Having appeared in 2009, Bitcoin has made tremendous waves over the past 12 years. The cryptocurrency was developed by Satoshi Nakamoto as an alternative to fiat currency.
Being entirely unregulated and decentralized, there is no single authority that controls the circulation of Bitcoins or other cryptocurrencies.
Because of this cryptos were (and still are) popular with people who are interested in less than legal activity. But that doesn’t mean that Bitcoins are for criminals – far from it actually.
Over the past 3 – 4 years, Bitcoin valuations have gone through the roof. At the point of writing, Bitcoin prices are hovering between $58k and $60k.
With all the excitement going around, you’re probably eager to get your hands on some Bitcoins. But you’re also probably wondering, how are you going to get started.
Cryptocurrencies are Virtual Assets
As you would already know, Bitcoins are virtual assets that exist purely in the digital realm. This means that there is no such thing as a physical example of Bitcoin. So, keep that in mind when you’re investing in cryptocurrencies.
Bitcoins and other cryptocurrencies are stored via services or devices known as wallets. These can range from online-only services with various features to a simple piece of paper.
Here’s something that you’ll need to know about cryptocurrency wallets; they don’t actually store cryptocurrencies.
Instead, they store the encryption keys that identify you as the owner of said cryptocurrencies. Each encryption key is matched to a unit of cryptocurrency on the blockchain. Without the blockchain, it would be impossible to store any cryptocurrencies.
Now that we’ve gotten that down, let’s take a look at the types of wallets available.
Hot wallets are probably the most common type of crypto wallet on the market. These are online-only services that store your encryption keys on a server.
They also provide users with a variety of convenient services such as crypto exchanges and fund transfers to other users. A hot wallet gives users easy access to their cryptocurrencies at any time of the day.
Because hot wallets are online all the time, they are oftentimes a favourite target for hackers and thieves. On some occasions, it has been known for cybercriminals to empty entire crypto wallets.
This is why most experts recommend that you store only a small amount of your cryptocurrencies on a hot wallet while the majority of your coins are kept elsewhere.
Where possible, use your hot wallet as a transit point for your cryptocurrencies. For example, receiving or making payments to third parties. Thus letting you keep your risk exposure to an absolute minimum.
Cold wallets are something like a safe deposit box for your Bitcoins and other cryptocurrencies. Unlike hot wallets, a cold wallet does not need to be connected to the internet.
They usually come in the form of portable hard disks, thumb drives, or even a piece of paper. As they are not connected to the internet, cold wallets are almost immune from cyber attacks.
We say almost because a cold wallet connected to a computer with internet access is still at risk of attack. When not in use, ensure that your cold wallet is unplugged and stored in a safe location.
While definitely extremely secure, cold wallets do have their fair share of problems. For one, a cold wallet makes it difficult to access your cryptocurrencies.
Secondly, there have been instances where people have been locked out of their own cold wallets. Due to the complex security measures in place, it has become impossible to gain access to the stored cryptocurrencies.
That’s why you should always keep backups and have them stored away in a safe place. Thus giving you a kind of insurance policy if something goes wrong. Check out the best crypto wallets here.
While the world of cryptocurrencies is definitely exciting, you should never let down your guard. Make use of both hot and cold wallets to give you a blend of flexibility and safety.