When you buy and sell cryptocurrencies using an exchange you do so using a wallet. These are online wallets that are very convenient for the storing of cryptocurrencies and fast transactions. The problem with these online wallets is that they are not secure.
The blockchain technology that supports most cryptocurrency transactions is very secure but if hackers get a hold of your wallet login details they can send all of your cryptocurrencies to their accounts. Because blockchain creates immutable records you cannot reverse any of these transactions. This means that you can lose everything!
An online wallet or a mobile wallet are called “hot” wallets. These are great for convenient trading of cryptocurrencies but poor on security. The other thing about these wallets are that they are controlled by the cryptocurrency exchanges. If you upset the exchange by inadvertently breaching their terms and conditions they can close your account and again you lose everything.
To prevent losing your cryptocurrencies through theft or account closure we recommend that you use a “cold” wallet. These wallets do not require a connection to the Internet to store your private keys. There are different types of cold wallet:
- Desktop wallets
- Paper wallets
- Hardware wallets
A desktop wallet is an application that you download and install on your desktop computer or laptop. These are a lot safer than online wallets and when you disconnect from the Internet you still have all of your information safely stored. They are not 100% foolproof though.
With a paper wallet you store all of your cryptocurrency information on a piece of paper that you print from your computer. You can then store this paper in a safe place to ensure nobody else sees it. This is far from the most convenient wallet solution but it is pretty safe.
Finally there are hardware wallets which are in the form of USB sticks. They are the most expensive form of cryptocurrency wallet but they are the safest. When you want to make a transaction all you need to do is to plug in the USB stick and then remove it again when the transaction is complete.
If you are serious about making money with cryptocurrencies, and you need to be, then we recommend that you invest in a hardware wallet and use online wallets for regular transactions. Only keep small amounts in an online wallet sufficient for the transactions you want to make and the rest keep in your hardware wallet.