Posted November 30, 2017 | WD: by Gary Murphy |
Any discussion about Cryptocurrency will quickly wind up talking about Wallets. There are good wallets and not so good ones. Then there are wallets you may want to stay away from. In this writing, I hope to familiarize you with the common types and what to look out for.
Some wallets are completely web-based using your web browser much like a digital online banking platform. These online wallets are called hot wallets. The difference between our hot wallet and regular bank account online account is that if your bank gets hacked they will ensure your funds. So, don’t feel like you are safe using an online wallet in crypto. In the crypto world, you are on your own and you are your own bank. There are also mobile wallets, desktop versions, paper wallets, and hard wallets.
Over the next few weeks, I will introduce you to each so subscribes now to this blog and get regular notices when new articles are available. I promise you will not want to miss the information shared here. In these blogs, you’ll find out the unique differences between the different kinds of wallets and how safe they are to keep your coins.
On this post, we will discuss the Hot Wallets and how best to use them. Hot Wallet is a term given to wallets that are online wallets or connected in some way to the internet as opposed to coins that are in cold storage. Cold storage is the term for offline wallets. So online is hot and hardware offline is cold storage.
So if we are talking safe places to keep your coins we need to use cold storage but there is one problem with cold storage it can be cumbersome to move them quickly. You could say it takes a little time to thaw them out. Not really but allegorically you could say that. Cryptocurrency values change quickly and sometimes minutes of delay could mean thousands of dollars of missed opportunity or a large loss in value. So if want to trade you will need to move some coins to a exchange to make the trades to increase your position in a particular buy. wanting to trade in your coins you might.
Most exchanges have wallets, so you can hold your bitcoin there on the exchange as you make your purchases. Once you buy what you are going to buy you need to start making plans to move the coins to another wallet that is more secure. Exchanges have gotten better over the years, but you still hear people refer to the famous Japanese MtGox fiasco of 2014. Nearly 70% of all Bitcoin trades were made on the MtGox Exchange. When they filed bankruptcy protection 850,000 bitcoins evaporated with a worth USD value of $450,000,000. Its founder Mark Karpeles is still in jail to this day for his part in the shady practices of the exchange. It is debatable but not the less he is paying off the mismanagement of the exchange. MtGox was not the only exchange that has closed over the short history of Bitcoin but at this point, there has been 36 total that has closed. We are still in the wild west of Cryptocurrency at this point. While not a traditional exchange Bitconnect, more of a high-risk lending platform just shut down. The announcement was blamed on cease and desist letters from the States of Texas and North Carolina regulators
Of all hot wallets, these exchanges are the most vulnerable to hacks and business downturns like the big pullback we had this week. Most likely we may see more who are spending like drunk sailors while the markets are soaring and get caught short when things go south. The point here is that exchanges are not the place you need to be holding coins.
As a matter of fact, all hot wallets are subject to unexpected exposure to threats. While some hot wallets have nothing to do with trading or exchanges they still can be hacked. Blockchain.info is one of the most popular Bitcoin Wallet besides Coinbase. Both of these hot wallets provide good security but they are still hot and can be compromised at some point. For large institutional investors or traditional type of private investor, Coinbase has an added level of security called Vault Storage. The service has a 48-hour delay for withdraws and have several layers of people who need to sign-off on any transactions. The service comes with a hefty annual fee of 0.12 percent a year. Kind of pricey but considering the alternative it is a solution for many. In closing let me stress again that I do not think they are safe for any long-term storage. However, hot wallets are very useful because they user friendly and very flexible. They can be used for certain types of activities safely if you implement proper security. However, you don’t have control of your private keys with many platforms and that leaves you vulnerable to losing your coins to either hacks or the financial strength of the platform and not protected if they go out of business. So here it is in a nutshell, if its HOT don’t get burned by moving your coins to a cold storage. I’ll cover that in one of my next blogs. Stay tuned and check back by subscribing to Wealth District.
