Securing your cryptocurrency wallet is harder, and more important than you’d think. There are many different methods of storage available, but which one is best for you? Which one is the safest? Listed below, are all the current methods of storage, in order from most secure, to least secure.
1. Cold Storage Wallets
A cold storage wallet, is a wallet that’s generated on a machine that’s not connected to the web, and saved on a drive(USB in some cases). This is considered to be the most secure method of holding your funds, as the only way to access the funds, would be to find the drive and connect it to a machine that’s online.
The only problem here is ease of use. Once funds are stored on a cold wallet, it’s impossible to send funds out of it. The only way to retrieve funds is to make it hot(hook it up to an online machine), and access the keys.
This method is really only good for long term storage. I’m talking years, believe it or not, people do it. Think of it as a forced savings account that only you can get into(with a lot of work).
Just, don’t misplace the drive.
2. Paper/Physical Wallets
Paper wallets function the same way as cold storage drives, however it’s not an electrical component. The private and public key is stored as a scanable QR code.
These are much easier to setup, as all you need to do is generate a private and public key on a site like blockchain.info, and print it out. Importing them is also a breeze, as you can scan the QR code with most mobile wallets, or convert the QR code to a string that can be put into a desktop/online wallet.
3. Hardware Wallets
These are incredibly small devices, designed only for holding, receiving, and sending cryptocurrency. The developers of these devices make use of top grade cryptography and take them through continual scrutiny. This is the most secure method that involves the device being capable of sending transactions, and continuously staying up the date with the blockchain(s).
4. Desktop Wallets
Desktop wallets are held in software, downloaded from the web, and stored on a machine(laptop, or desktop) that’s connected to the web. These are the typical way in which cryptocurrency is stored.
If the machine is infected or stolen, the private keys are at risk of being retrieved, and used by the perpetrator. Which, in most cases means you’ll lose all of your assets.
Remember, cryptocurrency is not government regulated, and anonymous. If someone steals your assets, it’s gone, and there’s nothing you can do about it(in almost all cases).
5. Mobile Wallets
Mobile wallets function the same way as desktop wallets. I suppose you’re at a larger risk of theft with a smaller device, therefor placing this method of storage under “Desktop Wallets”.
Also, it doesn’t matter if you have IOS, or android, there are RAT’s(Remote access trojans) circulating for both. You’re still at risk of getting hacked. Don’t download anything too fishy.
6. Online Wallets
Online wallets store your assets within the 3rd parties database. I would consider this the least secure method of storage, as there are two main vulnerabilities, opposed to one(or none).
Usually with this method you would access your funds through a website.
Here comes the list of problems with this method:
- Someone can guess your password, if a database from a separate site is leaked/hacked.
- Your machine can get hacked, and the password can be retrieved.
- Your phone can get hacked, and the password can be retrieved.
- The 3rd party holding your funds can shut down, and take your funds.
- The 3rd party holding your funds can get hacked, and your private keys can be use by the hacker
- Your password can be reset, and your funds can be accessed if a hacker gets into your email.
Sounds like a bad idea right? People that are new to cryptocurrency typically go for this method, as it’s the easiest to access and doesn’t involve downloading any other software, or using any extra drives.
If you can afford to get a Ledger, or Trezor, do so. It’s the best thing available that supports both security, and ease of use. Otherwise, Desktop wallet’s are probably your best bet. Everything above is pretty easy to understand. Don’t use an online wallet, unless you have a deathwish.