In a previous article I introduced the types of “wallets” (hot and cold storage) used to hold your cryptocurrencies.
Selecting a wallet type will depend on the level of control you want to have over your private keys (crypto addresses) that identify your crypto holdings, and what form of protection you want. You can read Part I of this article at Wallets, Part I.
As mentioned in Part 1, you can break wallets down into cold (offline) and hot (online) and each type can be further broken down as such:
Cold Wallets:
- Paper wallets
- Hardware wallets
Hot Wallets:
- Web wallets
- Mobile wallets
- Computer wallets
The easiest cold wallet is a simple piece of paper on which you write down your private and public keys for your cryptocurrency. For long-term holders, this is the safest storage method, provided you protect and back up the piece of paper.
Using BTC as an example, you could use a program like bitaddress.org to create a public and private BTC address (including a QR code for each). You would write/print both addresses onto a piece of paper. You can then transfer BTC from an exchange to your newly created public address.
A paper wallet can be considered the safest because there’s no way for anyone to access your private key except by physically seeing it. It’s also the cheapest cold storage method since it doesn’t require any hardware purchase, which brings us to the next cold wallet.
A hardware wallet is a physical device, similar to a USB stick. It has built-in software to store your cryptocurrency – you transfer your crypto from an exchange to the public address in your hardware wallet. Common ones are the Ledger, Trezor, and keepkey but there are several more choices.
The hardware wallet is designed to be kept offline and the only time it’s online is when you plug it into your computer, which is connected to the internet. The device is often PIN protected and has buttons on the device that you use to confirm transaction requests.
Just as with a paper wallet, it’s very important that you properly secure your hardware wallet. If you lose it, you permanently lose the crypto that’s on it.
A hot wallet is one that is connected to the internet. Because it’s connected to the internet it’s easier and faster to use. But with that ease comes a less secure wallet since you’re exposed to hackers, phishing scams, and other nefarious players.
Because hot wallets are more vulnerable than cold wallets, you should minimize the amount of crypto you hold in hot wallets. If you want to store your crypto for longer term, it’s best to keep them in a cold wallet.
A web hot wallet exists on the internet and typically is a website or browser extension. It’s very important to use a secure username and password in order to thwart hackers. Be sure to use Two-Factor Authentication (2FA) and/or mobile phone text verification.
Using your wallet
Mobile hot wallets are apps on your smart phone, such as Abra, Jaxx, Voyager, and MyEtherWallet (MEW). If you’re using a public Wi-Fi connection, use a Virtual Private Network (VPN) to protect your identity. Again, usernames and passwords must be very difficult to guess.
Computer wallets are very similar to mobile wallets and have the same advantages (ease of access and speed) but also have the same vulnerabilities to hackers and phishing scams. Use strong anti-virus and anti-malware programs, a VPN, and strong usernames and passwords.
Summarizing, all wallets are used similarly. The differences are in the speed and ease of use and the security of each.
Use a hot wallet if you want quick access to your crypto holdings for trading and spending. Use a cold wallet for storage of cryptos that you don’t intend to move anytime soon.
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