How to Store Your Crypto Safely?

Investing in cryptocurrency is exciting, but it comes with a great responsibility. Unlike traditional banks, crypto traders themselves are custodians of their holdings. It means that the security of digital assets rests entirely in their hands.

Traders can lose funds in cryptocurrency through several ways, including user error, outright theft, or malware. A single mistake can result in permanent loss of funds with no bank to call for a refund. Given these challenges, it is no surprise that traders seek ways to store crypto safely.

Let’s explore some best practices for safely storing cryptocurrency.

What are Cryptocurrency Wallets?

Cryptocurrencies are decentralized digital assets available on blockchain technology. This decentralization gives traders complete control over their crypto assets, or rather, the private keys that prove ownership of their holdings. It means that no central authority can interfere with digital currencies, and users are solely responsible for their safety.

This is where cryptocurrency wallets come in. Whether a software program or a physical device, a crypto wallet is an essential tool that helps traders store and manage their private keys by linking them to their digital assets.

Generally, there are two main types of crypto wallets: hot and cold wallets. Each wallet is designed to provide different levels of convenience and security to users.

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Hot Wallets

Hot wallets, also known as software wallets, are crypto storage wallets that are connected to the internet. These software-based wallets are available in various forms, including web extensions, desktop wallets, and mobile apps. Hot wallets are straightforward to use and offer outstanding convenience for frequent trading or spending. Some leading examples include MetaMask, Exodus, and Trust Wallet.

The two main categories of hot crypto wallets are custodial and non-custodial. Custodial wallets, such as those on exchanges like Binance or Bybit, store users’ private keys on their behalf. These wallets are easier for beginners to manage, but if the exchange is hacked, funds might be at risk. However, leading cryptocurrency exchanges employ robust security measures to avoid such situations. On the other hand, non-custodial wallets provide users with greater control but place the responsibility for managing them entirely on users. Binance Web3 Wallet and Coinbase Wallet are popular non-custodial wallets used by traders to store cryptocurrency securely.

Since these wallets are always connected to the internet, they are vulnerable to online threats, such as malware, cyber-attacks, and phishing schemes. The risk of losing funds is higher than with cold or hardware wallets.

Cold Wallets

Cold wallets provide users with an offline way to store digital assets. These wallets are of two types: hardware and paper wallets.

Hardware crypto wallets are physical devices designed to securely store private keys offline. These devices are not connected to the internet and provide strong protection against online threats. Users get complete control over their private keys and don’t rely on third-party custodians, such as exchanges, to protect their funds. Thanks to these strong security measures, hardware wallets are widely recommended as the best way to store crypto assets securely. Some leading examples include Ledger Nano X, Trezor Model T, Ledger Flex, and more.

Paper wallets, on the other hand, were physical documents used in the early days of cryptocurrency to securely store a user’s public or private keys. To create a paper wallet, users generated the key with a trusted wallet generator and printed it for safekeeping. However, these wallets were highly vulnerable to physical damage or loss, and there was no way to recover the lost funds. Therefore, paper wallets are no longer recommended for securing cryptocurrency.

Hot Wallets	Cold Wallets
Easily manageable on any device with an internet connection and suitable for regular transactions.	Rely on a physical connection to a device to authorize transactions.
Due to online connectivity, these wallets are more vulnerable to threats such as malware, hacking, and phishing.	Highly secure wallets to store crypto offline to avoid online threats.
User-friendly wallets that are ideal for beginners.	Available in two screen sizes. Small-screen wallets are compact, while large-screen wallets can have complex interfaces.
Easy backup options with cloud services and recovery phrases.	Backup relies on a recovery seed, and losing a device means permanent loss of access.
Easy to download and are available at a low cost.	Requires a one-time payment of $50 to $200.

Important Reads: Hot Wallets vs. Cold Wallets: Which Crypto Wallet is Right for You

What are Air-Gapped Wallets?

Air-gapped crypto wallets are designed to remain disconnected from the internet and from any wireless communication, including NFC (near-field communication), Bluetooth, and in some cases, USB drives. These wallets rely on a micro-SD card or scannable QR codes to store transaction data.

This type of crypto wallet commonly uses software applications, which support Partially Signed Bitcoin Transactions (PSBTs) for Bitcoin (BTC) or similar partially signed transactions for other digital currencies. The aim is to provide an extra layer of security against potential hacks. However, air-gapped crypto wallets are better suited to those who manage substantial amounts of cryptocurrency for the long term.

Key Factors to Consider Before Choosing a Crypto Wallet

To understand how to store crypto safely, several key factors should be considered before choosing a crypto storage solution.

Short-term Or Long-term Storage

Before selecting a crypto wallet, users need to decide whether they want to store their crypto assets for the short term or the long term. Traders commonly use hot wallets to temporarily store their assets. These wallets offer quick access to crypto assets, making them ideal for active trading. However, traders prefer cold wallets for long-term crypto storage. These wallets provide better protection against online threats and hackers.

Evaluate Security Features

Consider evaluating the security features of a crypto wallet. Security features, such as two-factor authentication (2FA), encryption, and secure backup options, can play a significant role in keeping crypto safe.

Cryptocurrency Support

Not all crypto wallets support the same digital assets. Users need to evaluate the supported cryptocurrencies before choosing a wallet. For instance, if traders want to build a diverse portfolio, they should check that the wallet supports all the assets they hold. This way, traders can avoid the hassle of managing multiple wallets.

Regulatory Compliance

Considering compliance with local laws is crucial in the cryptocurrency space. For instance, a hot crypto wallet may be restricted or banned in certain jurisdictions due to regulations. Therefore, users need to ensure that the wallet they have selected is accessible where they live to avoid potential service interruptions or loss of access to funds.

Customer Support

Evaluating a crypto wallet's customer support is another vital factor. Responsive customer support can make a significant difference if issues arise. It can help users with setup assistance, security guidance, transaction issues, account recovery, technical support, and more.

Valuable Tips for Beginners to Store Cryptocurrency

Understanding best practices for storing crypto assets is crucial for new entrants to the crypto market. A clear plan to protect investments can effectively reduce vulnerabilities, such as permanent fund losses.

Here are several tips that beginners can follow to secure their digital assets:

• Traders often recommend using a combination of hot and cold wallets. Hot wallets are connected to the internet, offer quick access, and are suitable for daily transactions. Cold wallets keep private keys offline and are ideal for long-term storage.
• Create a strong password to protect your crypto wallets. Use a combination of letters, special characters, and numbers to set the password. Additionally, it is recommended to use safety measures, such as two-factor authentication (2FA), to enhance the safety of funds.
• Diversify your digital assets across various storage methods. For instance, use a hot wallet for smaller amounts you plan to trade or spend, and keep most of your funds in a cold wallet. This way, even if one wallet is compromised, you will not lose everything.
• Stay updated about the latest wallet technologies, security threats, and the best practices to avoid them.
• Users should regularly back up their wallet keys and store their recovery phrases in a safe location. This is crucial to avoid losing private keys, as once they are lost, users might lose their crypto forever.
• Avoid using public Wi-Fi connections when using a hot wallet. It is recommended to use a VPN for added security.
• Keep your wallet's software up to date to fix security vulnerabilities that hackers often exploit.

Final Thoughts

To store crypto safely, users need to do more than select a wallet; they need to balance security and convenience. The cryptocurrency market is constantly evolving, and hackers use different methods to exploit funds. By understanding the tools at their disposal and following best practices, users can effectively protect their funds. Start by evaluating your demand, select the right wallet combination, and use strong security measures from day one.

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