5 Types of Cryptocurrency Storage Explained
Owning digital currencies is both exciting and unnerving. The excitement stems from the fact that it marks one of the biggest revolutions in mankind’s history. But it also comes with plenty of risks due to new scams that keep cropping up and old ones that find a way to resurface every so often.
The safety of your cryptocurrency assets depends solely on you. In the same way you keep your cash or jewelry out of sight, you need to put some effort and thought into storing this new “internet money” appropriately.
Take a look at five ways in which you can store your cryptocurrency assets.
1. Hardware Wallets
These are special devices designed to hold a user’s private keys. The foremost advantage associated with this method of storage is that the cryptographic keys are stored in a special section of the device’s microcontroller. This makes it impossible to transfer them from the device in text form.
Hardware crypto wallets are virtually impossible to hack. They resemble USB flash drives and are easy to carry around with you. They feature a double-tiered protection system that comprises a PIN number and a password (seed).
The only drawback to these devices is that if you either lose it or forget both the PIN number and seed, there is no way to recover the funds held in the wallet.
2. Desktop Wallets
A desktop wallet is a software program that you download and install on your PC’s hard drive. This implies that you can only access it from the computer on which it is installed. In most cases, a desktop wallet will only work with one cryptocurrency.
The major benefit that comes with this type of wallet is that it offers full functionality to its users. However, they usually require a full install of the digital currency’s blockchain in order to function. The immobility of desktops and laptops also limit their functionality. And in case of a malware attack on the hard drive, your stored coins might be lost forever.
3. Paper Wallets
A paper wallet is one of the most secure storage options and is also referred to as cold storage. It entails printing your private and public keys on paper for offline storage. These keys are then used for future access of your wallet using a specified software.
A paper wallet is impossible to attack using any digital tools because it is a physical storage option. It is one of the best options for long-term storage and makes it easy to transfer cryptocurrency assets physically by simply handing over the paper.
However, they make accessing your funds quite difficult as you need to generate a software wallet and input the keys in order to do so. Transferring funds using this method requires a high level of trust because a recipient has no way of telling if the wallet contains the amount you stipulate.
4. Mobile Wallets
These are comparable to desktop wallets in that they require users to download and install an app only this time, it’s on a mobile device.
They offer a lot more convenience as compared to the desktop wallet due to mobile device portability. They also offer extra features like QR code scanning and make it easy to make payments on the go using digital currency.
The major downside to them is that they are also vulnerable to malicious attack as well as keylogging, viruses and other malware. This could lead to the loss of your crypto assets in spite of having your wallet app encrypted.
5. Online Wallets
An online wallet is one that is accessed by means of a web browser. It runs on the cloud which means that you can access it using any device in the world for as long as it has computing capabilities.
Online wallets are highly valued for their convenience in terms of accessibility. They do not require any software download as all data is stored on central servers by the service provider.
However, they pose the greatest risk to users since they are vulnerable to malicious attacks and theft. The use of central servers also poses a trust problem since it transfers the control of your assets to a third party.
Since the inception of cryptocurrencies around eight years back, there have been numerous incidences of fraud, theft and hacking of public and private crypto assets. This places the responsibility on a user’s hands to thoroughly investigate every form of storage and pick the most appropriate for the situation.
It is however advised that you avoid storing huge sums of digital currencies online as this increases vulnerability. It is better to keep only what you need for trading and purchases on an easily accessible medium and keep larger funds more securely.