After deciding to purchase some altcoins, the decision of how to appropriately store them should be next on the agenda. Cryptocurrency is usually managed through the use of a wallet. A cryptocurrency wallet is an application that stores public and private keys and allows interaction with the blockchain to conduct cryptocurrency transactions. The wallet itself does not actually store digital currency. There are various types of wallets available for different types of uses. Generally, these wallets can be classified as either “hot” wallets or “cold” wallets. Hot wallets operate online, thus, private keys are stored on devices or systems that are connected to the internet. Cold wallets, by contrast, do not connect to the internet, therefore private keys are stored and sign digital transactions offline. As a general rule, hot wallets are used for frequent trading, while cold wallets are suitable for long-term storage.
Hardware Wallets (Cold)
Hardware wallets are encrypted physical devices that store private keys offline. They must be connected to a computer in order to sign transactions and gain access to the blockchain. This is done completely offline, thereby ensuring that the private keys never leave the device. Hardware wallets are currently the most secure cryptocurrency storage method since they are considered to be un-hackable. Examples of hardware wallets include Ledger, Keepkey, and Trezor.
Paper Wallets (Cold)
Paper wallets are simply documents with public and private keys written on them. A wallet software application will typically generate the keys which can be printed using an offline printer. Most paper wallets will usually come with an embedded QR code which can be scanned and signed to conduct transactions on the blockchain. Because the keys are stored physically offline, paper wallets are categorized as cold wallets. Walletgenerator.net, Bitcoinpaperwallet.com, and Mycelium.com are examples of websites that are capable of generating paper wallets.
Software/Desktop Wallets (Hot)
Software wallets (also known as desktop wallets) are applications that are downloaded and installed on a personal computer. The wallet file and private keys all reside on the computer’s local hard drive. Software wallets are considered to be hot wallets since they need to connect to the internet to conduct transactions. These wallets are not as secure as hardware or paper wallets since computers are susceptible to theft and cyber-attacks which can lead to stolen private keys. Some of the most common desktop wallets are Exodus.io, Jaxx.io, and Electrum.
Mobile Wallets (Hot)
Mobile wallets come in the form of smartphone applications. They are the most convenient of all the wallets and are especially useful for making quick purchases or transfers on the go. Most mobile wallets usually have an accompanying desktop app, therefore the same security rules apply here. Mobile wallets should ideally only contain as much cryptocurrency as necessary for small purchases. Jaxx.io and Coinomi are some of the options available for users interested in mobile wallets. Have an iPhone? Read: How To Set-up Your Bread Wallet on iOS
Online Wallets (Hot)
Online wallets are the least secure of all the cryptocurrency wallet options. These wallets are owned by third-parties that store your public and private keys in their online database. Online wallets offer convenience since they can be accessed anywhere from almost any device via an internet connection. However, having keys stored online makes them vulnerable to theft from hacking. The user must ultimately trust in the security protocols of the wallet host. Ideally, online wallets should only be used for regular transfers and active trading. Digital exchanges such as Bittrex, Poloniex, and Coinbase qualify as online wallets. The choice of hot or cold wallets boils down to the intended purpose of the currency it will be storing. Hot wallets are generally best for everyday activities such as frequent transfers and trading, while cold wallets are better for long-term secure storage. Users should, however, always take necessary precautions to ensure the security of the stored funds.
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