You may know you can use retirement funds, such as within a Solo 401(k) or Self-Directed IRA, to buy cryptocurrencies, but do you know how to hold them? The answer is easy: a wallet of course! A “hard wallet”, or in some cases a “hardware wallet”, is used to protect your cryptocurrencies, such as Bitcoin and Ethereum. Your wallet, in conjunction with your own private key, will keep your cryptocurrencies safe and secure.
In his new book titled, How to Use Retirement Funds to Purchase Cryptocurrencies in a Nutshell, IRA Financial Group President, Adam Bergman, discusses the hard wallet and how it is used to protect your cryptocurrencies.
Here’s a quick snippet from the book talking about hard wallets –
“So how you protect yourself against this risk?” Amy asked.
“The answer is having your own wallet application,” Doug said. “If you have your own wallet application, either in the cloud or on your own computer, then only you have access to the private key. In both cases, you would own the coins and would be responsible for key security. Many cryptocurrency investors like this approach because there is much less counterparty security risk. But the downside is that you must be very careful that nobody gains access to your private key. If someone gains access to your private key, your coins will be lost forever. An online wallet is literally a web-based wallet, and it is the easiest wallet to use. Online wallets store your private keys on a computer connected to the Internet and controlled by someone else. The creation is very simple. It’s basically creating an account on any of the exchange services. One of the primary advantages of online wallets is that they can be accessed from any server or any device in the world as long as it is connected to the Internet. Of course, they have one major disadvantage. The online wallet essentially takes your Bitcoins out of your control. For this reason, a lot of my clients use paper wallets. They print out their private keys, safeguard the paper, and delete all digital copies,” Doug said.
“What about hardware wallets? I have a few friends who use them. How does that work with Coinbase?” Amy asked.
“That’s a good question. Most Coinbase investors are not aware that Coinbase owns the Bitcoin. This is generally shocking to my clients, and they immediately start worrying about theft or hacks. Accordingly, many turn to hardware wallets, which are dedicated devices on which you can store your cryptocurrency. They come in several forms. However, the USB stick-style, typified by the Nano Ledger series, is the most common. They are offline storage; in order to send something, they must be connected to the Internet. They are quite similar to normal wallets, except that in order to hack them, you must steal the actual hardware or hack the computer that you plug the storage device into and somehow access the device. Technically, hardware wallets can still be compromised, but most people believe they provide a higher level of security than digital or cloud wallets do. Hardware wallets normally contain software to send Bitcoins over the Internet, which can then be verified by miners and added to a blockchain,” Doug said.