Bitcoin and other crypto coins have exploded in value and popularity. Since the beginning of 2017, Bitcoin rates have reached astronomical heights.
Many online traders are still finding ways to participate in these booming crypto-economies and protect the value they’ve earned. There is a list of cryptocurrencies that can be broadly categorised into four different types of storage.
- Hot wallets
- Cold storage
- Mining contracts
- Paper wallets
According to Statista, there are around 70 million Bitcoin wallet users in the world.
Cryptocurrencies stored here are immediately transferable or ‘hot’. It means that you can send your Bitcoin to someone else over the internet immediately, just as if you were using PayPal or Venmo in real life.
The most significant disadvantage of a hot wallet is that it is prone to theft by an online hacker. It is one of the main reasons people with large amounts of bitcoins do not store their digital money in a hot wallet.
Creating a hot wallet is easy. You can sign up for one and use any online wallet (or even download the Bitcoin core software and create your wallet) for small amounts of money.
This type of storage is perfect if you need to transfer funds to a friend after a sale quickly or want to take advantage of an arbitrage opportunity in cryptocurrency prices overnight.
Cold storage means keeping your list of cryptocurrencies offline, disconnected from the internet, so thieves or scammers cannot hack into them. There are many methods to do this. The easiest way is with hardware wallets such as Trezor and Ledger.
It allows you to store your private keys and digital credentials for accessing your cryptocurrencies in a secure physical USB device. You can also use software wallets with cold storage; Electrum is one of the most popular options.
Mining involves competing with other computers worldwide to validate Bitcoin transactions and add them to the blockchain.
Suppose you want to participate in mining but don’t have enough money to purchase dedicated hardware like ASICs. In such a scenario, you might be able to join a mining pool or pay for contract processing power from an online cloud-mining marketplace.
These services work just like buying electricity from a utility. You rent access to computing power and get paid when it’s used.
The easiest way to control your cryptocurrency is to use a paper wallet service for those with a little more technical know-how.
Paper wallets work just how they sound like, a piece of physical paper where you store your private keys and public keys in a QR code. It’s a bank account printed out on paper, minus the middleman (a bank).
You can make one yourself by generating or downloading an offline version of Bitcoin core or another wallet program and printing it out onto some excellent thick paper. You can then set up multiple security layers, such as printing the QR code backward and making multiple copies stored in physically separate locations.
It is essential to know that if you lose this paper or get destroyed in a fire, the value of the bitcoins on it is gone forever. There is no one-size-fits-all approach to cryptocurrencies. They all have risks and rewards depending on how much you want to invest in them. If you’re looking for a method to store your earnings without having to open an online account or trust a third party, these ways might be worth considering.