The cryptocurrencies are fetching huge returns as compared to any other investment options such as Real Estate, Stock Markets, Bonds and Debentures, etc.
Fetching huge returns, cryptocurrencies are getting popular worldwide and are receiving a huge amount of investments. With so much money involved in cryptocurrencies, there are threats of online thefts and hacks. After all, cryptocurrencies are online and are always exposed to hackers.
This guide by cryptobtcmoney.com will help you to protect your cryptocurrencies with offline, cold storage, and paper wallets.
First of all, understand that cryptocurrencies are stored in wallets with the help of Public keys and Private Keys.
What is a Cryptocurrency Wallet?
A cryptocurrency wallet is a digital wallet that is used to store, send and receive various cryptocurrencies.
These wallets do not exactly store our money in the form of cryptocurrencies, but they store our public and private keys.
What are Public Keys and Private Keys?
The Public and Private Keys are used to send and receive cryptocurrencies in the cryptocurrency wallet
What is Public Key?
A public key is a wallet address that the wallet holder shares with another person in order to receive cryptocurrencies.
For example, if we want to get the payment in our bank account, we need to send the “Bank Account Number” to the person making the payment. Here the account number is like a public key.
Take another example. If a person wants to send another person a WhatsApp message or an SMS, the sender must know the “Mobile Number” of the receiver before sending the message. Here the mobile number is the public key.
One more example of sending e-mail. In order to send an e-mail, the sender must know the e-mail address of the receiver. Here the e-mail address is like the public key.
Similarly, in order to receive cryptocurrencies, a wallet address/public key is shared to receive cryptocurrencies.
What is a Private Key?
A private key is a key that is used to send cryptocurrency from your wallet to another wallet. Private keys give the wallet holder, the right to access the wallet and send cryptocurrencies to another wallet address.
For example, while making payment via online banking, after filling in all the details, the payee, at last, is required to enter his password/OTP to make the payment. The password/OTP is giving the right to access the funds in accounts. Similarly, private keys give the wallet holder, access to cryptocurrencies and the right to send them.
The wallet holder must protect his private key similarly as a person saves his password for online banking/ ATM card.
ONLY you should know or the person on whom you can trust, what your private key is . Otherwise, anyone can use your wallet to send your money(cryptocurrency) to any other address.
To conclude, the public key is the address that anyone can use to send you the money, while the private key is what you will use to send money to anyone else
Now, after understanding what are public keys and private keys, let us understand different types of cryptocurrency wallets.
Types of Cryptocurrency Wallets
Hot Storage Wallets and Cold Storage Wallets
To understand the above, let us take a real-life example. Suppose you go to a bar and order a drink. Now when you pay for your drink you take out your wallet, take cash out of it and pay it to the waiter.
You don’t take cash out which is stored in the safe locker in your home/bank. That’s why you carry a wallet to keep some cash in it for meeting daily expenses. The amount saved for emergencies, future is stored in safe/lockers.
Similarly, the number of cryptocurrencies that you think you need to keep for meeting daily requirements, you keep that in Hot Storage Wallets.
The number of cryptocurrencies that you save for the future as an investment should be stored in Cold Storage Wallets.
What is a Hot Storage Wallet?
A Hot storage wallet is a wallet in which you keep your cryptocurrency in a device that is directly connected to the internet.
The connection of the device to the internet makes it a “Hot Wallet”.
Any Wallet such as Exchange Wallet, Mobile Wallets, Desktop Wallets, or any other wallet in any device which can connect to the internet is considered as a Hot Wallet.
Accessing funds (cryptocurrencies) and making transactions are very easy and fast on Hot wallets.
But Hot wallets are also hackable as it is connected to the internet, which makes it a little bit of unsafe. As cryptocurrencies are gaining in terms of value, various incidents are appearing where personal wallets, exchange wallets, mobile wallets, etc are getting hacked.
People are losing their wealth stored in cryptocurrencies due to the hacks of their wallets. It’s a modern crime now. Instead of robbing someone at a gunpoint or breaking into anybody’s home, hackers (thieves) are breaking into the cryptocurrency wallets. This is a huge drawback for Hot Wallets.
That is why it is recommended to store only that much amount of cryptocurrencies in Hot Wallets which you need for daily/regular transactions.
Although some of the Hot Storage Wallet providers have the facility to restore the wallet in case of any physical damage to the device. For example, the most common solution is a “Twelve Word Phrase option”.