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.

Recommended Articles

‘Healthy’ Foods That Might Be Harming Your Gut and What to Choose Instead

As our world produces and demands more processed foods for convenience, marketers are also getting clever. Foods are being labeled to cater to those with dietary requirements or those looking

5 Surprising Countries Where You Can Retire with Less Than $100,000

When retirement is inching closer, you might wonder about the kind of lifestyle you can lead and the level of financial security you will have if you just have about

fire method for early retirement

The Real Truth About the FIRE Method for Early Retirement

The FIRE method for early retirement has taken off in popularity in recent years. But are the risks well understood by its adopters? Retiring as early as possible then living

Feeling Bloated? 25 Natural Ways to Fix Constipation

We’ve all been there. Things are rumbling in your tummy, you feel big and uncomfortable, but you just can’t seem to poop. Constipation happens to the best of us, and

5 Ways to Ensure You Get the Lowest Possible Mortgage Rate

A 30-year fixed rate mortgage is the most widely chosen home loan option because of the high financial predictability it offers. Follow these tips if you want to obtain the

Robots Will Take 52 Million Americans Jobs. Here’s What Will Happen

A new research report compiled by the Brooking Institution reveals that innovative automation technologies are set to replace millions of American jobs. In fact, more than 52 million American jobs in

Online Loan Companies Are No Easy Fix for Desperate Borrowers

If there is one thing that most Americans need right now, its more money. Online loan companies know this — and it's dangerous for many of us. Since the financial

investing in a volatile market

Investing in a Volatile Market for Long-Term Gains

Investing in a volatile market gives everyone the jitters. Novices, in particular, tend to sell in a panic and then wait for the right time to re-enter the market. Selling

Legumes: Nutrient Dense and Delicious, but Watch for These Preventable Side Effects

Legumes: Good or bad for you? The answer is, a little of both. And at the end of the day, what really matters is how your unique body feels when

4 Keys to Successful Retirement Planning

Retirement planning gives you the freedom to live life to the fullest. You can afford to have all the necessary comforts and amenities of life, go on a vacation occasionally,

Do Seniors Need Life Insurance Coverage?

Do seniors need life insurance coverage? Your golden years should be about enjoying the memories of one’s lifetime. Yet the reality of life is that we struggle to pay our bills

Better Investment Than a Casino? Probably a Fitness Club

We all aspire to be healthier. Who doesn’t aspire to lose weight and exercise more as an annual New Year’s resolution? Yet well-intentioned aspirations and actions are not the same