How to Think About Cryptocurrency Wallets

This two-part article will introduce you to cryptocurrency wallets. Part 1 will outline the different types of wallets available and Part 2 will describe the differences and how to use them.

There are several options for storing cryptocurrency holdings depending on:

  • Your level of comfort with technology
  • How much you have invested in cryptocurrencies
  • Your personal desire for the storage method

The main point to remember is that the security of your cryptocurrency depends on the security of the cryptocurrency’s private key (address).

When you use a crypto exchange like Coinbase (and Coinbase Pro), the exchange holds the private crypto keys that identify your crypto holdings. In a previous series, I discussed public and private keys and how to use them.

It’s important to remember that the private key identifies your cryptocurrency holding, and it enables you to access your holdings from any computer or smart phone from anywhere in the world. But when you use a large exchange, you don’t have to use the private key.

Exchanges such as Coinbase, Kraken and Bittrex maintain control of your private keys. They have wallets to hold the keys and most of the large exchanges have very good security, plus insurance against losses. These exchanges will use “hot wallets” for active trading since they’re connected to the Internet. They use “cold wallets” for offline storage (not connected to the internet) so that the keys are kept away from hackers.

Coinbase says it keeps 98% of its holdings offline in cold storage and takes care of switching back and forth between hot (online) and cold storage so that users don’t have to worry about where their cryptocurrencies are stored or what their private keys are.

Some crypto exchanges, such as KuCoin, provide the ability to move your crypto from your “main account,” which is a cold wallet, to your “trading account,” which is a hot wallet.

If you would rather not be dependent on an exchange to access your crypto holdings, you’ll need to maintain responsibility for your private keys. As with the exchanges, you have a choice between cold and hot wallets. Each has different types to consider:

Cold Wallets:

  • Paper wallets
  • Hardware wallets

Hot Wallets:

  • Web wallets
  • Mobile wallets
  • Computer wallets

In Part 2 of this article, I will describe how to use all of the above wallets and the level of protection each offers.

Crypto basics review

With this knowledge you will be able to decide whether you’re willing to let others maintain security of your crypto holdings or take on that responsibility yourself. You can let an exchange act as your crypto bank, the same as if you had a bank hold your cash, or you can take total control, as if putting your money under your mattress.

For the basics on how to get started investing in cryptocurrencies and how to buy and sell various cryptocurrencies, review these articles:

If you’d like to learn much 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