What is a Cryptocurrency Wallet?

Cold and hot wallets: Bitcoin and cryptocurrency storage alternatives

Of course, because Bitcoin and other cryptocurrencies do not exist physically like fiat currency, we cannot put them in our pockets or wallets, and we do not actually store them. Cryptocurrencies are stored on their own blockchain; private keys show us what we own and enable us to manage our cryptocurrency addresses or digitally sign transactions.

If you don’t have your key, you don’t have your cryptocurrency.

Hot wallets

Mobile app wallets are hot wallets that run as an app on your smartphone, access related networks through a service provider and store keys that show your ownership of Bitcoin and other cryptocurrencies. With a mobile app you can make payments with cryptocurrencies wherever you can access the internet.

Mobile wallets offer a practical solution for managing Bitcoin and other cryptocurrencies. However, it is important to remember that if your smartphone is lost, stolen or compromised by cyber attackers, you risk losing all the crypto assets in your wallet.

Web wallets are online wallets that allow you to access Bitcoin and other cryptocurrencies via web browsers 24 hours a day, seven days a week. For this reason, they are also called online wallets. They store your private keys on specially secured servers that allow you to manage your cryptocurrencies. While web wallets may seem advantageous for accessing your wallet from anywhere, keeping your private key on online servers poses a security risk.

If you want to store your Bitcoin and cryptocurrency private keys on your own computer, you can install desktop wallet software. As long as your computer is not connected to the internet, your assets are free from any online dangers. A wallet in which you can store all the blockchain on your computer offers the advantage of giving you full control over your cryptocurrency assets. However, it may take longer to download the entire blockchain, and you will have to download current blocks of the blockchain every time you want to use the wallet.

Alternatively, you can opt for a desktop wallet offered by a third-party service and trade with your private key without the need to download the entire blockchain.

Cold wallets

The most secure and widely used cold wallets are hardware wallets: these are devices that store private keys in encrypted chips that do not have access to the internet, which allow you to manage your cryptocurrency assets. They are easily portable, physical devices that you can connect to your computer or phone when needed. To access your assets, you enter a PIN code, this PIN code is also used to confirm transactions. If you forget your PIN, you can use a 24-word keyword phrase (seed) that you set yourself. Do not forget your keyword and become one of those people you see retweeted on Twitter because they’ve lost all their assets.

Another type of cold wallet is the paper wallet. Instead of storing your private keys in a digital place, these store the private keys you use to make your Bitcoin and cryptocurrency transactions in paper form. You can create a paper wallet simply by printing your cryptocurrency address as a QR code on a material that is resistant to fading, water and wear.

Should I store my Bitcoin and other cryptocurrencies on an exchange or in a hardware wallet?

The set of values ​​presented by Satoshi Nakamoto in the Bitcoin whitepaper, published on 31 October 2008, is still valid: in trying to implement a new payment method, they ended up creating a whole new financial system.

If you are buying Bitcoin through a cryptocurrency trading platform, contact the exchange if you have problems or questions. The Bitcoin ecosystem allows users to store assets on their own and transfer directly between users, without having to trust anyone. However, if you are trading Bitcoin through a central platform, you must trust the platform you are trading on.

BtcTurk is a Bitcoin and cryptocurrency exchange that has been serving its users since 2013, with a paid-in capital of 19 million Turkish Lira. It provides services 24 hours a day, 7 days a week, and has a total of nearly two million users from seven continents of the world.

Of course, reliable and professional platforms such as BtcTurk are an ideal solution for trading. On the other hand, keeping Bitcoin and other cryptocurrencies in a cold wallet without being tied to a central institution or organisation is a model that makes the investor truly decentralised and gives them all the responsibility.

Where you keep your Bitcoin and other cryptocurrencies — on a platform or wallet from which you trade — depends on your investment strategy, interests, skills and risk management.

  • If you are a so-called Hodler and you want to hold on to your Bitcoin for the long run, you could store your cryptocurrency by choosing a wallet type that suits you.
  • If you are a short- or medium-term investor, you should ensure you do what’s most convenient and flexible for you. If you suddenly decided you wanted to deposit, withdraw or buy and sell Bitcoin, you could make your transaction using a cold wallet, smartphone or computer with you.
  • Another strategy is to not put all your eggs in one basket. That is, you could use multiple options instead of storing all your cryptocurrencies in a single wallet or trading platform. For example, you could store a small amount on a trading platform or mobile wallet for daily payments or trading, and store your savings in a cold wallets — ideally a hardware wallet.

Hot or cold, online or offline, each system has its advantages and disadvantages. Do not be afraid when you hear about the disadvantages, knowing the cons of the wallet you will use is of great importance for your security.

If you want to use a desktop wallet, make sure your computer is secure. Use security software and make sure it is up to date. If you need to download an application, make sure you download it from the website of the developer that published that application. If you are receiving emails advertising updates or new releases, check for updates on your manufacturer’s website or within the current application rather than clicking on the links in the email. Finally, stay away from pirated software.

The biggest dangers are cyber attackers. Hacked software has the potential to gain access to your private keys in the digital environment. An application that you unwittingly install on your computer, a program you have tried, or even a photo from a friend can open the door to software pirates.

For example, pirates can attempt to steal your information by sending you an email that you think came from a hot or cold wallet provider. While you think you are updating the software, you can hand over your wallet to cyber attackers by allowing them to install pirated software. Called a Trojan horse, this can encrypt all files on your computer and request money for them to be decrypted. To recover your Bitcoin and other files on your computer, you may have to pay more than you anticipate.

You may lose your smartphone with your wallet on it. It may be stolen or damaged so you cannot access your information. And even worse, not only is your mobile wallet connected to the internet 24 hours a day, seven days a week; it is much more difficult to keep track of what data has been transferred to the backplane on a mobile than it is on a computer. So it’s always important to remember that smartphones and mobile wallets are more vulnerable. If software hackers gain access to your smartphone with your mobile wallet on it, you might not be upset that wasn’t only the selfies you took with your friends that you lost.

Unfortunately, cold wallets are not 100% secure either. It is possible to lose a portable device, wash a pair of trousers with your paper wallet in a pocket or forget your PIN code. Also, if you have not safely backed up your 24-word keyword group, or — even worse — if you misspelled one or more of the words, then you could completely lose access to your cryptocurrency.

Being your own bank offers you financial freedom. But keep in mind that this freedom also comes at a price, and you are solely responsible for your assets and the security of your digital wallets.

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