As with any other form of currency, it’s important to adopt good practices to protect your investment in cryptocurrency. Bitcoin or other digital currency wallets act as the digital equivalent to the leather billfold you carry around in your pocket. Cryptocurrency wallets are essentially secure hard drives set up to store your digital coins. There are two types of digital currency wallets: exchange wallets (remote) and personal wallets (local). No matter remote or local, the best cryptocurrency wallets will always have multiple levels of security.
Once you purchase cryptocurrency on an exchange, your coins will be automatically deposited into the wallet that was provided to you when you opened your account. This exchange wallet is a type of remote wallet — owned and managed by the exchange. Some investors will simply choose to leave their coins in their exchange wallet. Alternatively, you could transfer your coins from your exchange to a personal cryptocurrency wallet, perhaps on your personal computer or an external hard drive.
Transferring coins from an exchange to a personal wallet is often thought of as a matter of personal preference, but there are certain downsides and risks that need to be considered when storing coins on an exchange. Remember that by storing your coins on an exchange you are essentially using the exchange as a bank. Coins left on an exchange are kept in trust, and investors rely on the exchange to keep their coins safe and secure. Though unlikely, there is always the possibility that your coins could be lost or stolen (hacked). Transferring coins from an exchange wallet to a personal wallet places the responsibility of keeping that investment safe and secure squarely in the hands of you the investor. There are excellent wallets available for purchase online or here. Crypto experts will also argue that storing coins on an exchange defeats the purpose of a decentralized currency in the first place. By storing your coins on an exchange, you’re placing your faith in a remote, centralized server instead of in your own hands.
On the other side of the coin (no pun intended), users who leave their coins in their exchange wallet will argue that these wallets are actually quite secure… and they would be mostly right. The large exchanges generally use “cold storage” for 90-plus percent of the coins they manage, meaning that the coins an investor leaves on the exchange are deposited onto a physical hard drive that is kept separate from the web or exchange servers. In the event of a catastrophic failure, your coins would most likely be safely tucked away in cold storage, leaving you exchange’s engineers to sort through the issues with the web servers. In theory, once the problem is remedied, investors should regain access to their money.
No digital currency to store yet? See our top recommendations for buying cryptocurrency.
A final note: cryptocurrency, by its design, places the responsibility of handling money into the hands of the individual. Whether you are storing your money in a local, secure wallet or an exchange, be careful. Guard your personal information. When sending Bitcoin or any other cryptocurrency to another wallet, make sure you copy the address EXACTLY. Coins transferred to the wrong wallet due to a typo may never be recovered. If you choose to store your coins on a personal computer or wallet, be sure to keep your login information somewhere secure and, most importantly, do not misplace your wallet! The coins stored in a lost wallet are unrecoverable.
Blockchain Wallet — home to over 15 million wallets — is one of the world’s premier digital wallet platforms. Developed by Luxembourg-based software development company, Blockchain, and backed conceptually and financially by Sir Richard Branson, among others, Blockchain Wallet delivers an intuitive user experience and secure online solution to cryptocurrency storage.