June 9th, 2021 | Updated on July 9th, 2021
While cryptocurrency was introduced in the early millennium, it did not rise in popularity until the past five years.
Many companies are offering people the ability to pay bills in Bitcoin and set up super fund accounts for retirement.
However, it is essential to remember that cryptocurrency is digital and prone to hacking. Therefore, how does one keep their virtual money safe?
Essential Things to Keep in Mind
Before we discuss various methods of storing crypto coins, it is best to discuss key things to keep in mind.
- You can lose your tokens through device failure, theft, or loss of access.
- Cold storage is the safest method available but not as convenient as hot wallets.
- Purchasing hardware to store any long-term cryptocurrency is the ideal storage method.
- Wallets work in the same way that your wallet works for physical cash. However, they are digitally kept online or on a separate device.
Hot wallets are how most people store their cryptocurrency, and they are digital wallets in a cloud. That means you access your money from a device connected to the internet.
When you create a digital wallet, you are given a private key to access the funds. This method is preferred by people who need to get to their money often and make quick transactions.
However, the security on most hot wallets is far less. Hackers will watch forums where people discuss how much money they have and break into the account to steal the virtual money.
Cryptocurrency does not have the same regulation as a bank, so there is not much to do about losing the funds.
If you are considering a hot wallet for bills, consider them just like a physical wallet and keep a minimal amount of funds in them.
You can transfer money into a more secure method at any time, just like depositing cash into a savings account.
Unlike hot wallets, cold storage are wallets that are accessed without the internet. They are harder to hack into for would-be thieves.
You will install software on a specific device that allows you to view your finances without entering a private key.
However, some people prefer to create a “paper wallet” that is generated by cryptocurrency websites. You keep a piece of paper that states your public and private keys.
Therefore, the only people who can access the funds are the people who own the paper. If you are considering using a paper wallet, make sure you laminate the form and keep it in a safe place in your home (such as a fire-proof safe or security deposit box).
Hardware wallets will connect to the computer via USB, like an external hard drive. Your private keys will never be seen by anyone else on your network, but they are primarily open source.
Other Methods of Security
While cold and hot storage are the only two ways to store cryptocurrency, more forms are coming due to popularity.
For example, companies are creating methods to purchase physical coins that will have stickers applied that dictate the currency’s value. These coins cost more than a traditional Bitcoin to cover the cost of manufacturing and shipping the physical product.
Regardless of how to store crypto, you will want to regularly backup your wallet and keep the backups safe. Finally, keep your software up-to-date and require a multi-signature to move virtual coins.