STORAGE of cryptocurrencies - how and why

When physical money is in possession it can be stolen by a thief or lost. In the cryptocurrency world, they can be stolen or lost too and that is why there are certain ways to store and secure them. Some of them are very secure and some of them are only a little bit secure.

There are cold wallets, hot wallets, and paper as a way to store cryptocurrencies. Simply put, hot wallets are connected to the internet while cold wallets are not. Most people who hold digital assets have both cold and hot wallets because they are designed for different purposes.

While hot wallets are like checking accounts, cold wallets are similar to a savings account. People who use digital assets for purchases keep some amount of money in their hot wallets, but majority keep the most of their cryptocurrencies in cold wallets.

The security of hot wallets is dependent upon the security habits of individuals and third parties. They are vulnerable to theft because they are constantly connected to the internet. As long, as something is connected to the internet, it is vulnerable to attack. However, keeping a small number of cryptocurrencies in hot wallets is fine because a hacker probably will not waste resources trying to gain access to the wallet.

The fastest and easiest way to store cryptocurrencies is to buy them at cryptocurrency exchange such as Coinbase, which is one of the largest ones and keep them there, but it is not so safe as it is vulnerable to hacker attacks as much as the whole cryptocurrency exchange. One of the ways how to be more secure in the crypto world is to set up a unique email that is used for the specific account and made a really hard and long password.

Another way to be more secured in the exchange is to turn on two-factor authentication for logging into an account.
Second way how to store cryptocurrencies is through software wallets which are available in three formats: desktop, mobile and online:
• Desktop wallets are computer programs that store cryptocurrencies locally on PC or laptop. One of the main advantages of the desktop wallet is that it offers complete control of the digital assets to the users, without having to rely on any third-party interface. However, it means that the entire security is up to a person making this wallet. If the person gets hacked or hard drive breaks down, the coins may be lost forever. The fear of hacking is one of the reasons that some people prefer to use unused or spare computers that never have access to the internet to store their currency, known as “cold” storage.
• Mobile wallets operate through an app on a mobile phone. The primary advantage of mobile wallets is that it allows users to quickly access and easily use their coins in a physical retail store. Mobile wallets come in two formats: one type of app stores your coins locally on your phone (same as desktop wallets) while the other format of mobile wallet merely provides you with access to online storage servers (same as online wallets)
• Online wallets are web-based wallets that can be accessed from anywhere and are thus more convenient as they can be accessed from any device and may also be linked to desktop or mobile wallets. However, the major disadvantage is that the private keys are being stored by the website owners rather than locally on your device and this type of wallet, therefore, requires to put a lot trust in the owners and their levels of security.

The third way to store crypto is through a paper wallet. It is a printed piece of paper that contains a cryptocurrency address and private key that are accessed using a QR code. The advantages of paper wallets are that they take the form of cold storage, as they are not connected to the internet and thus reduces the risk of hacking. In addition, they are also one of the cheapest options for cold storage.

However, paper wallets are considered to be more confusing and complicated to set up and use than software wallets and, if you lose the paper wallet and have not created a backup copy, there are no means of restoring the access to it.
Last and probably the safest way to store cryptocurrencies is through hardware wallets. They are dedicated devices that are intended to provide an additional layer of security to cold storage options such as paper wallets.

With a paper wallet, for example, if funds are secure until the use of a computer and then the computer gets compromised, the account could get hacked. By contrast, hardware wallets have a secure chip in them that means when you connect them to a computer to send a currency that has never been needed to input a private key on the computer itself.

The pin code is simply inputted on the piece of hardware, meaning that trading on a compromised computer is safer. If the hardware breaks or is lost, then it is possible to restore access to currency on a new device from the “seed words” that were received with hardware wallet, which is a string of random words used to restore a wallet and recover currencies. Hardware wallet is the only wallet of all that has its price and need to be bought, but when an individual invests a big amount of money, then 100€ is not a lot of money for the security it brings.

There are two most known hardware wallets, which are Trezor and Ledger. They are different by price, shape, and usage, but they are very similar. Although no method is ever truly 100% safe for storage of a currency, the ever-increasing range of wallets that are becoming available provide users with a greater range of products that can be used for storing currency depending on their requirements. If security is the most important, then the best choice is a hardware wallet. If convenience is most important, then the best choice is an online or mobile wallet.

As you can see there are more options to choose from and it is up to you what is more important. Is it convenience or security? Good luck with picking!