Cryptocurrency is a viral sensation, with social media influencers hyping its merits and usefulness. The digital currency has taken on the air of a get-rich-quick scheme, promising enormous profits with minimal investment.
The truth is that cryptocurrency is highly volatile and can wipe you out quickly. As with any investment, time and patience will reduce your risk, and you may find success. One investment method is to put in smaller amounts of money at regular intervals over an extended period. This is known as dollar-cost averaging. Tap or click here to learn more.
Let’s talk about wallets. Not the one in your pocket, but the one that stores your digital currency.
Before we dive in, this is not financial advice. Cryptocurrency is inherently risky, and you should never invest money you are not willing to lose.
What are crypto wallets?
A cryptocurrency wallet can consist of an app or physical storage device that lets you manage and trade your digital currency. You can hold multiple cryptocurrencies simultaneously, so you’re not just limited to one. For example, you can have Bitcoin, Ethereum and Tether in your wallet.
Your crypto isn’t actually stored in the wallet. Instead, your crypto wallets hold your public and private keys, i.e., the passwords that give you access to your cryptocurrencies. Your crypto is stored on a blockchain or decentralized digital ledger that tracks transactions.
The keys to the safe
Your private key lets you access the contents of your wallet and proves you are the owner of the wallet when receiving crypto from others. Keep this key to yourself and never share it with anyone.
You can generate public keys from your private keys, which lets you receive funds from others. You can share this key with others who, in turn, can send crypto to that address. But then you’ll need your private key to access those funds.
Hot and cold
Wallets are split into two main categories: hot and cold. A hot wallet is, by definition, connected to the internet. You can directly pay for things and receive crypto in real-time.
With an online or hot wallet, your keys are stored in an app or other software. This makes sending and receiving crypto as easy as using an online bank account or payment app but leaves you more exposed.
A cold wallet isn’t connected to the internet, and this type primarily consists of physical wallets such as USB drives. Physical/cold wallets provide the most protection from hackers in the long run. They are only plugged in when you want them to be.