Holding Bitcoin? Here's How to Keep Your Crypto Safe

 Everything you need to know about hot wallets, cold storage and seed phrases.

Cryptocurrencies like bitcoin and ether are lines of code on the server. Since cryptocurrency is completely digital and has no physical assets, protecting it requires some technical know-how. Where you store your digital currency and how it can be vulnerable is important to understand.

We will guide you through the different types of crypto wallets and some useful security fundamentals. Here's what you need to know to keep your crypto safe.

Using exchange default wallets is risky. Many newcomers buy cryptocurrency from an exchange, such as Coinbase or Kraken, and leave their holdings in those sites' "custodial" wallets.

 But like any other online entity, exchanges are vulnerable to hacking -- and as the crossroads for many billions of dollars of transactions every day, they make for particularly attractive targets. 

The cautionary tales of Mt. Gox, which "lost" 750,000 of its customers' bitcoins in 2014; NiceHash, which was robbed of $60 million in December 2017; and a close call at Binance in 2018 show the risks associated with leaving your coins in an exchange's online wallet.

Cold storage vs. hot wallets. Conventional wisdom dictates that if you've got more virtual currency than you'd be comfortable carrying around on your person, or you intend to hold it as a long-term investment, you should keep it in "cold storage."

 This could be a computer that's disconnected from the internet or a specialized USB drive called a hardware wallet.

Dedicating a computer to store your cryptocurrency or shelling out for a hardware wallet isn't an option for everyone, however. Well known devices such as the Trezor and Ledger cost between $120 and $220 and, by design, add complexity and a few extra steps to every transaction.

 Software wallets, by contrast, are usually free and easily accessed though, ultimately, less secure.

Three kinds of software wallets. A cryptocurrency wallet's primary function is to store the public and private keys you need to conduct a transaction on the blockchain. Many also offer features such as integrated currency swapping. Software wallets can be roughly divided into three kinds: desktop, online and mobile. 

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