Hot vs. Cold Cryptocurrency Storage – by Rob G
Cryptocurrency storage is the first thing one must understand and investigate before investing your fiat dollars. The world of crypto is very much like the Wild Wild West and unfortunately full of people who try to take advantage and scam others out of their hard earned crypto currencies. Before getting started I highly recommend clicking here and having a read. It is said that education is the best defense and this article will help you learn and understand about seven of the most prevalent types of scams you need to be aware of.
One of the most effective ways of staying safe is choosing an appropriate wallet. There are two main types of crypto wallets; cold and hot. This doesn’t refer to the temperature of each wallet but rather their connection to the internet.
A hot wallet is connected to the internet and is accessed either online or from the desktop. Traditionally they are known to be much less secure than a cold wallet. This is due to the risks posed to both privacy and security.
Online Wallet (Exchange)
An online wallet generally runs on the cloud and therefore can be accessed via multiple devices with an internet connection. This kind of wallet is convenient, easily accessible and practical for the user. However online wallets are more susceptible to malware, outdated security, phishing attacks, DDOS attacks and hacking. Therefore, it is imperative to take necessary steps to increase layers of security such as keeping software up to date, never going to porn sites, using MalwareBytes and AVG to help keep the computer clean. My recommendation is that you should never store large amounts on an online wallet. Mt. Gox is one of the most well-known documented cases of a security breach.
Examples: Binance, Kucoin, Coinbase, Bitstamp, Bittrex
A desktop wallet is another example of a hot wallet and is safer than an online wallet depending on your own personal online security. These kinds of wallets are downloaded and installed onto a laptop and can be accessed via the application. The risk here is that if you do not have a ‘clean’ computer you run the risk of getting hacked and ultimately losing your cryptocurrencies. This is why it is important to make sure you have a clean operating system installed, malware protection program and antivirus. Depending on your situation, it may even be recommended to have a clean and dedicated computer used solely for storing and transacting cryptocurrencies.
Examples: Armoury, Multibit, Exodus
A mobile wallet is accessed through your mobile phone. While very convenient and considered to also be safer than online wallets there still are risks. Phones are well known to be insecure devices and can be compromised and rooted. You also run the risk of losing your phone, in which case if it is not backed up you will lose all your crypto.
Examples: Jaxx, Coinomi, Bread
A cold wallet refers to generating and storing the wallet’s private keys offline and off the internet. This is the most secure way of storing your cryptocurrencies and a great option especially if you are a long term hodler.
A paper wallet is an offline storage method and probably the safest way to store any cryptocurrency. This involves printing and storing both your private and public keys in a secure and safe place. You have complete control and are solely in charge of your keys they cannot be hacked nor can malware be used to obtain them. Click here for a great video tutorial on how to create a paper wallet. Be sure to store the paper in a safe place, ensuring that the paper will not be damaged by the elements, and that the ink will not fade over time (if stored for several years).
A hardware wallet is one of the most popular options for crypto storage and another fantastic option for storing large amounts. A hardware wallet signs transactions using the private keys which are stored offline. You are required to confirm the transactions on the hardware wallet, ensuring that only you can approve the transactions with the hardware wallet in hand. You can also back-up your wallet using a seed key if damaged or lost. Using a hardware wallet is extremely safe and secure however it does come at a cost. The two most popular hardware wallets are the Ledger Nano S and the Trezor. Only purchase from their official websites and never from eBay or Craigslist etc. I have included some easy to follow video tutorials on how to operate and set-up the Ledger Nano S and the Trezor just click on which one you prefer.