Despite continuing to dominate the headlines of the financial pages around the world, cryptocurrencies like Bitcoin are, by their very nature, a potential risk their investors.
Being currently subject to vastly inflated prices, the influx of new digital currencies to the market can be tempting to the unwary investor. A huge surge in the number of altcoin investors has seen volatile shifts in the market, something that has only been exacerbated by the seemingly non-stop flow of newly branded coins into the arena.
This is a risk of any tradeable commodity and hardly unique to cybercurrency. However, these new digital coins pose their own risks.
When purchasing altcoins, you have three main options for storing them: leave your new coins attached to the exchange when you bought them, download them to a software wallet, or save them to a hardware wallet. None of these is without its own pitfalls.
Keeping your coins in the exchange is rarely recommended, even with the more reputable exchanges. At present, they remain unregulated and, being entirely digital institutions, there remains the possibility of them being hacked, and your coins being looted. Being unregulated, there is no legal recourse to recover your digital funds should such an event take place.
Software wallets – essentially an app for storing your altcoins – manage your Bitcoin keys. These are a public key (available to all) for receiving cryptocurrency funds, and your private key (known only to you) for sending them. Being a software solution, your private key information is still susceptible to hacking, even in a wallet.
Hardware wallets are more secure, being connected to your computer only long enough to update your account. The rest of the time it is an offline storage solution, not unlike a dedicated memory stick. Even then, being a physical artefact, there is always the chance of it being misplaced, lost or stolen, and your altcoins going with it.
As with so many enterprises, all aspects of cryptocurrency storage have an element of risk, but some are riskier than others, so take care when choosing how to store yours.
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