4 common mistakes everyone makes in cryptocurrency wallets

As a budding cryptocurrency investor, it’s easy to get caught up in all the crypto excitement.

There’s a lot to do, plenty to learn, and many obstacles to surmount. The impending journey promises to be an unforgettable ride. Nevertheless, the journey is intimidating, and the industry is packed chock-full of information that has to be digested properly to avoid making costly errors.

Every month, there are new and frightening stories of investors losing fortunes to seemingly simple errors. Several minor, but crucial points were ignored, to financial ruin.

There are plenty of lessons to be learned here, a result of severe errors that happened after crypto private keys were misplaced, and oversights that got people forever locked out of their accounts, forever unable to access their funds.

Your choice of a crypto wallet is crucial to your investment, as it’s where you store your tokens after earning them. Even after you buy assets with fiat, you’ll have to hold them somewhere first, from where you can subsequently initiate transactions to complete trades.

In this article, you’ll learn about the four common mistakes that many people make regarding crypto wallets.

However, before proceeding, let’s take a good look at what crypto wallets are all about.

What is a crypto wallet?

It’s impossible to talk about crypto wallets without touching briefly on how blockchain technology works.

Every time you buy cryptocurrency, you aren’t buying any real currency such as that compared to regular fiat denominations like the pound, dollar, and euro.

Rather, you’re indirectly contributing to the furtherance of the computing power keeping a blockchain online and secure.

The more users in a network, the higher the level of security, and the more likely it is for its value to be high. As a valuable asset, its demand will quite naturally be higher than its supply. Its availability or supply reduces, and its scarcity is one of the surest signs of a value increment.

The blockchain is a distributed ledger of “blocks” or records of transactions, including details of when the said transaction was carried out.

So, each bit contains a unique record. And, it is the digital ownership of these records that occur in the form of tokens or cryptocurrencies, that one refers to as asset ownership.

Therefore, while your crypto wallet may hold the literal keys to your funds, the cryptocurrencies themselves are secure, immutable parts of the blockchain, and should be regarded as such.

Investors can choose to store their tokens on cryptocurrency exchange platforms to facilitate easy trading. However, history has shown us that even the biggest names in the industry are not fully secure. This trend is best evidenced in the Binance hack, where hundreds of thousands of dollars worth of tokens were lost.

Although Binance recovered well from this setback, rebounding to reclaim its place as the number one place to buy and trade cryptocurrency, other platforms have suffered such fates, to even worse consequences.

Many have gone completely bankrupt, while others have had to face the ignominy and public distrust of a system proven to be porous and lacking adequate cyber security.

However, that isn’t to say that there’s no solution in sight. It’s obvious, even if many crypto investors continue to make this most basic of errors- not securing their asset holdings.

Crypto wallets are the answer, and they should be adopted fully as they provide a seamless means of transferring tokens as well as securely holding them when not in use.

Cryptocurrency wallets are generally classified into two- cold and hot wallets. These are also alternatively referred to as hard and soft wallets.

While both carry out pretty much the same function, the key difference lies in how they work.

Hot wallets require an internet connection to function. Many of them take the form of web-based applications or mobile software that you have to create an account for, before then creating a secure link to your assets.

Such wallets are convenient, as you can easily launch them and connect them to the respective blockchains whenever you want to make a transaction. However, this convenience ultimately comes with its own perks, some of which are outright disadvantages.

A hot wallet is one that’s hosted online. Even if it works only on your PC or other smart devices, you’re at risk every minute when you’re online and carrying out transactions.

Even if you aren’t online, the fact that it works with internet access means that you’re perpetually at risk. You’re basically signing away your trust to the efficiency of the software’s own cyber security protocols, which is only slightly better than leaving your tokens on an exchange platform.

The reliable alternative is to get a hardware wallet, which is basically a hardware device that stores your crypto key perpetually offline, only going online when you actually need to digitally sign to initiate a transaction.

Let’s see what happens when you make transactions with your crypto wallet