Safeguarding your cryptocurrency will keep you at an advantage as a trader or an investor. Cryptocurrencies are decentralized and are built on layers of protocols but sometimes, certain losses resulting from market volatility and manipulation or a company collapse can lead to loss of your crypto assets.
Also, crypto scammers and hackers can get to your wallet and clear out your hard-earned assets. Hence, it is crucial to safeguard your crypto assets and this article will show you the different ways to store your cryptocurrency to improve your digital assets security.
different methods to safely store your cryptocurrency
There are four different methods to safely store cryptocurrency and they include;
Hot wallet storage
Hot wallets are free applications used to store cryptocurrencies online. Hot wallets are always connected to the internet. They come as mobile apps, browser extensions, desktop software, or web wallets and are easy to use. They provide the convenience of easily sending, receiving, depositing, and withdrawing your cryptocurrencies.
Often, they are considered less secure due to the risk of always being hacked. The constant internet connection can enable fraudsters to try getting access to your account, and if successful, your cryptocurrencies will get stolen. However, hot wallets have the good point of allowing investors to seamlessly trade cryptocurrencies online. Examples of hot wallets are;
Private keys are provided to crypto owners using the hot wallet. The users are in control of these private keys and they are used to ensure transaction security. To own a hot wallet, simply download and install the application of the hot wallet you intend to use, create a user account, and fill in the security questions needed.
Hot wallets generate a set of private keys consisting of 12 words known as seed phrases. These keys enable users to access their accounts and carry out transactions. Loss of these key phrases may result in loss of account, so investors are advised to protect their private keys and accounts.
Cold wallet storage
Cold wallets, on the other hand, are offline crypto wallets. They are not internet-connected and store your crypto with private keys offline. The most commonly sought type of this kind of storage is hardware wallets. Hardware devices are made specific to a particular cryptocurrency and are small devices that can be connected to your computer and store cryptocurrency. Examples of hardware wallets include;
To store your cryptocurrencies in a hardware wallet, plug the cold storage device into your computer to download the software provided for the wallet. You will receive a seed phase and backup code. Adhere to the instructions provided to create an account for the type of cryptocurrency you wish to store and set up your PIN to add crypto to your wallet.
It is crucial to secure your hardware wallet and keep it safe. If lost alongside your seed phrase, your assets cannot be gotten back. But, if you lose your wallet but still have your seed phrase, then you can purchase another hardware wallet, set it up, and access your crypto funds.
This form of storage is considered to be the most secure, especially for storing large crypto assets. However, a big disadvantage is the convenience and time factor. You have to first connect the wallet to your computer before you can perform transactions, making the whole process slow.
Custodial wallet storage
Custodial wallets are wallets where your private keys are kept by another person. The third party has full access and control over your wallet while you can only permit transactions on your wallet. Examples of custodial wallets are;
Most custodial wallets are web-based and are always employed for use by centralized exchanges like Coinbase. With this type of wallet, loss of passwords does not mean loss of funds as there is the option to reset the password by answering some security questions. A disadvantage can be that the exchanges are in charge of your private keys and if they get hacked, fall susceptible to any cybersecurity attack, or go bankrupt, you may lose your funds.
Physical wallet storage
Physical wallets form another type of cold storage and are also called paper wallets. It is a printout of scannable public and private keys that can be used for cryptocurrency transactions.
You can scan the public and private keys to send funds to the wallet. To receive crypto to the wallet, you scan the public keys. Physical wallets share the same advantages as hardware wallets in offering the most security for your digital assets. The disadvantage is, it takes time to get accustomed to and there isn’t a user-friendly interface.
Choosing which crypto wallet to use for your assets storage depends entirely on your objectives.
It is advisable to store the bulk of your cryptocurrencies using the cold storage wallet type as it is the safest and most secure option. You can keep some amount of crypto in your hot wallet for swift transactions and to access them fast and easily.
As a means of safely securing your cryptocurrencies, your recovery phrases and private keys should be safely recorded and should not be shared with anyone