Crypto Wallets Explained

Just as the concept of a material leather wallet is to store your change and credit cards in a safe, personalized location near your person, your digital currency needs a place to be stored that only you can access.

Right away, it’s more helpful to think of crypto wallets as a key for access to your cryptocurrency than a close-at-hand container for your money. A similar example can be the difference between your P.O. box and the mailbox at your home address.

When crypto is bought, the funds are stored in this digital wallet with an associated private key (a password). This wallet is actually the ledger of crypto transactions in the blockchain of the exchange platform with one’s public key attached to it like an address.

Wallets can be classified in two categories: hot or cold.

• Hot wallets – ONLINE storage of private keys
• Cold wallets – OFFLINE storage of private keys

Hot Wallets

There are three basic options for storing cryptocurrency online (as in connected to the internet) with pros and cons for each:

1. Keep it in the exchange platform (e.g., Coinbase, Voyager, Gemini, etc.)
   1. PROS: Convenience and ease to automatically store where you purchased from
   2. CONS: Trusting private keys to third-party companies. May not want to keep large amounts on the exchange.
2. On a financial company app (e.g., Paypal, Robinhood, CashApp, etc.)
   1. PROS: Reliable finance platforms that do more than cryptocurrency
   2. CONS: Trusting private keys to a third-party company, and exchanges are limited to within the specific app.
3. In a file on your computer desktop
   1. PROS: More personal control under your own software management
   2. CONS: Exposure to being hacked and losing your money

Cold Wallet (BEST Security)

If holding a large sum of currency, a hardware device like a hard drive not linked to the internet is the most secure. Extra protection is built into the software of drives custom-made to house cryptocurrencies such as pin codes, combination solutions, and recovery contingencies. Some trusted brands are Trezor, Ledger, BC Vault, and CoolWallet.

For some perspective, there are financial horror stories of men and women who have lost fortunes in the prosperity of crypto due to simple mistakes like forgotten passwords and lost thumb drives. For any important asset or investment, it’s wise to prepare contingencies and plans for securing your valuables before accidents may occur. Find a quality wallet and continue your crypto investments confidently!