What’s a Crypto Wallet and Do You Need It?
Technically, you don’t keep coins in cold storage or download hot wallet programs to your desktop. Many crypto-exchanges now allow storing cryptocurrency within a wallet on the exchange, and some people prefer that. Should you store your crypto within wallets that exchanges like Coinbase or Kraken provide? Crypto purists will say no but until you understand public and private keys, hot and cold storage, and various crypto-security topics, it is better to leave coins at Gemini, Coinbase, or elsewhere similar. Without relying on that option, move your crypto onto your own secure storage. Many exchanges have invested in security and safekeeping as your crypto is not protected by federal or local regulatory bodies like your cash in a bank account is. In addition to these security measures, many established and reputable exchanges like Crypto.com and Coinbase offer customers insurance coverage on crypto-holdings, using cold storage methods. If your crypto is stolen by hackers or the exchange fails, another added protection is available for your investment.
Choose an Appropriate Crypto Wallet
The hacking risk remains. Last year, KuCoin experienced a hack worth more than $200 million. Though user funds were recovered, this highlights the risks every exchange carries, like all traditional financial institutions. A hot wallet has a very similar degree of security as does your bank account, say experts. Exchanges do take their security practices very seriously, and often depend upon insurance as back-up security in case of an attack. But the trade-off is the amount of control you have over your own cryptocurrency. Experts equate this to your bank’s ability to just freeze your account. Within a community built upon decentralization norms and a maxim of ‘not your keys, not your coins’, and relying on a centralized entity (in this case, the exchange) to control keys to your crypto, should be viewed as a major security risk by itself. Various outages reported by account holders during recent dramatic dips in the crypto-market, are an example. Almost all exchanges went down, especially when it’s so very essential for you to retain the ability to buy or sell cryptocurrency. You may not always retain that option if you are retaining your funds in an exchange.
For a crypto storage option, assess your goals, risk tolerance and knowledge levels when it comes to crypto. If planning to hold your coins long-term without trading, cold storage makes some sense. But beginners generally careful about amounts invested, prefer the ability to buy and keep coins in an exchange, depending on platform longevity and of the device.
Personal Account Security
Like any online account, active security measures taken also ensure keeping your crypto safe. If unaware of and engaging in best practices for just basic good cyber hygiene, always update devices, manage network security, and use multiple passwords, after practicing first before diving into something new like crypto.
Some Tips on Using Crypto-Wallets
If your wallet is software operated, frequent updates to avoid using older software versions is required. Opt for two-factor authentication for any exchange or e-wallet program being used. Never share your private passkey with anybody, just as you do not broadcast your debit card PIN or Social Security number. Maintain strong, frequently updated passwords and never use same passwords for multiple accounts. Though hacking is a major risk, most clients are not security-conscious and fall easy prey to criminals.
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