Cryptocurrency was one of the biggest buzzwords of 2017. Digital assets such as Bitcoin enjoyed significant airtime and exposure, demonstrating to a growing number of millennials the benefits of using cryptocurrencies as a payment method for goods and services and as part of a long-term investment portfolio. At the beginning of 2018, at the height of Bitcoin’s popularity, it was worth more than £10,000 per Bitcoin. Many people warned that Bitcoin and other leading crypto coins were ‘bubbles’ given that the industry hadn’t yet matured, and few could predict which way the crypto landscape would turn next.
Despite many doom and gloom merchants predicting the demise of Bitcoin and the cryptocurrency sector as a whole, it is as vibrant today as it was last year. However, it is still a highly volatile market for people to invest in and there are other risks involved when it comes to protecting large-scale cryptocurrency investments. Not only does the value of cryptocurrencies fluctuate wildly day by day, but crypto investors are also almost always looking over their shoulder in case of cyber-attacks from digital criminals that look to take advantage of weaknesses in cryptocurrency exchanges and wallets.
‘Ripple-Logo am PC-Monitor, durch eine Lu’ (CC BY 2.0) by marcoverch
Even Ripple (XRP) — which is deemed the answer to efficient and cost-effective digital cross-border transactions between governments, banks and other financial institutions — has been a major target for Ripple hackers, who have sought to attack XRP’s seemingly impregnable in-built defence against cyber-attacks. If you are starting to buy and store large amounts of these digital assets for use now and as an investment for the future, it’s a good idea to choose a reliable crypto wallet. Let’s provide a rundown of the pros and cons of hardware wallets and software wallets to help you make an informed decision.
Hardware wallets: An additional layer of protection to cold storage
Those who have previously used a paper-based crypto wallet to secure their assets in cold storage generally get on okay with them — until their computer is compromised by cyber-criminals. That’s where hardware wallets come in. These devices are built with a secure chip so that, when you insert your device into your computer’s USB port, you never have to submit the private key of your wallet into your computer where potential hackers are watching. Instead, the private key is saved securely on your hardware device.
The only security issue with a hardware wallet is if your device is stolen or broken. However, you can still restore access to your digital assets using the random ‘seed words’ that act as a ‘system recovery’ and are allocated when you first set up your hardware wallet.
Software wallets: Desktop, mobile and web-based services
Software wallets, as you can probably tell from their name, are applications designed for desktops, laptops and mobile devices. You can download a software wallet interface and install it onto your desktop computer or smartphone so that you can access it at your convenience. However, there’s no doubt that software wallets are fraught with danger — particularly for people who are investing hundreds or thousands of pounds in crypto coins.
Software-based wallets are hacked and compromised far more than a hardware wallet. If a cyber-criminal obtains access to your private key, they could transfer your digital assets to their own cryptocurrency wallet without you even realising.
Although no cryptocurrency wallet offers 100 per cent safe storage of your digital assets, hardware wallets mitigate security risks more effectively than software wallets. However, if you value convenience and accessibility more than security, web-based software wallets will suffice.
Image: HD-wallets (CC BY 2.0) by Jaro Larnos
