What Is a Bitcoin Wallet?
A cryptocurrency wallet is only similar to a physical wallet in that both give you access to your financial assets. In reality, though, a crypto wallet primarily stores what are called your private keys. Such a key is simply a long string of characters that allows you to buy, sell, or send the cryptocurrency that you own. (Think of your private keys as long, complicated PINs for your cryptocurrency funds.)
A crypto wallet can either be connected to the internet (called a “hot wallet”) or completely disconnected from the Internet (called a “cold wallet”). You can even back up a private key by writing it down and storing it in a secure place, referred to as a “paper wallet”.
A hot wallet is typically a secure website or app requiring a login and sometimes multi-factor authentication. For example, Paypal, with its website and phone app, operates like a hot wallet. Your digital currency is stored on the hot wallet and immediately available for transactions at all times.
Advantages of a hot wallet include:
- Convenience: You can easily access your wallet and execute transactions
- Ease of access from anywhere with an internet connection
The primary disadvantage of a hot wallet? Theft — hackers may break into your account by forging your credentials. A larger-scale hacking operation might be able to compromise an entire exchange, including funds stored in hot wallets there (which has happened with disturbing frequency).
Cold wallets are physical devices that store your keys. They are vastly more secure from hackers, and the obvious choice for those who don’t intend to make regular cryptocurrency transactions.
Advantages of a cold wallet include:
- Protection from hacking: when your wallet is disconnected from the Internet, as far as hackers are concerned, it ceases to exist
- Greater control over storage: if you don’t need your private keys frequently, you can store them in a vault or a similar high-security location
Depending on the type of device you choose, your cold wallet may limit the number of keys you can store on it (you need one for each cryptocurrency you own). And, unfortunately, even a cold wallet suffers one weakness: should you happen to lose your device, your cryptocurrency is history.
Since anyone who knows your private key essentially “owns” your crypto assets, securing this information is critical. The advantage of purchasing cryptocurrency in your IRA is that the best crypto custodians will secure your assets for you, using cold storage in well-protected vaults, and insure against theft or loss. If you agree that these benefits are important, look for them when choosing a Digital IRA services company.
The World’s Most Secure Digital Currency IRA
With BitIRA, you have unrivalled safety and security that continues to set the industry standard.
This unmatched degree of security is thanks to this combination of five components:
- We’ve eliminated the need for you to keep track of private keys and a dedicated device.
- Your cryptocurrencies are only accessible via multi-factor authentication. Without your personal authorization, plus other trusted parties, your funds cannot be accessed.
- Keys are secured in cold storage at a state-of-the-art depository, inside grade-5 nuclear bunkers, and protected by armed guards and computer security specialists 24/7.
- All of your assets held in storage are protected by $100 million end-to-end insurance coverage from transmission to storage against any type of theft, loss, destruction or damage.
- Fully compliant with Level 2 CryptoCurrency Security Standards (CCSS).
To read even more about the world’s first end-to-end-insured cold storage solution for Digital Currency IRAs, click here.