When it comes to storing digital assets, there are various approaches you can take. From software wallets to physical ones, finding one that suits your specific requirements is key.
Wallets work by storing pairs of public and private keys used to send and receive cryptocurrency payments.
1. Self-Custody Wallets
Self-custody wallets provide the optimal way to securely store digital assets. These options combine convenience, security and privacy all while still letting you fully own your crypto.
Digital assets differ significantly from their physical counterparts in that they’re created and transferred on blockchains using unique pairs of private keys known as wallet addresses and public keys – much like passwords for email accounts – to give access to digital currencies among each other and be transferred between users.
Even though this method is relatively safe, users remain concerned about hacks and theft of funds by hackers; their attacks have become such an issue that it has become a top concern among cryptocurrency users.
To protect your funds from these threats, it’s essential that you use a secure wallet to store your private keys. Your choice will determine if you can rest easy knowing your crypto assets are secure.
Ledger Nano is one example of self-custody wallet available, offering protection for private keys that prevent thieves from accessing them and using them to acquire digital currencies. But there are other types of wallets as well that offer self-custody protection.
At the core of any self-custody wallet lies its recovery phrase and private keys – they must never leave your possession or else the risk of losing all funds will exist.
Backup your recovery phrases and private keys frequently and store them securely. Self-custody wallet providers like BitPay make this task simple, making it simple to create these important keys while safeguarding them – simply download their free wallet on desktop, mobile phone or tablet and create new keys for each coin you own!
2. Paper Wallets
Paper wallets provide an analog way of storing digital assets offline. Paper wallets were incredibly popular forms of cryptocurrency storage between 2011 and 2016, yet have since seen less use due to noncustodial cold storage solutions becoming available.
Paper wallets provide several key advantages over hardware wallets. Primarily, they’re easier to create offline and don’t require internet connectivity – both key factors when protecting your private key from hackers. Furthermore, paper wallets can also be printed from any device without internet connectivity required – these factors being key factors when considering security of paper wallets as opposed to hardware ones.
Paper wallets provide numerous benefits, including being easy and fast to store or retrieve when necessary, being cost-effective to buy, and being flexible in use wherever the owner wishes.
Paper wallet creation can be relatively straightforward using a secure key generator to generate unique public and private keys that can then be printed out and stored safely. Unfortunately, paper wallets can become vulnerable to theft if not kept secure and protected properly.
Paper wallets may not provide as much security as hardware ones, but they can still provide an effective means of storing small amounts of crypto. Unfortunately, however, they remain susceptible to hacks and should only be used as short-term solutions. If using one for long-term storage purposes however, then be sure to import or sweep any private keys back into a software or mobile wallet in order to prevent potential security risks.
3. Hardware Wallets
Hardware wallets (commonly referred to as cold wallets) are an ideal way to safeguard your crypto assets as they do not connect directly to the internet, making them less vulnerable to cyber threats. Furthermore, many hardware wallets come equipped with extra security features like PIN codes or biometric authentication which help safeguard them against theft and scams.
Software wallets can also be an effective means for storing crypto, but should not be the main means. While secure, they can still be vulnerable to hacking and other security vulnerabilities.
Software wallets are pieces of software which store private keys which allow users to access digital assets stored on blockchain networks. These keys typically consist of alphanumeric strings of characters stored within the database of a software wallet.
However, should someone gain access to your private keys and use them to steal funds from your wallet, they would gain complete access to all its contents. Therefore, it is recommended to always store your private keys separately from other digital assets, in order to reduce exposure from hackers or scammers.
Seed phrases provide you with a way of protecting your private keys with randomised combinations of 12-24 words that allow you to recover wallets that have been lost or deleted.
Hardware wallets provide another key benefit of use; they support multiple currencies and can connect securely to wallet interfaces like MetaMask for purchasing, swapping, lending and staking cryptocurrency assets.
Hardware wallets provide the safest way of storing digital assets. They offer greater transaction security compared to cloud and exchange wallets that may be susceptible to attack from malware and spyware.
4. Cloud Wallets
Cloud wallets offer a safe way of storing digital assets. They store credit card details, travel documents and other sensitive personal data on an encrypted server in the cloud so you don’t have to worry about losing track of them.
These wallets are available on both desktop and mobile devices and provide safe usage with many security features like tokenization, biometrics, and encryption.
Digital wallets are also easier to setup than hardware ones, with cloud backup available to ensure you can always recover your assets.
A wallet can either be hot or cold depending on how it stores your private keys – hot wallets store them on computers while cold wallets use hardware devices for this.
Cold wallets differ from hot wallets in that you control their security yourself and can backup and make transactions without depending on a centralized server for backup purposes and transaction processing.
There are various types of cloud wallets, but those running on blockchain technology are among the most sought after because they provide increased security and are harder to hack than other types.
One of the primary advantages of blockchain wallets is eliminating the need for third parties to store digital assets, making transactions faster and safer.
Blockchain wallets offer those looking to take full control over their crypto assets an ideal option, being easy and less cumbersome to use than other types. Their increasing popularity only strengthens this argument further.
5. Exchange Wallets
Crypto Wallets are an increasingly popular way of storing and managing digital assets, whether that means software wallets, hardware wallets or both.
Wallets are an excellent way to secure and safeguard your cryptocurrency, since they help prevent hackers from accessing it. But they do present risks; such as being lost or stolen.
There are certain wallets that require you to trust a third party, which can be an additional risk. When using an exchange wallet, this means giving up your private keys and trusting the exchange to safeguard them for you – which could create serious difficulties if something goes wrong with the exchange or you wish to withdraw funds at some point in the future.
Cold storage wallets (paper wallets or USB drives) do not offer two-key security protection as do hot wallets, meaning if you lose it you won’t be able to regain access.
One way to lower your risk is to create and use a seed phrase or recovery key for your wallet, which generates an array of 12-24 words which allow you to recover it if anything should happen to it.
Seed phrases are invaluable tools that enable you to restore your wallet if it becomes necessary due to loss or theft of private keys, so it is vitally important that they are kept secure along with other crucial pieces of data such as passwords and crypto addresses.
Selecting the most suitable wallet depends on your individual needs, budget and desired level of security. For newcomers looking for maximum control over their private keys and secret recovery phrase we suggest a self-custody wallet which gives full control.