A cryptocurrency wallet is where you store your cryptocurrencies. This may be considered a
cryptocurrency investing because the financial assets you're dealing with have no physical
counterparts, i.e., they're digital. And because they're digital, you can only store them via a
digital storage facility, i.e., a cryptocurrency wallet. The only question is what type of wallet
will you use?
There are two general types of wallets: hot storage and cold storage. Hot storage wallets are those that are online or Internet based. Cold storage wallets, on the other hand, are those that are offline or aren't connected to the Internet. So which of the two is best for safely HODLing your cryptocurrencies? If the only way to steal or rob your cryptocurrencies is via hacking, then the obvious answer is cold storage or offline wallets, which come in two general variants: paper and hardware. And I suggest using both.
But before I explain how these two cold storage wallets work, allow me to explain how
cryptocurrency storage, particularly the blockchains, works. When you buy cryptocurrencies from any particular exchange, your transaction is assigned a public key that is linked to the number of units of a cryptocurrency that you bought. Your cryptocurrency exchange, on the other hand, assigns private keys that corresponds to your public keys. Therefore, your private
keys are your lifeline to your cryptocurrencies, and if you lose or forget them, you can say
goodbye to your cryptocurrencies.
For others to successfully "steal" your cryptocurrencies, they must get hold of your private keys. It's like your ATM card's personal identification number, which will allow other people to withdraw from your account without your permission. When you leave your cryptocurrencies in your hot wallet, i.e., your cryptocurrency exchange account, you put them at risk of being hacked and stolen. That's why as soon as you're done buying your cryptocurrencies, you must transfer
them, including your private keys, to your cold storage or offline wallet.
Ok, now that we've got that covered, I can explain how the paper and hardware wallets work. The paper wallet isn't really a wallet but more of a backup. Write your private keys on a piece of paper and put that paper in a place where it's virtually impossible to steal or destroy them. A very good place to do so is a fire-proof vault or safe. Another's a safety deposit box.
Hardware wallets are USB-type devices that you can store your cryptocurrencies and its private keys in. These are devices whose sole purpose is to hold your cryptocurrencies and as such, they're offline most of the time. To use them to receive or transfer your cryptocurrencies from and to your cryptocurrency exchange account for executing transactions, you only need to plug it
into the USB port of your Internet-connected desktop or laptop computer and follow
instructions.
Cold storage hardware wallets are much safer compared to software wallets, i.e., apps installed on gadgets for two reasons. One is if it's installed on a device that's mostly online, then the risk for getting hacked is still fairly high. Second, even if you install it on a device that you only connect to the Internet for transacting in cryptocurrencies, there's still a risk of loss if that computer is damaged beyond repair or even if it can still be repaired, the computer technician to whom you'll have it repaired can possibly hack the drive and consequently, your wallet. With a hardware cold storage wallet, the risk of losing your private keys due to hardware damage is
much, much lower. Further, using a paper wallet as a backup can help mitigate such a risk. Some of the most popular hardware wallets include Trezor, KeepKey, and Ledger Nano. They may cost a bit, but they're worth the investment.
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