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How to choose the right crypto wallet for you

The use of digital currencies is on the rise. While not new in and of themselves, with the oldest among them being over a decade old, crypto is arguably experiencing its biggest boom ever. Like with all new technologies, the more widespread the use, the more opportunities for bad actors to engage in cyber theft. That’s why a good crypto wallet just makes good sense.

What is a crypto wallet?

Before getting into how to choose one, you should have a good idea of what a crypto wallet is in the first place. When an exchange of cryptocurrency takes place, it isn’t the same as a transfer of physical assets, where you come into ownership of, say, a dollar bill. Rather, what happens is that ownership is signed off from one party to the next. There are two crucial pieces of information necessary to complete this transaction: a public key and a private key.

The public key is an alphanumeric code generated by the crypto wallet provider. The private key is a similar code but is known only to the owner of the wallet. The public key and private key must match before a transaction can be completed. Once this authentication is done, the balance in your crypto wallet will change based on the type of transaction being completed.

Hot vs cold wallets: What’s the difference?

So, now that you know how to keep your coins safe, you decide, you are ready to start dipping your tow into crypto. The first thing you need to determine is whether you prefer a hot wallet or a cold wallet.

  • A hot wallet is essentially cloud storage. Your ledger is kept completely online. You can monitor and engage in transactions from your phone or your computer. Some are even browser-based, meaning you can access from literally anywhere with an internet connection. As you can imagine, this is incredibly convenient. However, that convenience comes at the cost of vulnerability. Being web-based means this method has the same weaknesses as anything else online, namely hackers exploiting hidden vulnerabilities or using malware to break into your account.
  • A cold wallet is a physical piece of hardware, typically a USB drive, which only allows transactions to take place while it’s connected to the computer. These are designed to be hard to hack, with the main vulnerability being human error (i.e. falling for a phishing attack). This method can be found to be inconvenient though, and if you lose your USB drive, you effectively lose access to your crypto.

Choosing which method is best for you will depend on your personal preferences. One factor that will go into your decision is how often you will be trading. Hot wallets are generally more desirable for active traders due to their ease of use and speed. However, a combination of both methods can prove a good way of mitigating risk.

Other things to consider when choosing your crypto wallet.

Well, now you need to take into consideration a few factors:

  • Not all wallets support all cryptocurrencies, so it’s important to research which currency you want to buy before you commit to a wallet. That’s because…
  • There are different fee structures and other expenses. If you plan on buying and holding large amounts of crypto, a cold wallet may be best, but it does have an upfront expense in order to acquire. Most hot wallets are free, but some may have fees in exchange for faster transactions or added functions.

Things to keep in mind about cryptocurrencies in general

Crypto is a relatively new type of asset and because of that, it’s best to be prudent. Here are a few things to always keep in mind:

  • Crypto prices are unpredictable. Even more so than traditional investments like mutual funds or ETF’s
  • There is nothing backing cryptocurrency. Because of its decentralized nature, it doesn’t have any government backing, nor does it invest in companies the way stocks do.
  • There are no regulating agencies with crypto. Because of this, if you fall for a scam or are a victim of crypto theft, there is pretty much no one to turn to.
  • As with many speculative assets, in order to mitigate risk, you should not invest a large amount of your portfolio in crypto.

Crypto is certainly an exciting and revolutionary new asset, and only time will tell how well it performs. What’s evident today though, is the importance of keeping your assets safe. There are several great sources on the matter, so be sure to educate yourself as best as possible in order to make the best choice for you.

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