In This Article
Intro
Cryptocurrencies exist on the internet, and unlike physical currencies, they don’t have a tangible form. When you own a dollar, you have physical proof to back up your ownership. But when you own a cryptocurrency, there is no tangible proof to do the same. As far as you know, you could just be buying space in a blockchain that exists somewhere on the internet. The blockchain generates a private key that is unique for every user – to solve the ownership problem.
Hot Storage:
Of all the digital wallets, Hot storage wallets are the most vulnerable to hacking. These bitcoin wallets can be accessed through an online account and often require additional security measures such as two-factor authentication, multi-sig technology, or offline cold storage disconnected from the internet. While anything is better than not using a wallet, we don’t recommend using a hot storage wallet.
Multi-Sig Wallet:
A multi-sig (multi-signature) wallet makes transactions easier and provides increased protection without adding extra layers of complexity during transactions. Transactions on a multi-sig address require multiple signatures before they can be executed. This makes it harder for hackers since they would need to steal all the signatures instead of just one single password.
Multi-signature technology typically begins with creating a multi-signature address for users to store their bitcoins in. Multiple private keys are required to move and spend funds, and this would require authorization from more than one person (or entity) before Bitcoins could be spent or transferred. The main advantage here is that even if hackers were to access your account/wallet, they wouldn’t be able to generate enough signatures without having direct access to at least three different devices belonging directly or indirectly related to you. This makes it nearly impossible for them unless they manage somehow to gain control over all these accounts at once.
Cold Storage:
A cold storage wallet is probably one of the best ways to store coins safely without worrying about losing access to it. Cold storage wallets are considered more secure since they don’t have any contact with the internet. This means that no hacker can access them through an online door, even if he has your password or critical information at hand. The three most popular ways for keeping bitcoins in a safe ‘cold’ environment offline include paper wallets, hardware wallets, and USB devices.
Paper wallets: In a paper wallet, you create a public and private key through software which is then printed onto a piece of paper or metal as an image file that can be seen visually. Hence, there’s no way any virus could corrupt it during the process. These keys are generated mathematically, so it would take billions of years to decrypt even if one knew what they were looking for – making them highly impossible to hack. Paper wallets are created using open source code available online from trusted sources.
USB devices:
USB drives are practically impossible to hack into, especially if they’re offline. When using a USB device to store bitcoins, always ensure you get an encrypted USB device. While a USB device will protect you from online hacking, anyone with physical access to the device can gain control over your funds. Whenever possible, use any version of Linux live USB sticks instead of Windows/MacOS variants since these operating systems have higher rates for malware attacks.
Brain Wallet:
A brain wallet refers to the concept of storing your bitcoins in your mind by memorizing a seed phrase that, when put together, would generate access to all your funds at once. Think of it as an offline password generator that works by creating just 12 or 24 English words out of any given sentence and then converting them into their respective private keys. The main advantage of this method is its lack of dependency on other devices to store codes.
Conclusion
Cold storage wallets are usually considered more secure since they don’t have any contact with the internet. This means that no hacker can access them through an online door, even if he has your password or critical information at hand. Paper wallets and USB devices are amongst the safest ways to store cryptocurrency. To ensure you never lose your bitcoins, always remember: to back up everything regularly by transferring funds from one wallet to another. Keep some offline just in case you need it later too! And last but not least – use trusted open-source code only when creating new wallets.
