There are numerous ways to store cryptocurrencies, each have their own advantages and disadvantages. This article will outline some of the options available to you so you can make an informed decision on the best way of storing your cryptocurrencies.
When you purchase or somehow come into possession of a cryptocurrency, there are two main ways in which it can be stored. It can be either be put in cold storage, or in a hot wallet.
A hot wallet is any form of storage that is connected to the internet in any capacity. An example of a hot wallet would be a cryptocurrency exchange. Cryptocurrency exchanges are the most used forms of hot wallets due to their convenience of storage. However, hot wallets, and consequently cryptocurrency exchanges, are inherently high-risk due to vulnerabilities that may be exploitable by hackers.
It is recommended to keep only small amounts of your cryptocurrency in a hot wallet, while larger amounts should be kept in cold storage.
Cold storage is any form of storage of your cryptocurrency that is kept entirely offline. Examples of cold storage include:
- USB drive
- Paper wallet
- Bearer Item
- Offline hardware wallet
The immediate advantage of using a form of cold storage instead of a form of a hot wallet is the protection against potential hackers. As all forms of cold storage are entirely offline, there is no exploitable vulnerabilities that a hacker can prey on. However, forms of cold storage are not without their own disadvantages. USB drives can be lost or stolen, private keys can be forgotten and computer crashes are possible.
Even though it is generally recommended to keep large amounts of your cryptocurrency in cold storage, vigilance is key in ensuring you are still able to access any cold storage option you decide to use.