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Storing Your Crypto: Cold vs Hot Wallets

Since cryptocurrencies are decentralized, much of the responsibility for storing them safely falls on, YOU, the owner. If your crypto is lost or stolen, there's no one you can call to get it back.

Just as a physical wallet allows you to store your money, a crypto or blockchain wallet allows you to manage and use your cryptocurrencies and other blockchain-based digital assets

Once you've decided on a blockchain wallet, you'll want to set up an account -- or download the app or software if you're using a mobile or desktop wallet. You'll be prompted to create security keys that you'll want to keep in a safe place. For added security, some wallets may also allow for two-factor authentication.

Many security-conscious crypto enthusiasts have turned to cold storage to keep their coins safe.

Cold storage is offline cryptocurrency storage. Any crypto wallet that's not connected to the internet is considered cold storage and is referred to as a cold wallet. The most common type of cold wallet is a hardware wallet, which is typically a small device that connects to a computer.

Hackers won't be able to gain access to your crypto without it being connected to the internet. All cryptocurrency storage revolves around protecting the keys to your crypto. With cold storage, your keys are kept offline except during the transaction process.

Keys? 🤔

There are two types of keys (strings of cryptographic data) for cryptocurrency: a public key and a private key.

The public key identifies the specific crypto wallet during transactions. The private key is the code that allows the owner to access the crypto in the wallet.

Hot Wallets

The other type of crypto storage is a digital wallet, also known as a hot wallet, which is connected to the internet.

Here's how cold wallets and hot wallets compare in a few key areas:

  • Security: Cold wallets are more secure. Although hot wallets can provide a high level of security, being online means they carry the risk of being hacked.

  • Convenience: Hot wallets are more convenient. They allow you to quickly send and receive crypto, whereas cold wallets sacrifice speed for security.

  • Cost: Most hot wallets are free. Hardware wallets are the most common form of cold storage, and they usually cost $50 to $150. There are, however, ways to make free cold wallets since it's possible to store crypto keys on a piece of paper.

To get the best of both worlds, those who have decided crypto is a good investment often use a combination of hot and cold storage. They keep the bulk of their crypto in cold storage but use a hot wallet for smaller amounts and for day-to-day trading

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By the end of this e-book, you’ll certainly know more about cryptocurrency than most people out there.

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