Recently, the world was stunned by the news of the British James Howells who threw away an HD (hard drive in English) with 8 thousand bitcoin. The crypto assets are worth around 160 million dollars and James asked the authorities for permission to dig in the dump to try to find the device, but so far without success.. This millionaire error makes us reflect on the importance of correctly storing crypto assets, leaving them safe.
Just like most people don’t leave their credit cards, cash, and investments lying around, the same principle should apply to cryptocurrencies. With bitcoin price above $20,000 and Ethereum reaching almost $2,000, we must bear in mind that digital currencies must be stored so that they are not lost or stolen. And that’s where digital wallets come in, also known as Wallets.
Cointelegraph en Español spoke with César Felix, Customer Experience Manager at NovaDAX, who provided advice on types of cryptocurrency wallets.
What are digital crypto wallets?
Unlike money in a traditional bank account, where the account has a number and belongs to a holder, cryptocurrencies do not need a similar structure to be stored. Cryptocurrency wallets work as an interface that interacts with the network with a mechanism that allows access to cryptocurrencies and transfers via cell phone or computer. Digital wallets are usually software or hardware that allow a user store your assets safely and effectively, thus protecting your cryptocurrencies.
How do they work?
The virtual wallet does not actually contain the digital currencies itself. Instead, it only stores records of the details of the transfers the merchant has made, including the origin and destination address of each transfer.
In many cases, the portfolio balance is always updated as soon as the investor has made a transfer. The security of the wallet is important because it contains the private key, with which the owner can carry out transactions with your crypto.
There are several wallets available in the market and with different functionalities, security factors, convenience, accessibility and availability.so there are better wallets than others for different purposes.
The “hot wallets” are connected to the internet 24 hours a day. They are usually installed on the cell phone (which can also be called a mobile wallet) or on the computer. With a virtual hot wallet, the trader can transact cryptocurrencies. Most of the time hot wallet is an application where the merchant has access to his assets and can use, spend or transfer them. It’s almost like a banking app.
The advantage of this type of wallet is that you can carry out day-to-day tasks, such as buying something in physical or virtual stores (if the establishments accept cryptocurrencies as a means of payment), paying bills and buying or selling cryptocurrencies practically instantly.
In the case of “wallets cold” -or cold wallets-, it is possible to establish a parallel with savings. As they are not connected to the internet, it is necessary to use a physical device, such as a pen drive, which will be connected to a computer when it is necessary to use it. In this way, it is much more secure, since the intrusion of hackers becomes more difficult. They are usually used to store a large amount of money that will not be moved frequently. Since the vast majority of hacker attacks are carried out over the Internet, cold wallets are great alternatives to provide more security.
This type of hot wallet is stored in the cloud and can be accessed through any device that connects to a web page. They are easier and simpler to use, but less secure, since they store the user’s private keys on the wallet server, that is, control of funds is not directly protected by the user, being more susceptible to hacker attacks and theft.
It is software downloaded and installed on the user’s computer, it can only be used on the computer where the software is installed. This software must have access to the Internet in order to enter the wallet and carry out cryptocurrency transactions. If the computer where the software is installed suffers from hacking attacks, the funds in the wallet may be compromised.
Traders have different profiles and different investments, so it is crucial identify which wallet is right for your needs. In addition, investors must choose very carefully what exchange they will use to trade their crypto assets: it must be reliable, solid in the market, accessible, with fair prices and good rates. There are numerous companies in the market.
Most cryptocurrency wallets offer a backup in the form of recovery words, or seeds. If the user loses access to their wallets, for example, it could recover your crypto easily with these recovery words.
Digital wallets provide a safer, more convenient and easier way to handle and store cryptocurrency. Safety and practicality are essential so that million-dollar accidents, like the one mentioned at the beginning, do not happen to other people.
Disclaimer: The information and/or opinions expressed in this article do not necessarily represent the views or editorial line of Cointelegraph. The information set forth herein should not be taken as financial advice or investment recommendation. All investment and commercial movement involve risks and it is the responsibility of each person to do their due research before making an investment decision.
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Investments in crypto assets are not regulated. They may not be suitable for retail investors and the full amount invested may be lost. The services or products offered are not aimed at or accessible to investors in Spain.