As digital currencies like Bitcoin, Ethereum, and Litecoin continue to grow in popularity, many people are investing in them. However, just like with any other asset, it’s important to keep your digital currencies secure. In this article, we’ll explore seven ways to keep your digital currencies safe, weighing the pros and cons of each method, providing examples and cost.
Hardware Wallets: The Gold Standard of Security
Hardware wallets are the most secure way to store your digital currencies. These small devices are designed to keep your private keys offline, making it much more difficult for hackers to access them. They come in many shapes and sizes, but most have a USB connection that allows you to connect them to your computer.
Pros: The security of hardware wallets is unparalleled. Even if your computer is infected with malware, your digital currencies will remain safe on your hardware wallet. Some of the most popular hardware wallets include Trezor and Ledger, and they are relatively affordable, ranging from $50 to $150.
Cons: The only downside of hardware wallets is that they are physical devices, which means that you need to have them with you in order to access your digital currencies. If you lose or damage your hardware wallet, you may lose access to your digital currencies.
Example: In 2019, hardware wallet manufacturer Ledger suffered a data breach that compromised the personal information of over 270,000 of its customers. However, no digital currencies were stolen because the private keys were encrypted and stored securely on the hardware wallets.
Paper Wallets: Old School Security
Paper wallets are a simple and low-tech way to store your digital currencies. A paper wallet is simply a piece of paper with your private key printed on it. You can print out multiple copies of your paper wallet and keep them in different locations to reduce the risk of losing them.
Pros: Paper wallets are free and easy to create. You don’t need any special hardware or software, just a printer and some paper. Since your private keys are not stored on any digital device, paper wallets are immune to hacking.
Cons: Paper wallets are not very convenient. You can’t easily access your digital currencies with a paper wallet, and you need to keep them in a secure location to prevent loss or theft. There is also a risk that your paper wallet could be damaged or destroyed.
Example: In 2013, a man named James Howells accidentally threw away a hard drive that contained 7,500 bitcoins, which were worth over $200 million at the time. He had stored the private keys on the hard drive and had not made a backup. If he had stored his private keys on a paper wallet, he would still have access to his bitcoins today.
Software Wallets: Convenience Comes at a Cost
Software wallets are apps that you install on your computer or mobile device. These wallets allow you to easily send and receive digital currencies, but they store your private keys on your device, which makes them vulnerable to hacking.
Pros: Software wallets are very convenient. You can access your digital currencies quickly and easily from your computer or mobile device. Some of the most popular software wallets include Coinbase, MyEtherWallet, and Exodus.
Cons: Software wallets are less secure than hardware wallets. If your device is infected with malware, hackers could gain access to your private keys and steal your digital currencies. You also need to make sure that you keep your software wallet up to date with the latest security patches to minimize the risk of hacking.
Example: In 2016, hackers stole $70 million worth of digital currencies from a software wallet called The DAO. The theft was possible because of a vulnerability in the software, which the hackers exploited to steal the funds.
Multi-signature wallets are a type of digital wallet that requires multiple signatures or approvals before a transaction can be completed. This adds an extra layer of security, as hackers would need to compromise multiple accounts to steal your digital currencies.
Pros: Multi-signature wallets are more secure than single-signature wallets because they require multiple approvals to complete a transaction. This means that even if one account is compromised, your digital currencies will still be safe. Some popular multi-signature wallets include BitGo and Copay.
Cons: Multi-signature wallets can be more complex than single-signature wallets, and they can also be more expensive. Since multiple parties need to sign off on a transaction, there may also be delays in completing transactions.
Example: In 2016, Bitfinex, a popular digital currency exchange, was hacked and lost over 119,000 bitcoins. However, the company’s multi-signature wallet system prevented the hackers from stealing even more bitcoins, which were stored in a different wallet.
Exchange Wallets: Convenient but Risky
Exchange wallets are digital wallets that are provided by digital currency exchanges. When you buy digital currencies on an exchange, the exchange will typically hold your digital currencies in a wallet on your behalf. While exchange wallets are convenient, they are also risky because exchanges are prime targets for hackers.
Pros: Exchange wallets are very convenient. You can buy and sell digital currencies quickly and easily, and you don’t need to worry about managing your own wallet. Some of the most popular exchange wallets include Binance and Coinbase.
Cons: Exchange wallets are less secure than other types of wallets because they are vulnerable to hacking. If an exchange is hacked, you could lose all of your digital currencies. You also don’t have full control over your digital currencies when they are stored on an exchange.
Example: In 2018, the Japanese digital currency exchange Coincheck was hacked and lost over $530 million worth of digital currencies. The exchange had stored its customers’ digital currencies in a hot wallet, which was connected to the internet and vulnerable to hacking.
Cold Storage: Extreme Security
Cold storage is a type of storage that keeps your private keys offline, making it nearly impossible for hackers to steal your digital currencies. Cold storage can include hardware wallets, paper wallets, or even storing your private keys on a USB drive.
Pros: Cold storage is the most secure way to store your digital currencies. Since your private keys are not connected to the internet, they are immune to hacking. Cold storage also gives you complete control over your digital currencies.
Cons: Cold storage can be inconvenient. If you need to access your digital currencies, you will need to physically retrieve your hardware wallet or USB drive. Cold storage can also be expensive, depending on the type of storage you choose.
Example: In 2014, a man named Didi Taihuttu sold all of his belongings and invested in bitcoin. He stored his bitcoins in a hardware wallet and stored the wallet in a safe deposit box. While this may seem extreme, Taihuttu’s bitcoins were secure, and he has become a millionaire as a result of his investment.
Brain Wallets: Secure, but Risky
A brain wallet is a type of wallet that allows you to store your private keys in your brain. You create a passphrase that is easy for you to remember, and use that passphrase as your private key. Brain wallets can be more secure than other types of wallets because they are not stored on any digital device.
Pros: Brain wallets are very secure, as long as you choose a strong passphrase that is difficult to guess. Since your private keys are stored in your brain, they are immune to hacking. Brain wallets are also free and easy to create.
Cons: Brain wallets can be risky if you choose a weak passphrase . If someone guesses or figures out your passphrase, they could steal your digital currencies. Brain wallets are also vulnerable to physical attacks, such as if you were to sustain a head injury.
Example: In 2013, a man named Michael Stay was able to crack a brain wallet that contained 300 bitcoins using a program that he created. The owner of the wallet had chosen a weak passphrase, which made it easy for Stay to crack the wallet.
As digital currencies become more popular, it’s important to keep them secure. There are several ways to keep your digital currencies safe, each with its own pros and cons. Hardware wallets are the most secure, but also the most inconvenient. Software wallets are convenient, but less secure. Paper wallets and cold storage are extremely secure, but can be inconvenient and expensive. Exchange wallets are convenient, but risky. Brain wallets can be secure, but also risky if you choose a weak passphrase. Ultimately, the best way to keep your digital currencies secure is to use a combination of these methods, depending on your needs and preferences.
So, which method do you use to keep your digital currencies secure? Let us know in the comments below!