With all the hype surrounding cryptocurrency lately, there are going to be a lot of new cryptocurrency holders with every passing day.
Given that new investors can’t know everything all at once when beginning their journey, hackers and fraudsters come up with clever new ways to steal crypto.
Today we’ll be touching on crypto security and how best to store your crypto once you’ve taken the plunge and purchased some.
When storing your crypto funds, a “digital wallet” is used. The biggest factor when it comes to storing your cryptocurrency is choosing a hardware wallet vs a software wallet, but before we get into that we need to first cover some important definitions and details for those who are new and need to get up to date.
Digital Wallet
In the same sense as keeping cash in your physical wallet, crypto should be kept in a digital one.
There are two primary types of wallets for your crypto; Hot Wallets and Cold Wallets.
Both wallets contain a set of keys without which the user will never be able to access their crypto.
Many people have probably heard of the millions of dollars in lost Bitcoin because people lost their private keys to their wallets or their hardware is damaged or stolen.
The biggest threat to the security of your crypto is often the user themselves. There have been hundreds upon hundreds of cases in which people forget their keys, or naively let somebody set up a digital wallet for them only to have it stolen later by a patient thief. The only other way the currency can be lost is if the actual hard drive is destroyed or lost.
Hot Wallet
Is a digital wallet or any type of wallet hardware that is connected to the internet. Cryptocurrency exchange platforms, software wallets, and online cloud wallets are all considered “hot”.
Cold Wallet
Is a wallet that is usually hardware-based and not connected to the internet. It allows you to store your currency offline in “cold storage” where it is physically impossible for hackers to have access to your crypto.
Devices such as the Trezor One, or USB drives such as the Ledger Nano fall under the cold wallet category. It is important to mention that a cold wallet stores one's user address as well as the private key associated with it. Moreover, it also works in conjunction with compatible software in the computer.
Your Storage Solutions
Storing your crypto can be done in four main ways using paper wallets, cloud wallets, software wallets, or hardware wallets. Let’s take a closer look at each option and how much security they offer.
Keep in mind the more security the more inconvenient it will be to get your money, so sometimes striking a balance between two options is necessary.
Cloud Wallets
These types of wallets are accessible from anywhere as long as you have your login credentials and an internet connection.
These wallets are incredibly convenient but unfortunately store your private keys online. This leaves the wallet vulnerable to attack by a hacker, however, it is definitely no easy task.
There are many different cloud wallets available and some larger names include, Coinbase, Guarda, and Blockchain.info.
There is a more secure version of a cloud wallet which is known as a “non-custodial wallet”. The difference with these types of wallets is that they may still be accessible through the internet but the service provider does not have access to your private keys.
Meaning they aren’t available to hackers if they managed to hack through the service provider’s defenses. Examples of non-custodial wallets include Zeno, Bitwala, and Edge.
Cloud wallets are “hot” by design and as such can be at risk of hacking. Always be sure to be using malware, and virus-free equipment when accessing your funds.
Software Wallets
These wallets are programs that are downloaded and installed on a PC or smartphone.
Your computer and your phone offer pretty good security as you are usually around them, however, this does not protect you from viruses and malware.
These types of wallets are usually a lot more simple and user-friendly on the phone and more in-depth on the PC.
Some software also allows you to access your funds through both means simultaneously. Popular examples of Software wallets include Exodus, Electrum Wallet, and Freewallet.
Once again I have to make it clear that Software wallets are “hot” and as such are always at risk of the possibility of hacking.
While the safety offered by software wallets is most certainly better than nothing at all, it is not ideal for storing large amounts of currency due to the inherent risk of hacking.
Paper Wallets
One of the more safe methods of storing your crypto, paper wallets are technically considered “cold” wallets.
These wallets refer to using a physical copy, usually printed or written on paper to store your private keys.
This provides a fairly high level of security as the only way to access the private key is through physically reading it yourself.
One very important aspect of using a paper wallet is never to take a picture or store your private keys digitally, on any device with internet access.
By storing a photo or even file of your private key on your device you are essentially downgrading yourself to “hot’ wallet security levels, making paper wallets pointless.
Paper wallets are available for various cryptocurrencies and your best bet for finding a guide on making one for your crypto of choice is to go to that coin’s website or community page.
The crypto community can be extremely helpful and engaging and provide excellent advice on public forums on this topic as well.
Hardware Wallets
These wallets store your private keys on external devices such as micro-computers and USB drives. These types of devices are completely secure and are your best form of security for your crypto.
The added benefit is that a lot of these devices, especially the more modern ones are capable of making online payments.
Many hardware wallets are compatible with software and web interfaces that support multiple extra currencies and make transactions convenient and simple.
A hardware wallet can seem intimidating but the basic principle boils down to; Plug in the hardware wallet to any internet-connected device, login to your device, send currency and confirm, and lastly unplug the device to maintain the safest conditions possible.
Hardware wallets are widely considered to be the safest and most reliable way to store your cryptocurrency.
This also comes at a hefty cost, as some of the more advanced hardware wallets can run up to 160 USD, however, the average hovers around 50-70 USD.
It is recommended to get your hardware wallets directly from the manufacturer as there is a possibility they may have been tampered with.
Some manufacturers put a holographic sticker over the device to ensure it stays sealed and unconnected until the moment you receive it.
In case you are unable to log in to your device because you forgot your credentials, then fear not. Upon initial setup, most of these devices have a “Seed Word Phrase” which is a random combination of words that will unlock your account in case of emergency.
This Seed Phrase is stored exactly like a paper wallet private key would be stored. Offline, in a safe place away from any prying eyes.
Storing Your Paper and Seed Phrase
In certain cases such as Hardware wallets and paper wallets, it is critically important to keep your Private Key or Seed Phrase safe. What happens in the event of a fire, flood, or other life or death emergency situation?
Life almost never goes according to plan that’s why products like steel capsules or titanium plates are used to ensure their safety.
Steel Capsules are best designed to survive the harshest of conditions much like fire-proof safes. This goes a long way in ensuring the safety of those precious seed words.
Products that allow stamping your phrase or key into steel or titanium plates will further help ensure the safety of those letters.
Titanium is extremely durable, heat, pressure, impact, and corrosion-resistant. These plates are pretty much guaranteed to be legible after the most extreme conditions.
Be Vigilant with Your Cryptocurrency
There are scams around every corner, from the telemarketers calling you trying to get your credit card info to scammers imitating exchanges to get access to your keys.
With so much hype about crypto bouncing around every news network and social media platform it can be hard to differentiate between real and fake.
For instance, just recently during the lead up the hugely anticipated SNL episode hosted by Elon Musk on May 8th, there was a YouTube stream hyping the episode with a very legitimate-looking Dogecoin giveaway by Elon Musk himself.
This was of course a scam, however, this may not be immediately obvious to many users. Always be aware of what information you are giving away, for what purposes, and most importantly to whom.
Promises of doubling your money if you send money to an address first is just asking to get your money stolen.
Conclusion
Overall, all our wallet choices are great options when compared to no protection at all.
For those looking to consistently trade and move currencies around than cold storage can be a difficult and cumbersome option.
For these scenarios traders typically use “hot” wallets while moving currencies through the markets.
In instances of “HODLing” which is to hold on to a currency for an extended period of time, cold storage options are the best solution.
This not only limits your temptation to sell if the price is on the move but also guarantees the coins are going to be there when you are finally ready to let some go.
Hardware wallets have done a great job to limit the difficulty in moving money in and out of the wallets.
The latest versions make it simple enough that even traders and daily movers of crypto should consider looking into them, even more so when larger sums of crypto come into play.
