What is a digital money wallet?
When buying or trading digital currency, you need to be able to store it. This is even more important if taking a “buy and hold” approach, where you need to store your digital currency in a safe place. A digital money wallet is the tool used for holding, storing, and transferring digital currencies.
There are 3 main ways to store your digital currency:
- Paper wallets for digital currency
- Hardware wallets for digital currency
- Online wallets such as mobile apps, computer wallets, exchanges. These are best suited for short-term transactions, but not as safe for long-term storage as paper or hardware wallets.
An offline wallet (paper or hardware) is also referred to as a Cold Storage Wallet. Because they are not connected to the Internet, they are less susceptible to fraud and hacking.
An online wallet is also referred to as a Hot Storage Wallet. Because they are online, Hot Wallets are more vulnerable to hacking and theft.
Most exchanges offer Hot Storage Wallets with their services. A digital currency trader can obtain digital money through a particular exchange, but unless they plan to sell it on, they should consider transferring their digital funds to a Cold Storage Wallet.
The main benefit of a paper wallet for virtual currencies is that it is not online, therefore it cannot be hacked, it cannot go down because your computer is crashing, and it can be stored safely in a safety deposit box.
The main downside of a paper wallet for virtual currencies is that if you lose it or if it get destroyed or stolen, your digital money cannot be retrieved. Also, a hacker may possibly steal your password while you are creating your paper wallet.
How to create a paper wallet for virtual currencies:
- Use a basic laser printer with a very small memory capacity and USB connectivity, so that hackers cannot intercept and steal your wallet password from a WiFi transmission or the printer’s memory.
- Use quality waterproof paper designed for laser printers.
- Use a wallet generator to create your first wallet then print out the wallet, making sure that you generate a new wallet every time.
- Store your paper wallets in a safe place such as a safe deposit box.
- When you want to trade your virtual currency, use an online wallet to transfer your digital currency from the paper wallet to your digital currency exchange.
- As a back-up, you can save your wallets as PDF and store them on an encrypted USB stick or flash drive.
The main benefit of a hardware wallet for virtual currencies is that you can store all your virtual currency in one place. Even if your device is lost or stolen, you can usually restore your wallet from backup. They are easy to use, and difficult to hack.
The main downside of a paper wallet for virtual currencies is that it is vulnerable like other electronic devices. Therefore if a hacker gets hold of your PIN, your digital money can be stolen.
There are different hardware wallets, such as the Trezor wallet.
Mobile wallets are practical because it is easy to scan QR codes with your mobile phone’s camera and make quick payments. However, they are considered less secure.
Popular mobile wallets include:
Web wallets are convenient for online payments but less secure because your private keys are stored on a web server.
Popular Web wallets include:
- Most exchanges will offer their own version of a Web wallet
Desktop wallets are generally considered to be safer than web or mobile wallets.
Popular desktop wallets include: