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Storing cryptography on virtual exchanges presents some inherent security risks that have been exploited by hackers and cybercriminals. This article will cover this important topic and will provide alternative methods in which to store digital resources.
Cold and warm wallets
The main thing in cryptocurrency storage is the private key and who can access it.
Cold storage portfolios work offline and without a constant Internet connection. If your key is not on the Internet, then it is much harder to steal.
A warm memory wallet is a wallet with a constant connection to the Internet.
Therefore, all storage options can be distinguished based on the following criteria:
- private keys are kept by you or from third parties.
- without internet connection or with internet connection
A cold storage wall with a private key is considered the most reliable storage option. Such a portfolio is suitable for long-term storage of large quantities. However, it is not convenient if, for example, you are trading and you need to access your portfolio for the transfer of small amounts.
Hardware wallets
hardware portfolios such as Ledger, Trezor, Pi Wallet, Keepkey, Opendime, Bitlox, etc. they have a flash drive inside the software without an internet connection. You can only connect to the Internet when you send a transaction. It is necessary to confirm the transaction physically, from the device itself. This is a "cold" storage method without an Internet connection (connection only at the time of the transaction). The user keeps private keys.
Paper wallets
This storage method will also be convenient for you if you wish to keep your funds for a prolonged period. In offline mode, you can generate a public and private key. For example, if you use the walletgenerator.net service, you will transfer these keys in the form of a QR code, which can be printed and stored by the user.
Bitcoin physical wallet
A physical bitcoin portfolio has almost the same properties as a paper wallet. Encrypted bitcoins can not be spent until the seal that protects the secret key has not been broken. However, the security of the seal is not considered very reliable.
Offline wallets of the desktop.
There are also two main types of offline portfolios:
- Portfolios, in which the user is the only one with access to private keys. You can install these portfolios on a personal computer as a separate program. As a rule, these are the developer's wallets for that cryptocurrency. For example, Bitcoin Core. Litecoin Core, Mist, etc. These wallets are also called "heavy" wallets because they take up a lot of space during installation (for example, in 2018 you will need to release at least 200 GB for a Bitcoin wallet). When installing such wallets on laptops, flash units disconnected from the Internet can also be called "cold" wallets. In general, they are considered safe.
- The so-called "light" offline portfolios. These are desktop portfolios that allow you to archive cryptocurrency without downloading the complete registry into a group of gigabytes. Some of these give you private keys and the ability to restore a lost wallet at any time using seed phrases. There is an inconvenience: they do not always contain the full version of the blockchain and sometimes do not show information on the updated transactions. Examples of such a portfolio are Electrum and Armory.
Clear portfolios can be multi-currency, with an integrated internal exchange, such as Exodus. His private keys can also be restored using seed sentences. However, inside these wallets, not only you, but also developers have access to your private keys.
It is also worth mentioning an essential aspect of lightweight portfolios, which are open source code. If something happens to the wallet, then it will be possible to restore the wallet using the seed sentence only if the function is restored.
As a conclusion on cold portfolios, I can say that their main advantage is reliability and security, and the main disadvantage is that it is difficult to quickly move cryptocurrencies. Therefore, cold wallets are suitable for long-term storage. For daily transactions, hot wallets are the best. The exceptions are some hardware portfolios compatible with online cryptocurrency storage and exchange services.
Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. It holds investment positions in the currencies, but does not carry out trading activities in the short term or daily.
Featured image courtesy of Shutterstock.
