Newcomers to the digital currency space frequently have questions surrounding hot wallets and cold wallets. Specifically, how do these different cryptocurrency wallets work, what type of investment is best suited for what type of wallet, and how are these digital currencies kept secure? Let’s take a closer look.
The primary difference between a hot wallet and a cold wallet is that a hot wallet is kept online and connected to the internet, while a cold wallet is not.
Hot wallet storage is quick, convenient, and conducive to cryptocurrency transactions, but it also has disadvantages. Because hot wallets are connected to the internet, they are significantly more vulnerable to hacks. It is advised to only keep a small amount of money in a hot wallet, then, to offset the risk. While these hacks are not common, they do occur periodically.
Hot wallets can be thought of like checking accounts, while cold wallets are more like saving accounts. It makes sense to keep a small amount directly available in your checking account, while the vast majority is kept safely stored in your savings account, or cold wallet.
Cold wallets are kept offline and stored either on hardware or paper. Because they are offline, they are kept safe from hackers, but users still assume responsibility to ensure that their paper or hardware wallet is not damaged or stolen.
Hardware wallets are physical devices where you can store your cryptocurrency. They come in a few different varieties but the most common one is a USB drive. Common examples of cold storage wallets include the Trezor and Ledger wallets.
Meanwhile, paper wallets are also an offline cold storage cryptocurrency option that includes printing out your public and private keys on a piece of paper which you can store and save in a secure place. This option gives you, the user, complete control, but you need to make sure you don’t lose the paper.
Because cold wallets are kept offline, they act as a barrier against hackers, making them the safer, more secure options for long-term investments. This is why, at Bitcoin IRA, we’ve partnered with leading cold storage provider BitGo, the leader in multi-signature security and cold storage wallets.
BitGo Cold Storage Wallet
Headquartered in Palo Alto, BitGo’s mission is to make digital currencies usable for business in a regulated economy. The leader in multi-signature technology, BitGo’s technology solves the most difficult security problems associated with blockchains, making them the most trusted providers in the space.
Furthermore, when you open up a BitGo account through Bitcoin IRA, three unique keys are generated. One is with digital wallet BitGo, one is with Bitcoin IRA custodian provider, and one is with backup key provider Keytern.al. The private keys are spread across multiple machines, protecting Bitcoin IRA funds against single machine compromise or single key loss, and customers do not have to worry about holding onto the keys themselves.
Protecting Your Bitcoin IRA Investment
Investments in retirement funds are inherently long-term endeavors, which is why they are well-suited for cold wallet storage, where users don’t require access to their coins for months or years at a time. Working with full-service retirement technology company Bitcoin IRA to set up your BitGo account, ensures you will have all of the resources you need to store your retirement funds securely and with peace of mind.