Getting cryptocurrency is one thing, while storing it safely requires entirely different skills and knowledge. This guide teaches you how to protect your funds, choose the right wallet, and avoid the most common hazards of crypto security.
Cryptocurrency has gradually become a household name. Even though there has been negative news recently, from the prolonged bear market to the bankruptcy of some top crypto exchanges in the market like FTX, and BlockFi.
However, interest in the new digital currency has continued to skyrocket. According to a post on CoinTelegraph, TripleA, a Singapore-based cryptocurrency exchange reported that as of 2022, the number of people who own cryptocurrency is around 4.2% of the world’s population which is over 320 million crypto users worldwide. It also reported that at the top of the list is the United States with over 46 million crypto holders, followed by India, Pakistan, and Nigeria.
As a cryptocurrency holder, one of your major concerns should be the best way and how to securely store your cryptocurrency. As you might have already known, cryptocurrency is decentralized and is not protected the same way money is protected in the bank. Cryptocurrency does not have a regulatory body backing it, so once your wallet is hacked and funds are stolen through cryptocurrency scams, it is quite difficult to recover.
Cryptocurrency can be an incredibly valuable asset, but it can also be vulnerable to fraud, theft, and other risks. To protect your investments, you need to know the best way to store cryptocurrency securely. From hardware wallets to paper wallets, find out how to choose the right storage option for you.
Since Bitcoin launched in 2009, it has been reported that there have been over 3.7 million Bitcoin that have been lost forever. There are several storage methods which include hardware wallets, software wallets, custodial wallets, and even paper wallets. Once you know more about each of these storage options, you can proceed to make your choice of the best one to use.
What is a Cryptocurrency Wallet?
A cryptocurrency wallet is a “safe” where you can store, manage and also trade digital assets. With cryptocurrency wallets, you can also trade Non-fungible tokens (NFTs), and interact with Decentralized Finance.
However, it is important to know to understand that cryptocurrencies are not stored on the wallet itself, rather they are stored on a blockchain. The private key serves as a lock to your blockchain address which is where the cryptocurrencies are actually stored. That is why it is important to keep your private key to yourself.
Types of Crypto wallets
The main purpose of a cryptocurrency wallet is to store your private keys. In case you are not familiar, a private key, popularly known as a secret key, is a series of randomly generated numbers with hundreds of digits. Simply put, a private key is represented by a string of alphanumeric characters. Think of your private key as the password to your wallet.
There are many different types of crypto wallets, each with its own pros and cons. So, to proceed with the best way to store cryptocurrency, we need to know the types of wallets available.
There are three types of crypto wallets:
- Custodial Wallets
1. Software Wallets (Online)
Software wallets are quickly becoming a popular way to store and transfer digital currency. Learn more about this type of wallet, how it works, and its features. They enable users to store, send, and receive their funds from any device with an internet connection, making them much more convenient than paper or hardware wallets.
A software wallet is a program or application that allows users to store, manage, and transfer cryptocurrency with an internet connection. It operates much like a traditional digital wallet but with added features such as enhanced privacy, control over funds, and the ability to access your wallet from multiple devices. Software wallets offer secure storage of your digital currency while also allowing you access to advanced features like multi-signature transactions and contactless payment processing.
However, since these types of wallets are always connected to the internet, it comes with their own disadvantages. They are prone to hackers. Aside from online threats, when a device in which the software wallet is located is misplaced or stolen, the recovering party could easily gain access to your wallet and withdraw every fund you have saved up there.
Software wallets can come in three forms – Web wallets, Mobile wallets, and Desktop wallets.
Web wallets come in the form of a browser extension. In this type of wallet, the software that powers it is stored on the browser which can pose a high-security risk.
In a mobile wallet, your cryptocurrency key is stored on your phone. These kinds of wallets are usually applications that can be downloaded from Google play stores or the Apple App store.
Desktop applications are similar to mobile wallets, the difference is that your private keys are stored on a desktop application as opposed to mobile applications.
2. Hardware Wallets (offline)
If you’re looking for an extra layer of security for your cryptocurrency, a hardware wallet may be the way to go. Unlike software wallets, hardware wallets can either be connected or disconnected from the internet which makes them more secure than software wallets and the best way to store your cryptocurrency.
A hardware wallet is a physical device that stores digital assets securely and offers various features such as secure access, keeping your funds safe from hackers, and providing a backup if something were to happen.
It provides an additional layer of security for your crypto coins and tokens. Hardware wallets are protected with a PIN code and have features such as generating one-time use addresses for each transaction, effectively eliminating the need for users to save their addresses on the blockchain.
They are similar to paper wallets which allow you to store your private keys offline. Since the private keys are stored offline, it makes the hardware wallets difficult to hack. You can confirm blockchain transactions by plugging in your device to a computer.
Once transactions are complete, users can unplug their devices from the computer. There are several types of hardware wallets available, but the most popular ones are Ledger and Trezor.
3. Custodial Wallets
Custodial wallets work differently than non-custodial wallets. Understanding how they function, the risks involved and their potential rewards is key to making an informed decision about whether a custodial wallet is the best way to store cryptocurrency.
A custodial wallet is a type of crypto wallet, where the private and public keys are kept by a third-party provider. This may be in the form of an exchange or a custodian. With custodial wallets, users do not have full control over their funds; instead, these are managed on their behalf by the provider.
Custodial wallets can offer convenience and ease of use for those that prefer someone else to manage security, withdrawals, and deposits for them. In custodial wallets, a cryptocurrency exchange holds your private key for you.
It is important to know that in a custodial wallet, you will be relying on the security measures of the cryptocurrency exchange or crypto broker and also trusting that they won’t lock you out of your account.
4. Paper wallets
The last type of cryptocurrency wallet on our list is the paper wallet. A paper wallet uses public and private key pairs printed on a piece of paper and it is one of the ways to store your cryptocurrency offline.
A paper wallet is simply a document that contains a public address and private key for a cryptocurrency. It allows you to store, receive, and spend your cryptocurrency without the need for any online services or third-party wallets. With a paper wallet, you can print out your private key information and store it in an offline environment. This makes it virtually impossible for hackers or anyone else to gain access to your cryptocurrencies.
Even though the paper wallet is totally disconnected from the internet and a blockchain, the keys printed on the paper are simply a representation of the keys on the blockchain and can be used to locate cryptocurrency.
Since the keys are stored on paper, the biggest disadvantage of the paper is the fact that they could get wet by liquid or get burnt. When either of these happens, it will be impossible to read your private key or seed phrase which can lead to the cryptocurrency being lost forever.
Best Way to Safely Store your Cryptocurrency
Cryptocurrency is a valuable digital asset, so it is critical to store it in a secure way. So far, we have talked about the different types of cryptocurrency wallets with some examples. With these facts known, the best and most advisable way to store cryptocurrency is by using a hardware wallet.
A dedicated hardware wallet is the best solution for securely storing your digital currency. Hardware wallets are purpose-built devices that provide an extra layer of security by isolating your private keys from any external computer or network. With these, wallets, you can store an unlimited number of different currency coins and tokens in an offline environment, protecting them from online threats like hacking and theft.