How to Store Cryptocurrency

How to Store Cryptocurrency

Deciding on the proper storage method for your cryptocurrency is key to protecting your investments and funds.

Much like your options for acquiring a cryptocurrency, your storage options will vary depending on the type of cryptocurrency you have and what you want to do with it.

Cryptocurrency Storage Basics

All cryptocurrency storage methods operate upon pretty much the same security principles.

Cryptocurrency wallets consists of a few common things:

  • A public address: this is used to send and receive cryptocurrency.
  • A private key: this is used to access your cryptocurrency wallet, manage you funds, and authentic transactions over the blockchain.
  • Some way to access the wallet.

The only material difference between your options for storing your cryptocurrency is where and how your private key is stored.

e-Wallet

  • Private Key: 3rd Party Control
  • Threats: Hacks on exchange, physical attacks
  • Use: Quick trades, small amount storage
  • Security Level: 1/3

Hot Wallet

  • Private Key: Stored locally, connected to Web
  • Threats: Hacks/viruses on machine, physical attacks
  • Use:¬†Small to moderate amount storage
  • Security Level: 2/3

Cold Wallet

  • Private Key:¬†Completely offline all the time
  • Threats: Physical attacks
  • Use:¬†Moderate to large amount storage
  • Security Level: 3/3

Option 1: Online Wallet/E-Wallet

If you’re brand new to cryptocurrency and have already bought some on an exchange, chances are you’re already storing your cryptocurrency in this way.

Online wallets or e-wallers refer to cryptocurrency that is stored on an exchange.

You do not have access to the wallet’s private key and your cryptocurrency is likely stored along with other people who are using the exchange.

This is the least secure way to store cryptocurrency as exchanges are centrally controlled, prone to attacks, and have been the targets of large hacks in the past.

Now, if you’re planning on trading your cryptocurrencies in short period of time, keeping them on an exchange may be the most convenient method.

If you want to protect your cryptocurrency assets more, you’ll need to transfer them off of the exchange. This can be achieved by setting up another wallet, either hot or cold, and sending your cryptocurrency from your exchange to your new wallet’s address.

Option 2: Hot Wallet

A cryptocurrency hot wallet refers to a storage method that gives you access to the private key, but it is stored on a device that is connected to the internet.

The benefit here is that you can easily manage your funds on any device without having to trust a third-party to protect the private keys.

Hot wallet software is made for both desktop and mobile devices, but since the devices are connected to the web, they can be subject to hacks and malware.




Option 3: Cold Wallet Storage

The most secure method for storing cryptocurrency is with a cold wallet, which include paper wallets and hardware wallets.

Cold cryptocurrency wallets never connect to the internet and always keep the private key offline.

If you’re planning on storing any large amount of cryptocurrency, cold storage is your best option.

While you’re still at risk of physical attacks and social engineering, your private key will be safe from viruses and hacks and outside the control of a 3rd party.

Check out some of the best cryptocurrency hardware wallets here.