Cryptocurrencies are one of the most popular technologies for investing and storing accumulated funds. But, like paper money or jewelry, cryptocurrencies can be stolen or they can be lost. The co-founder of Ukraine's first fintech ecosystem, Соnсогԁ Fintech Solutions, Olena Sosiedka, told UNN about what options there are for storing crypts and what is the difference between cold and hot wallets.
Hot Wallets: Convenience and Risk
Wallets that are always connected to the Internet are called "hot". These include online wallets, mobile and desktop wallets.
Their advantages are that they are convenient for daily operations. Hot wallets allow you to make transactions quickly and easily, which makes them ideal for traders and those who often use cryptocurrencies in everyday life.
However, a constant Internet connection makes them more vulnerable to hackers and viruses. "If you keep large amounts of money, it can be risky," said Olena Sosiedka.
Examples of hot wallets: Coinbase, Blockchain.info, Trust Wallet, Exodus.
Cold wallets: Security first
If you are worried that hackers can steal your savings and do not plan to actively use crypto, "cold" wallets will suit you, according to Olena Sosiedka, because, on the contrary, they are not connected to the Internet. These can be hardware wallets or external drives.
The main advantage of "cold" storage of cryptocurrencies is a high level of security. "Your funds are protected from online threats, as they are not exposed to attacks by hackers," noted Olena Sosiedka.
However, cold wallets are less convenient for operational transactions. Since they require physical storage, they can be lost or damaged.
Examples of cold wallets include Ledger, Trezor, and USB drives.
"The choice between a hot and cold wallet depends on your needs. If you actively trade and make frequent transactions, a hot wallet may be more convenient. For long-term storage of large sums, I would recommend using a cold wallet," said Olena Sosiedka.
Loss of funds due to password loss
We have heard more than once about how important it is to save passwords and private keys. Probably, each of us has forgotten the password or PIN code of the card at least once. However, in the world of cryptocurrencies, this is inexcusable. Here are some vivid examples that can serve as a lesson:
1. Programmer Stefan Thomas lost access to 7002 bitcoins due to a forgotten password from his IronKey. His funds are worth hundreds of millions of dollars today, but he still can't get them.
2. IT specialist James Howells threw a hard drive with 7,500 bitcoins into a landfill. After realizing his mistake, he unsuccessfully tried to find a hard drive, which now also costs millions of dollars.
3. Wired magazine co-founder Mark Frauenfelder lost access to his hardware wallet after he lost a piece of paper with a written password. He spent months trying to regain access to his funds, and eventually succeeded thanks to a password hint that he remembered.
4. Barbadian entrepreneur Gabriel Abed lost access to 800 bitcoins due to a power surge that damaged his computer. He didn't have a backup copy of his private key, and shutting down his PC caused him to lose tens of millions of dollars.
5. American crypto researcher Virgil Griffith accidentally deleted a file with private keys and lost access to more than 200 ethereums.
"Security in the world of cryptocurrencies is primarily the responsibility of the user. Choosing the right wallet and securely storing passwords are the main steps to saving your funds," Olena Sosiedka summed up.
In the next part of Crypts for Dummies, we will discuss security when using cryptocurrency exchanges and exchangers.
Recall
UNN has started a series of publications in which it will talk about digital currencies and their capabilities. Our first material was devoted to the technology underlying cryptocurrencies - the blockchain: "Scripts for dummies". Part 1: what is blockchain and its "chips" that few people know about.
The second material is the halving of bitcoin: "Crypt for dummies". Part 2: What is halving, and why it causes a stir in the cryptocurrency market.
The third material: "Crypt for dummies." Part 3: step-by-step instructions on how to buy a crypto coin.
Fourth material: Crypt for dummies. Part 4: What are coins and tokens and what are their differences