Bitcoin wallets provide safe storage of digital assets to an investor. There are several options from which a Bitcoin wallet can be selected. But before selecting a wallet the first thing that one should be aware of is hot wallets (online wallets) and cold wallets (paper or hardware wallets).
They are wallets that are available online and can be connected to via computers, phones, or tablets. These wallets are very convenient to access through internet-connected devices; it also creates vulnerability for them. The private key that is generated for the assets stored in a wallet, is susceptible to online attacks. If an attacker gains access to the private key, he will gain access to the crypto holdings of the user.
Hot wallets that aren’t well protected are always at a risk of losing funds to hackers. To user should implement necessary safety features like strong passwords, two-factor authentication, and use a safe internet connection to access his wallet.
These wallets serve best when they are used to holding a small amount of cryptocurrency that is being traded regularly. This is because a hot wallet is like a checking account in which only the spending money is kept, whereas the bulk of money or savings are kept in the savings account.
Unlike Hot wallets, cold wallets are not connected to the internet and therefore are less prone to risks. As they are not connected to the internet, they can also be referred to as hardware wallets or offline wallets. In these wallets, the private key of a user is stored in something that is not connected to the internet and can come with software that works in parallel so that the user can check his portfolio without risking his private key or account.
The most secure method through which cryptocurrency can be saved offline is through the paper wallet. A paper wallet can be generated from certain websites. It will then produce both private and public keys that can be printed on paper. In these wallets, the cryptocurrency can only be accessed by the user if he has both the paper and the private key. These wallets are generally used for holding long-term securities as the digital assets stored in the wallet cannot be quickly sold or traded.
A hardware wallet is the most common cold wallet. It is a USB device that stores the private key of the user. These wallets are offline so they have a huge advantage over the hot wallets. Hardware wallets cannot be affected by viruses that could affect one’s system. In hardware wallets, the private key never comes in contact with an online device making it completely secure.
The best method to set up a wallet is to have an account on an exchange, a hot wallet where you can store your regular trading crypto, and a cold wallet to store your long-term investments.
Disclaimer: The article should not be considered as any financial advice. It is advisable to conduct thorough research before investing.
Photo by – TheDigitalArtist on Pixabay