Best Way to Store Cryptocurrency
We are in the middle of the craziest cryptocurrency bull market ever, which has seen even the most conservative investors raise an eyebrow and consider including digital currencies into their portfolios.
If you are looking to join the crypto assets revolution, then sooner rather than later, you will face the question of how to ensure the security of your coins and what is the best choice for storing your crypto.
In this guide, we will see what ten years of history had taught us about the specifics of keeping your cryptocurrency safe.
What Is a Cryptocurrency Wallet?
A cryptocurrency wallet is a medium of storage for digital assets. Like the case with cash and fiat money, with cryptocurrencies, you also need a secure place to store your crypto assets.
While in the case of cash, these mediums usually are your bank account or your physical wallet, with cryptocurrencies, the wallets come in various forms. What is common with all of them, however, is the way they work.
When you want to acquire crypto assets, you need an address to send it to. The address is the cryptographic location of your wallet. The wallet address is like a bank account number, and there is no harm in giving somebody else your bank account number. All they can use it for is to transfer your digital currencies.
When you buy or receive cryptocurrency, what happens is that the wallet records and stores the location of your digital assets on the public ledger that records and authenticates all transactions. That is because Bitcoins and altcoins don't exist physically but instead work as transactional records that detail which private and the public keys have control over the funds.
Now, let's take a minute to look at private and public keys. Each wallet address has a unique public and private key. The public key is linked mathematically to your wallet address and comes as a "hashed" version. To avoid getting too technical, just remember that it adds a further layer of security.
What is more important is the private key. It grants access to the cryptocurrency in the wallet (think of it as a password). DON'T SHARE YOUR PRIVATE KEYS WITH ANYONE!
Wallet address: 7BzP1Ep3QS1si33MbOcTL1SLsa3DivfMa
Private Key: 03bf350d7722836548sb13h0c2na813e14al0a7f2b7ss17014d4a9a7edecf7989a
Public Key: 24s0nbcf911kd3df5161vav111s140kfl24a1d518
Cryptocurrency wallets do more than just store your coins. They also allow you to make transactions, check balances, keep historical records, etc.
Cryptocurrency wallets have been around since 2009 when Bitcoin emerged. They have been evolving ever since, and today, we have a plethora of options to choose from.
Types of Cryptocurrency Wallets
Cryptocurrency wallets come in a variety of different forms. Usually, there are two main categories - hot and cold wallets (the idea of cold storage is that it isn't connected to the internet. However, for further clarification, crypto enthusiasts divide them even further, into categories like software wallets, hardware wallets, paper wallets, mobile wallets, hosted (online) wallets, and desktop wallets.
Mobile wallets come in the form of a mobile app. They run on your phone and are considered among the most convenient to use.Mobile wallet software solutions are suitable for those who own small amounts of crypto and want to pay or trade them on-the-go.
To send Bitcoins with a mobile wallet, all the user has to do is scan a QR code. This makes mobile wallets one of the most user-friendly solutions.
Popular mobile wallet solutions:
The desktop software wallets are installed locally on the device. However, the consensus is that the desktop or the laptop shouldn't be connected to the internet to serve as cold storage and be considered entirely safe to store your cryptocurrency.
The best thing to do is wipe the dust off your old computer and reinstall it with genuine software. After you are sure there isn't any malware or potential hacking and security threats, you can install the desktop wallet program.
Desktop wallets are considered among the safest solutions. The downside is that you can't take them with you and are also prone to physical damage or loss like a short circuit, theft, etc.
Popular desktop wallet solutions:
As their name suggests, hardware wallets come in the form of a separate device like a USB stick, for example.
Hardware wallets are considered the safest option to store your cryptocurrency. These data storage devices are produced by leading companies, specialized in crypto security to protect private keys from hackers, and malware and phishing attempts. A hardware wallet is deemed impenetrable, considering that you keep your device password safe (usually a 24-word phrase that you should input each time you want to access your funds).
Important: Although many consider hardware wallets to be the safest option, one of the leading companies in the field, Ledger, recently became a victim of a hacker attack that leaked personal information for hundreds of thousands of Ledger Nano S and X device users. Although no coins were stolen, as a result, the phone numbers and addresses of many crypto investors were exposed.
The fact that hardware wallets are small and portable devices makes it easier to carry around or store them in a safe deposit box if you want. They can be connected to machines with various operational systems - be it Windows, Linux, or Mac. The devices work as read-only, and there is no risk for loss of funds even if the computer is compromised.
Hardware wallets have advanced security measures in place and are resilient to malware. The only risk here is the one of loss, theft, or destruction of the wallet device.
Popular hardware wallet solutions:
The paper wallet is the old-school, DIY-type solution that is considered as safe as hardware wallets (if not more).
However, it is worth noting that it might not be the most convenient choice for beginners due to the way it works.
It is created through an open-source online wallet generator. Although this might sound strange, the fact that the generation process can be entirely randomized and even controlled by you (you can input random symbols or change the sequence) makes it completely secure.
Once the wallet is created, you should write down your keys on a piece of paper (not on a computer) and store them in a safe place. Your paper wallet will be completely secure because it won't be connected to any servers. The only risk is if you lose or destroy the piece of paper with the written keys.
If you want to make a transaction, all you have to do is scan a QR code, and you are good to go.
Popular paper wallet generators
Web and Online Wallets
Many crypto exchange platforms offer you the chance to create your own wallet within your profile on the platform. However, you should bear in mind that the wallets generated by exchanges are the least secure option since you won't be in charge of your private key.
The history knows dozens of cases where the security of digital currency exchanges had been compromised, and users have lost all funds stored on the exchange platform.
Although the security features of most exchange wallet solutions have improved over time, it still isn't advisable to use the wallets cryptocurrency exchanges provide you with.
If you decide to use the web wallet on your trading platform, make sure to keep only small amounts of cryptocurrencies there. The best way is to use it for trading and cash out asap.
What Is the Best Way to Store Your Cryptocurrencies?
The best way to store your cryptocurrencies is in a hardware wallet. Next in line are paper and software wallet solutions.
|Best Way To Store Cryptocurrency||Security||Usability||Price||Supported Assets||Suitable for Beginners|
You can also take advantage of a desktop wallet option if you have a spare computer always to keep disconnected from the web.
Make sure to avoid web/online wallets.
5 Pieces of Advice on How to Better Protect Your Cryptocurrencies
No matter what type of crypto wallet you choose, if you don't know how to use it properly or adhere to the best security practices, you will be putting your assets at risk.
Here are five things to look for:
1) Never Share Your Private Keys With Anyone
Hardware wallet producers like Ledger and Trezor never stop reminding their users that they would never request to receive their individual private keys. Giving your private key away is basically throwing your cryptocurrencies in the bin.
2) Back-up Your Private Keys
This is as important as advice #1. Don't forget that if you lose your private keys, you won't be able to access your funds. That is why it is essential to have them written down on separate mediums and find a secure way to store this highly-sensitive information. Make sure to keep them safe in different places so that you can have individual access at any point.
3) Use Wallets Only From Credible Solution Providers
The crypto industry is relatively new. This means that there are a few leaders and dozens of unreliable or at least not-so-transparent service providers in every niche. Make sure to choose only exchanges or wallet producers that are known for their clear reputation. Otherwise, you may one day wake up with no sign of your crypto.
4) Use Multi-Signature Wallets
Alternatively - solutions that require more than one confirmation to authorize transactions. The idea is to limit the risk of theft as a single controller cannot carry out a transaction. The simple truth here is the more layers of security you have, the better. The good thing is, today, the majority of the hardware, software, and desktop wallets are multi-signature.
5) Update Your Wallet Regularly
Those using any type of app- or software-based wallet solution should make sure they update it regularly. Updates should take place only through the app and not from any third-party sources like sites or email invitations. Keeping your wallet up-to-date ensures it has better security in place and avoids soft spots for hackers.
Thanks to the evolution of the crypto wallet niche, today, users have access to all types of solutions. Which one is the best depends on yout needs.
Often, a combination of a hardware wallet (to keep the majority of your Bitcoins) and a software wallet (to keep a small part to pay or trade) is preferred among the average user. Others, who are in for the long run and don't make many transactions prefer desktop or paper solutions.
However, whatever you choose, make sure to protect your private keys and always double-check emails and notifications urging you to update your wallet. If you have even the slightest doubts, get in touch with the wallet provider.