When selecting a crypto wallet, it’s crucial to define its primary purpose and the goals you wish to accomplish. Will you be actively trading and using the wallet for a short period, frequently engaging with crypto exchanges? Alternatively, do you intend to hold your crypto for an extended duration? In either scenario, prioritizing safety is paramount, and this is not a mere cliché.
There exist numerous reasons and cautionary tales that underscore this principle. In this article, we delve into the primary methods of cryptocurrency storage and highlight the most convenient approaches for efficiently managing and securing your assets.
Hot Wallets And Their Weaknesses
First things first; let’s define hot wallets. Hot wallets are cryptocurrency wallets that store digital assets in a device connected to the internet. They offer fast access to the funds for frequent trading and allow users to easily manage their crypto holdings.
However, due to its connection to the internet, this type of storage has lots of vulnerabilities. And it already has a long history of frauds and fund theft. Here are a few examples of such occurrences:
- In 2014, hackers stole $1.2 million worth of Bitcoin from the Ethereum classic wallet.
- In 2017, hackers stole over $50 million from Parity Technologies’ multi-signature wallet.
- In August 2016, hackers exploited a vulnerability in the Ethereum DAO to steal about $50 million worth of Ether from the hot wallet of the cryptocurrency exchange platform.
- In 2020, a hacker gained access to the hot wallet of KuCoin crypto exchange, stealing $280 million in Bitcoin and other cryptocurrencies.
All of these events undoubtedly have different reasons behind them and every case is different and requires specific analysis to provide a comprehensive answer as to why it happened. But there’s one thing which unites all of these cases: all of these wallets were hot, which means all of them possessed the same group of vulnerabilities:
- Phishing: Criminals can create fake websites or online forms that pose as a legitimate website in order to collect vital information such as usernames, passwords, and credit card information.
- Malware: Malicious software, such as malware, designed to steal private information or currency can be installed on devices using hot wallets, leading to theft of funds.
- Poor security practices: If the user fails to protect their wallet with strong passwords and other security measures, it may leave their wallet vulnerable to attack.
- Server hacks: The servers of hot wallet providers may be vulnerable to hacking, allowing criminals to access their users’ wallets.
- Hacking: Hackers can use sophisticated methods to gain access to wallets and steal cryptocurrency stored inside.
- Man-in-the-middle attacks: These attacks involve intercepting data sent between two parties in an attempt to gain access to private keys and wallets.
The common thread behind all of these vulnerabilities is the device itself. Hot wallets are typically connected to the internet and can be vulnerable to attackers who attempt to gain access to the wallet’s private keys.
Despite all of these risks, there are still several significant advantages of using hot wallets:
- Hot wallets are typically easy to use and user friendly for making transactions.
- They provide a low barrier to entry as setup is quick and you can start trading immediately.
- Hot wallets can be accessed from any device with an internet connection, so you can make transactions from anywhere.
- They offer convenience and flexibility for users who need access to their funds quickly.
Why Cold Wallets Are Often A Wise Choice
Is this simplicity truly worth the price of compromising the security of your funds, especially when there is an alternative method available – crypto cold wallets? Cold wallets are a form of cryptocurrency storage that utilizes offline storage. By keeping them disconnected from the internet, cold wallets offer enhanced protection against hackers and other malicious individuals attempting to steal users’ funds.
They are often referred to as hardware wallets because they typically come in the form of a physical device, such as a USB drive, that stores the user’s private keys. By maintaining the private key offline, cold wallets provide users with an additional layer of security for their funds.
Let’s explore the primary advantages of cold wallets:
Security: Cold wallets are widely regarded as the most secure means of storing cryptocurrencies. Their offline nature shields them from the majority of hacking attempts and malicious attacks. Take, for example, Tangem Wallet, a multicurrency hardware wallet that prioritizes user security. With Tangem, your private key remains confidential, never to be revealed.
Using the wallet is straightforward – no need for computer connections, charging, or intricate codes. All operations are performed on an NFC-enabled smartphone, and by tapping the Tangem card to the smartphone, the card itself stores all private keys, ensuring only the cardholder can access and sign crypto transactions.
Control: Cold wallets empower users with complete control over their cryptocurrencies. Free from third-party intermediaries, users can make financial decisions without concerns about external control. Tangem Wallet offers users the ability to manage over 1000 cryptocurrencies, with access to DeFi, NFTs, and more.
Convenience: Cold wallets are simple to set up and use, requiring no specialized knowledge or software.
Nevertheless, it’s essential to acknowledge the potential drawbacks of cold wallets:
Accessibility: Cold wallets may not be as easily accessible as online wallets since users need physical access to transfer funds. However, should this slight inconvenience outweigh the compromise of your funds’ safety?
User Error: If a user misplaces their cold wallet, they will lose access to their funds and be unable to recover them. Tangem Wallet, on the other hand, eliminates the need to write down a seed phrase on paper. In the event of card loss or theft, access to the cryptocurrency can be regained using a backup card or two.
Remember, the choice of how to store your assets is always yours, but it is crucial to make a wise decision and NEVER disclose it to anyone!
