crypto

Cryptocurrency popularity and usage have skyrocketed in recent years due to a number of factors. Decentralization, inflation protection, accessibility, fast and easy transactions, cost-effectiveness, and the opportunities for high return are just some of the reasons people have become so fond of investing in crypto.

Another important aspect that has attracted investors to the crypto sphere is represented by the strong security practices. Digital currencies have been deemed extremely safe and reliable given the immutable nature of the blockchain technology that underpins them. Users gain full control over their assets, with no bank or other authority managing their accounts. That also means users are also responsible for the safe storage of their coins. As you can assume, this places quite a lot of responsibility on users’ shoulders.

Although digital currencies are thought to be safe, crypto hacks are not unheard of. In fact, as crypto prices surged, so did the number of cryptocurrency attacks. Since most investors are new to the crypto world and have little knowledge of securing their assets, this gives cybercriminals a clear path to access their accounts and steal their funds. Besides, it’s not just hacks that pose a threat to crypto security. There are other ways traders can lose their precious tokens, such as losing access keys, computer malfunctions, or losing hardware devices. Which raises the question, how can crypto users store and manage their coins safely and minimize the risk of scams or attacks?

In order to store your tokens and keep them safe in the long run, you’ll need to create a crypto wallet. That doesn’t sound too complicated, and technically it isn’t until you find out there are different types of wallets you can use, each of them with its own advantages and disadvantages. The pressure of choosing the right type of wallet only increases when you think about the high value of digital currencies – expected to grow over time – which makes them an attractive target for hackers, and the cumbersome process you’d have to go through to recover your assets in case they get lost or stolen, with no certainty of success.

What is a crypto wallet?

If you want to choose wisely, it’s necessary to understand what crypto wallets are and how they function. Crypto wallets are either physical devices or software programs that allow users to easily store and manage their cryptocurrencies. However, wallets don’t store coins per se. Instead, they hold public and private keys that facilitate access to the currencies residing on public blockchain networks.

Crypto keys are codes made of a series of letters and numbers that can be deciphered by cryptographic algorithms. A public key is similar to a bank account number that lets you perform transactions, and they can be shared with anyone. A private key, on the other hand, is similar to the PIN that gives you access to the funds held in that bank account and should be kept secret by the holder.

What are the different types of crypto wallets?

While all crypto wallets use the same type of mechanism based on public and private keys, transaction speed and security levels vary based on the type of wallet you’ve chosen. So, let’s take a look at the different types of crypto wallets and their characteristics.

Hardware wallet

Hardware wallets are physical devices on which you store your private keys and are generally considered to be the safest storage option. They can take many forms, from simple pieces of paper or metal on which you write your key, to external devices such as USBs or Bluetooth devices. Since hardware wallets are categorized as cold wallets (they’re not connected to the internet) the chances of a malicious entity gaining access to the keys is minimal.

The biggest drawback to hardware wallets is accessibility. You’ll have to perform several actions to access your assets and conduct transactions, so hard wallets are best used when you plan on holding your crypto and only trade rarely. Also, you have to be aware that the responsibility of keeping your hardware wallet safe falls entirely on you. If it gets lost or stolen, you may never be able to get your cryptos back.

Custodial wallet

If you don’t want to go through the hassle of purchasing and using a hardware wallet, you can let a third party store your assets for you by using a custodial wallet. This type of wallet implies giving the exchange platform you’ve opened an account with full control over your private keys and funds. The company will be in charge of storing your private keys, usually on both cold and hot wallets.

Most major exchanges like Binance offer this option for their customers, so they can keep their Bitcoin or any other digital currency safe and access it whenever they want, being extremely convenient for frequent traders. Also, if users lose their private keys, they can recover them with a seed phrase.

The problem with keeping your coins in a custodial wallet is that you have to put your entire trust and funds in the hands of a company that can fall victim to hacks or experience other issues. However, the best crypto exchanges are insured so they can reimburse clients in the event of a cyber-attack.

Software wallet

Software wallets provide another viable method to store your cryptos in case none of the other options appeal to you. These are hot wallets – they are connected to the internet – that you can access on your desktop or mobile through app. Software wallets are easy to use on any exchange, making them great for everyday transactions from smaller accounts

However, keep in mind that the safety level of a software wallet matches the safety level of your device. So, while you don’t have to worry about someone else handling your funds, you have to take extra caution and make use of proper security practices if you want to avoid any risks.

In the end, the safety of your crypto holdings depends as much on the type of wallet you choose as it does on the way you manage them, so make sure you do your research if you want to enjoy an eventless trading experience.