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

Study Link Selfies To Mental Disorders: What You Need To Know

Everyone can admit to taking a "selfie" — aiming a smartphone camera at yourself — from time to time, whether it be alone or with a group of friends when

Opinion: Value Investing Is Dead? Not By a Long Shot

According to some, hunting for stocks that are undervalued as a basis for portfolio selection — commonly called value investing — has been out of favor as former value investors

4 Lies That Your Financial Advisor Will Tell You

If you are thinking about hiring a financial advisor — paying someone to manage your money for you — then you should be aware of the lies they might tell

Wealth Building Tips From Soros, Cuban, and Buffett

Billionaires George Soros, Warren Buffett, and Mark Cuban did not become rich accidentally. They made consistently smart investment decisions, which helped them create great personal wealth as well as economic

Exclusive: Market Think Tank Experts On the Year Ahead for Stocks

Watch this exclusive replay of the Market Think Tank with Bob Iaccino from the live event held January 25th. In this video replay, Amelia Bourdeau, Jim Iuorio, Mike Shorr, Michael

This Is How Your Birth Order Affects Your Personality

Many believe that the order you are born in affects your personality. By birth order I mean the oldest, middle, youngest or only child. Seems pretty obvious right that this could

5 Ways Billionaires Think Differently About Money

In 2016, according to PwC, the wealth of billionaires grew by 17 percent. If you aspire to be a billionaire, it pays to think and act like a billionaire. Here

Should High Earners Give Up Some of Their Social Security Benefits?

There is growing momentum that calls for Social Security benefits to be paid at a flat rate. This would be a huge departure from the current system. As it stands,

5 Valid Reasons You Should Never Eat Tilapia Again

Tilapia has become the ubiquitous fish in America today. It’s cheap, not “fishy” tasting, boneless and skinless, and is hard to mess up by overcooking, which is a problem with

Social Security Is Running Out of Money. What Can You Do About It?

The Social Security Administration announced on Tuesday that it expects to pay out more money than it takes in this year. That means that it will have to draw on

This State Will Pay You $10,000 to Move There — But There’s a Catch

Vermont Governor Phil Scott has signed into legislation that will pay people to relocate to the state in a bid to grow the state's flagging taxbase and reinvigorate the economy

See the World: How to Fund a Nomadic Retirement

According to the 18th Annual Transamerica Retirement Survey, 70% of American workers dream of a retirement spent travelling the world, visiting exotic locations and enjoying the diverse cultures of the