrency for daily purchases or holding it as an investment, you are responsible for your own security.
That is why your choices as it concerns storing crypto are so important. The type of wallet you use and the security practices you follow will determine how safe your coins are. That is why every crypto user needs to take the time to understand the different storage options that are available.
The One Option You Don’t Want to Use
Storing your coins on a wallet or account you have with an exchange is a bad idea. Some people leave the coins there out of convenience, but it will expose your crypto to added risks. Even if you are dealing with a reputable exchange that follows the best DevOps security practices, you should not leave your cryptocurrency on the exchange for a long time.
The main reason for this is that an exchange could get hacked. If that occurs, your coins could be at risk. Also, if your sign-in credentials are compromised, someone might be able to sign in and steal the coins. If you are going to use coins on the exchange, transfer the amount you need to the account. You should also transfer any excess coins from the account back to your wallet when you are done trading for the day.
Software Wallets and Hardware Wallets
One of the choices you will have to make is between software wallets and hardware wallets. As you might suspect a software wallet is basically an application that serves the function of being a crypto wallet and a hardware wallet is a device that serves as a wallet.
As it concerns software wallets, they can be downloaded and used locally on a laptop or phone or they can be web-based and operate over the internet through a browser. In general, the offline wallet downloaded to a device will offer better security than a web-based wallet.
When it comes to hardware wallets, you are looking at something similar to a USB stick that has code on there to secure cryptocurrency. These generally cost more than software wallets, but they are usually more secure because they can be disconnected from machines that access the internet.
If you are looking for easy spending, a web-based software wallet is probably the most convenient option. That is followed by offline software wallets and then hardware wallets after that. Many people choose to balance security with ease of use by storing most of their coins in a hardware wallet and then transferring small amounts to a software wallet for daily spending.
Cold Storage or Hot Storage
When selecting a crypto wallet, you also have the question of hot storage vs. cold storage. Hot storage wallets connect to the internet and cold storage wallets do not. This makes cold storage wallets much more secure than hot wallets.
You can also have different types of cold wallets and hot wallets. Most hot wallets are software wallets. However, there are software wallets that offer cold storage. These would be applications you download to the device to operate locally. Instead of connecting online to perform signing functions, the software would do the signing on the device.
Most hardware wallets are cold storage. They also tend to be more secure than the cold storage you could get from a software wallet. Since it is a physical device you can disconnect from the computer or phone that it is used with, it is much harder for the device to be compromised. Even if someone steals the wallet, they won’t be able to access it without your sign-in credentials.
You can also make paper wallets as a form of cold wallet. With these wallets, you use a service that generates a paper wallet you can print. These are very secure, but they are the least convenient option for storing and using crypto coins.
Many people also use a combination of hot storage and cold storage. They keep a small amount of crypto in a hot wallet for easy access and store the bulk of their holdings in a cold wallet for security. The hot wallet offers convenient spending on a phone or other device, and you can keep a hardware cold wallet in a secure location to protect most of your coins.
Cryptocurrencies have become a popular target for cybercrime. Whether you plan to invest in crypto or you just want it for spending, you need to make sure you have a secure wallet. Beyond that, you should follow the best practices for keeping your crypto safe. Never share your private keys, create strong passwords, use two-factor authentication and practice strong device security for any device you use crypto with.