How to Think About Cryptocurrency Wallets, Part II

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.

If you’d like to learn more about cryptocurrencies, crypto exchanges and the state of the crypto market, sign up for a free trial of my weekly Crypto Wealth Protocol newsletter.

Investing 101: Do Bonds Belong in Your Portfolio?

Portfolio diversification is a strategy that helps investors manage risk. Investors often choose to diversify among industries for stocks, for instance. But they also consider diversification within different assets types.

Should You Use Extra Cash to Invest or Pay Off Debt?

Deciding between repaying debt repaying versus investing may seem impossible. Everyone’s financial situation is different and only you know from an emotional standpoint what might work best. Start with your

6 Healthy Morning Rituals That Make the Most of Your Day

Whether you are a “morning person” or not, how much thought do you give to the start of your day? Do you realize that by adopting a few simple morning

How to Read and Understand an Options Quote

When you begin trading options you'll spend part of your research scanning for the right options to buy. When you find a list of options, then you'll need to learn

Test Your Financial Advisor’s Loyalty with These Simple Questions

You have a financial advisor in order to make certain you have budgeted your money correctly, have planned for future financial needs, and, in some cases, to turn some of

Sell Puts the Smart Way: Get Out Before Expiration Nears

Selling put options can be a great way to help increase the value of your portfolio without taking on too much risk. At its core, a put sale allows investors

refinancing

4 Pros and 1 Con of Refinancing Your Home

Two years ago the 30-year fixed mortgage rate was 4.6%. Today it is 2.9%. If your mortgage is in the high threes, you should consider refinancing. Refinancing would lower your

Easy Finance Tip: How to Calculate Your Net Worth

To calculate your net worth, just subtract your liabilities (what you owe) from your assets (what you own). While the equation is simple, it's important to get a snapshot of

Just a Few Bad Market Years Can Slam Your Retirement: How to Cut Your Risk

I believe one very underappreciated risk for investors preparing for retirement is the concept of “sequence of returns.” Sequence of return risk is the danger that the timing of withdrawals

Tai Chi Can Benefits for Those with Chronic Diseases

The Chinese martial art of tai chi can be beneficial to people suffering with chronic illnesses, according to research in the British Journal of Sports Medicine (2015), conducted by Dr.

Two Measures of Options Volatility That Matter

Most people often have a notion of what volatility means. They understand, at least conceptually, that it has to do with data of situations that vary over time. Weather is

3 Financial Habits to Adopt Before You Retire

Nobody wants to work until the day they die. We all want to get to a point where we can simply sit down, relax, and enjoy life.  Consider adopting these