Wallets for Bitcoin and other cryptocurrencies are a safe place to store digital assets. By keeping your crypto outside of the exchange and in your own wallet, you can be sure that only you have the private key to your money. It also lets you store money outside of an exchange, so you don’t have to worry about your exchange getting hacked and your money is lost.
Even though most exchanges give their users wallets, security is not their main focus. Most of the time, we don’t recommend using an exchange wallet for long-term or large amounts of cryptocurrency.
Not all wallets have the same number of features. Some can only store Bitcoin, while others can store a wide range of other coins. In some wallets, you can also trade one token for another.
You have a few choices when it comes to picking a Bitcoin wallet. The first thing you need to know about crypto wallets is the difference between online wallets (called “hot wallets”) and offline wallets (called “cold wallets”) (paper or hardware wallets).
About Hot Wallets
Hot wallets are another name for online wallets. Hot wallets are wallets that can be used on computers, phones, or tablets that can connect to the Internet. This can make your coins vulnerable because the private keys to your coins are made on these Internet-connected devices by these wallets. Even though a hot wallet makes it easy to get to your assets and make transactions quickly, storing your private key on a device that is connected to the Internet makes it more likely to be hacked.
This may sound crazy, but people with hot wallets who haven’t set up enough security risk having their money stolen. This happens quite often, and it can happen in a number of different ways. For instance, it would not be smart to brag on a public forum like Reddit about how much bitcoin you have while using little or no security and storing it in a “hot wallet.” Still, these wallets can be made safe if you take the right steps. Strong passwords, two-factor authentication, and safe Internet browsing should be the bare minimum.
These wallets work best for small amounts of cryptocurrency or cryptocurrency that you are actively trading on an exchange. A hot wallet is kind of like a bank account. Conventional financial advice says that you should only keep spending money in a checking account and keep the rest of your money in savings or investment accounts. You could say the same thing about hot wallets. Hot wallets include mobile, desktop, web, and custody wallets in an exchange account.
As we’ve already said, exchange wallets are accounts that the exchange holds for you. The person who uses this type of wallet does not have the private key to the cryptocurrency that is in it. If the exchange is hacked or your account is stolen, you would lose your money. In cryptocurrency forums and communities, the phrase “not your key, not your coin” is used a lot.
About Cold Wallets
A cold wallet is one that is not connected to the Internet. Since it is not connected to the Internet, it is much less likely to be hacked. You may also hear these wallets called offline wallets or hardware wallets. These wallets store a user’s private key on something that isn’t connected to the internet. They can also come with software that works in parallel so that the user can look at their portfolio without putting their private key at risk.
A paper wallet is one way to store cryptocurrency offline. It may be the safest way to do so. A paper wallet is a wallet that you can print out from certain websites. Then, it gives you both public and private keys that you can print out. You can only get to the money in these addresses if you have that piece of paper with the private key on it. Many people laminate these paper wallets and keep them in safe deposit boxes at their bank or in a safe at home. Because you can’t sell or trade bitcoin quickly when it’s stored this way, these wallets are best for long-term investments and high security.
A hardware wallet is a type of cold wallet that is used more often. Most of the time, a hardware wallet is a USB drive that stores a user’s private keys in a safe way. These wallets are much better than hot wallets because viruses that could infect a computer can’t hurt them. With a hardware wallet, your private keys never touch your networked computer or any software that could be hacked. Most of these devices are also open source, which means that the community can check their code to see if it is safe to use instead of a company saying that it is safe to use.
The safest way to store your bitcoin or other cryptocurrency is in a cold wallet. But they are harder to set up because you need more technical skills.
A good way to set up your wallets is to have three things: an exchange account for buying and selling, a hot wallet for small to medium amounts of crypto you want to trade or sell, and a cold hardware wallet for larger amounts you want to keep for a long time.
