Where to store my cryptocurrency
Most exchanges allow you to leave your investment within your account. However, if you want to further secure your digital assets, you can transfer them into a cryptocurrency wallet.
Unlike a normal wallet, which can hold actual cash, crypto wallets don't technically store your crypto. Your holdings live on the blockchain, but can only be accessed using a private key. Your keys prove your ownership of your digital money and allow you to make transactions. If you lose your private keys, you lose access to your money.
There are four types of wallets:
An online wallet is a website or app that stores your private keys on a server
Software wallets are applications you install on your computer or smartphone. They store your keys on your local device or a flash drive
Hardware wallets store your private keys on a piece of hardware that has been specially designed for cryptocurrency transactions
Paper wallets are physically printed versions of your private and public keys. Paper wallets usually contain QR codes of the keys to make it quicker to use but it is still the most consuming wallet to use
There is a trade-off between security and ease of use in different types of wallets. For example, online wallets are the easiest to use than other types of wallets. You can assess these wallets from a browser on most devices as long as you remember your username and password. Moving funds in and out of this wallet is quick and easy as long as you are connected to the internet and can search your browser to find your wallet.
On the other hand, you are more vulnerable to phishing attacks as the private keys are on a central server. Whilst online wallets companies usually do a good job of keeping user accounts secure, they occasionally get hit by data breaches.
One step up from an online wallet are software wallets. These are internet connected apps with a simple interface that only the user can access through their private keys. These wallets are still fairly flexible as they can be installed on your mobile device or personal computer. Like online wallets, these can still perform transactions quickly.
File stealing malware is a concern however. If your device gets hacked, an attacker might be able to steal your private key. And if your device is destroyed or lost, and you have no backup on another device, then your coins are gone.
Another alternative is purchasing a hardware wallet. These store private keys in a separate device and often have an associated app to enable you to monitor your currencies. Whilst these are very difficult to hack remotely, they require you to have your device on you whenever you wish to make a transaction as well as having an upfront cost in order to buy the device.
A popular hardware wallet are those provided by Ledger, who sell device-based USB drives that store private keys.
The most secure digital wallet is the paper wallet. This is completely offline and might also be referred to as a cold storage wallet. You remove your private keys from your digital wallet and print them out. Hackers are unable to find your keys as they are no longer on whatever app that has been hacked. However, in order to make transactions you must import the private key back onto the digital wallet and then remove it when you're done. This is obviously the most time consuming wallet and the paper you print the private key onto itself is susceptible to being lost and destroyed.