Storing cryptocurrencies in software wallets
Software wallets are software applications on a PC or mobile phone, which store private keys and by which you can authenticate transactions. They are usually free.
There are PC wallets or smartphone wallets, the second of which is possibly more secure, as mobile devices are generally less vulnerable than PCs.
What are the risks?
Malicious software on the PC/smartphone may allow theft of the access data to the wallet. There is also the risk of losing your access codes.
Storing cryptocurrencies in hardware wallets
Hardware wallets are physical devices, usually a USB stick, where private keys are stored. They are considered the safest form of storage from a cybersecurity standpoint, as they are not connected to the internet and therefore cannot be attacked by malicious software or suffer hacker attacks.
To access your cryptocurrencies, using this type of wallet, you only need to connect the flash drive to a computer and enter an access code. From a practical perspective, offline wallets are better for storing cryptocurrencies in the long term than for using them for transactions.
What are the risks?
The flash drive can get corrupted data, be damaged, or you can simply lose it. There is also the risk of losing the access code.
Other applications for buying cryptocurrencies
Some payment institutions from the financial sector are now starting to offer the option to buy and store cryptocurrencies, in addition to their usual services. This is the instance of fintech Revolut, which lets you buy bitcoins and other cryptocurrencies through its app.
Paypal also makes it possible to buy cryptocurrencies in the United States and intends to expand to other markets. Also the brokerage eToro includes cryptocurrencies in addition to investments in stocks and CFDs.
If you want a maximum level of (cyber)security, go for a hardware wallet, but it is up to you to keep it safe in the real world.
It is important to note that it is quite often that people lose access to their cryptocurrencies and, since there is no central entity able to change the blockchain, they will be lost forever. For example, in bitcoin’s case, it is estimated that 3-4 million of the 21 million possible bitcoins will be lost.
Most bitcoins are stored in wallets and are not used in any transaction, in reality they are being treated as “digital gold”, i. e., assets whose valuation should not be seen in terms of their usefulness for economic activity, but rather in more speculative and psychological reasons (from possible protection against inflation to the fact that it is trendy).