PROS AND CONS OF STORING CRYPTOCURRENCY
WHAT IS CRYPTOCURRENCY?
The idea behind a cryptocurrency is to create a digital currency that is secure by cryptography, making it almost impossible to replicate or counterfeit. Blockchain technology is used to power many different cryptocurrencies. It’s a distributed ledger enforced by a network of computers. Cryptocurrencies are characterized by the fact that they are not issued by a government or central authority, which makes them theoretically immune to government interference or manipulation.
In the online world, cryptocurrency is a form of payment that can be exchanged for goods and services. Many companies have developed their currencies, often called tokens, which can be exchanged specifically for goods or services they offer. You can view them similarly to coins found in arcades or chips in casinos. To access any of the goods or services, you must exchange real currency for the cryptocurrency.
Cryptocurrencies are based on the blockchain technology. Blockchain is a distributed technology that keeps record of and manages transactions across several computers. “Cryptocurrency” originates from the encryption techniques that are utilized to secure commercial networks. A key feature of this technology is its security.
To store crypto when it comes to your funds, and increase the security level, you can use a cryptocurrency wallet. Comparatively speaking, they have a greater level of protection.
There is more to cryptocurrencies than buying or trading them. Proper storage of cryptocurrencies is no less important. You’ve probably heard all those sad stories about lost electronics, forgotten passwords, or even successful hacking attempts. To make your crypto secure and convenient, it must be stored in a way that is both secure and convenient.
Essentially, a cold wallet is a USB type of device that is used for storing cryptographic keys. Due to their lack of Internet connection, they are also known as offline wallets. Conversely, With a hot wallet, users can store, send, and receive various cryptocurrency tokens. Users must be able to connect to the Internet to use this wallet.
It is up to you whether your crypto wallet should be hot or cold. Take the time to carefully weigh the pros and cons before making a decision.
PROS
- A SECURITY SYSTEM.
Private keys are not divulged to anyone outside of your organization. It cannot be hacked since the wallet is not connected to the Internet. It should not be carried around as it is less likely to be stolen. Put it in a secure location, like a safe, or in your bank account. Additionally, you enter your password on your hardware rather than a PC that can be hacked and infected with malicious software. Hardware wallets usually come with pin protection for encryption. In some cases, they even provide biometric authentication as well.
- RECOVERY.
If you’re configuring the system for the first time, you’ll need to write down a 12-to-24-word recovery phrase. This phrase will be generated by the system. In the case of a lost, damaged, or stolen hardware wallet, you can get a new one and retrieve your crypto assets or import your recovery data into software wallets and get your assets back instantly.
- LEGAL CUSTODY.
A few crypto investors don’t want to be fully responsible for maintaining their digital assets. Rather, they hire a third-party custodian to do the work on their behalf. You must hand over your private keys to another party if you use a custodial wallet. Therefore, there is less chance for all your assets to be lost together with your keys. A majority of web-based crypto wallets are custodial wallets. Additionally, users who use hot wallets from exchanges like Coinbase are insured against losses.
CONS
- HIGH PRICE.
The average cold hardware wallet costs about $100, but many of the online crypto-wallets offered by cryptocurrency exchanges are free.
- LIMITS.
The cryptocurrencies they accept usually aren’t as numerous as those on hot wallets. Cold wallets may not support crypto that isn’t very popular yet, so you should be careful about choosing such a cryptocurrency.
- INCONVENIENCE.
Despite how fast the transaction itself takes, you’ll need more time to access a cold wallet device. Further, it’s not likely you’ll use it in a public place and it’s not portable. Due to this, day traders and quick transactions are risky.
- LOSS OF ASSETS.
When an exchange that provides a hot wallet closes, you’ll lose everything if it’s not insured. If the wallet is hacked, you’ll lose everything.
- THEFT-PRONE.
Due to the nature of hot wallets, which store public and private keys on the Internet, they are vulnerable to attack.
- THIRD-PARTY RELIANCE.
Generally, you don’t have access to your private keys with the hot wallets provided by the exchanges. A login and password are all you are provided with. Even though you share responsibility for the safety of your assets, you can’t conduct any transactions without an intermediary. Because of this, you will never have complete control over the funds you manage.
