How Do I Store Crypto?
Wallet Storage
If my crypto isn't at a bank, where is it?
Even some of the best hackers left their crypto vulnerable. After the Colonial Oil Pipeline was hacked, the hackers demanded and received payment in Bitcoin. The U.S. Justice Department then seized $2.3 million of the ransom back, because it wasn't secure. Amazingly, some of the world's best hackers failed to secure their Bitcoin.
Cryptocurrencies like Bitcoin are stored on the blockchain, encrypted and secure to buy, sell, or hold in digital ‘wallets.’ Bitcoin never actually leaves the blockchain. The bitcoin addresses identify who owns what Bitcoin. Bitcoin wallets hold these addresses. (More on that in a later post.)
FirstWatch Crypto is here to steer you through crypto storage and the ins and outs of cold wallets and hot wallets.
So how does crypto storage work? What's the landscape of options? And how can I keep my cryptocurrency secure?
Hot Wallets
Hot wallets are connected to the internet. For example, Coinbase, which recently IPO'd, is a cryptocurrency exchange that offers hot wallets for all of the cryptocurrencies on their platform. In fact, every exchange contains wallets. The term 'hot' implies that funds can be quickly transferred in and out, similar to a checking account. Those funds can then be accessed on any connected device.
The downsides of hot wallets are that the exchanges can be vulnerable to hacks like any other website, and the hackers could take your coins. If you had your coins stored in a cold wallet, this wouldn't affect you.
Cold Wallets
Cold wallets are the most secure option for storing your cryptocurrency. Also called hardware wallets, or 'cold storage,' they are not connected to the internet, making them resistant to technological errors or hacking. A cold wallet contains the user's address and private key on a separate entity, and employs software that allows you to check the holdings of the wallet without being online. The simplest form of cold wallet is a paper wallet that consists of pieces of paper with your public and private keys, often used in the early days of crypto.
Nowadays, cold wallets come in the form of a USB drive that securely stores the user's keys. The wallets are open-source and able to be updated. Cold wallets also have their downsides, though. They can be more complicated to set up, and many people don't want the pressure of storing private keys, which if lost render the stored crypto inaccessible.
Many people keep their crypto in a combination of hot and cold wallets, for a mix of accessibility and security.
Some key takeaways:
Hot wallets are connected to the internet.
Every crypto exchange functions as a hot wallet.
Cold wallets, hardware wallets, and 'cold storage' mean the same thing: the crypto is stored offline and individuals manage private keys.
Resources:
You can choose the best wallet for you.
Ledger Nano S: Rated Best Bang for your Buck.
Colonial Pipeline: custodial versus non-custodial wallets.
Twitter CEO, Jack Dorsey, says his other company, Square, is building a hardware wallet.
FirstWatch Crypto
What We Do
Every ship needs people keeping watch. The tireless observers constantly on duty and essential to the ship's safety. FirstWatch Crypto is inspired by this constant vigilance. We are braving the waters together, helping guide your investments through the complex sea of change of cryptocurrencies. These financial technologies have changed the tides of finance, and are leading us to a new world. FirstWatch Crypto brings knowledge and passion for the future of finance and cryptocurrencies. We want to help you achieve a better future by making crypto understandable and accessible for you. We will keep the first watch.
Who We Are
"Bitcoin Blaize" Hrabrick (@blaizebitcoin) and Dan McGlinn (@DigitalDanMcG) are graduates of the University of Notre Dame. They are based in Philadelphia and are both excited about the possibilities that cryptocurrencies bring. They write to get others into crypto financially and philosophically.
Our Values: S.E.A.
Steward new investors on their journey into the cryptocurrency space.
Educate investors on the fundamentals of the revolutionary new asset class of cryptocurrencies.
Anticipate market needs to remain competitive within the crypto sphere.
Disclaimer: None of the above is investment advice. This blog is published for entertainment and informational purposes only. The ideas expressed are not intended to provide specific advice or recommendations for any individual or on any specific security or investment product. Nothing on this blog constitutes investment advice, performance data, or any recommendation that any security, portfolio of securities, investment product, transaction, or investment strategy is suitable for any specific person. You should not use this blog to make financial decisions. We highly recommended you seek professional advice from someone who is authorized to provide investment advice. You should always do your own research before investing in cryptocurrencies. It is a volatile market.