As a newbie or seasoned veteran in the crypto space, security is one of the most important things to always keep in mind. Your digital assets are only valuable when you can keep them safe and access them when necessary.
Storing Cryptocurrencies
This piece will walk you through some of the best industry-standard practices that can help in crypto trading success and how to secure your assets better. The tips here will be relevant to the whole market, from beginners to whales. You’ll also learn about securing your assets during vulnerable times, like trading them or moving assets between wallets you control. Most investors and asset holders store their resources in exchanges, usually the ones they use to trade. Also referred to as “hot wallets,” exchanges typically provide this facility to users. Hot wallets’ ease and plug-and-play nature make them convenient for most crypto enthusiasts.
Setting Up Your Hot Wallet
Firstly, you’ll need to shop online to find an exchange platform that works for you. Some things to consider during your search include availability in your location, transaction fees, liquidity and general financial health of the cryptocurrency exchange, ease of use, and much more. After choosing an exchange that suits your needs, it’s time to create an account and complete the KYC (know your customer) process. This process usually requires you to prove your identity by uploading a government-issued ID from a recognized country, and verification can take a few hours or days. Consequently, after verification, you can access wallets for different assets across different exchange networks. It’s time to send, receive, and store your assets online. The exchanges do the bulk of security for hot wallets, but you, as a user, must ensure you keep your login credentials safe and secure at all times.
Cryptocurrency “Cold Storage”
There are several valid reasons for asset holders to opt for cold storage. Some people are purists because they believe having to go through a KYC process for a crypto exchange defeats the entire purpose of the asset class.
Another subset of users that opt for cold storage are those rightfully scared of crypto exchanges after a tough few months of losses due to an exchange’s issues and fraud.
Whatever your reason for opting for cold storage, you must take proper steps to secure, maintain, and operate your cold wallets.
Setting Up Your Cold Wallets
The first step is to invest in a cold storage device; ideally, it should be a dedicated device for crypto storage. The next step involves downloading the cold storage software to your device. The majority of cold storage software is available on USB drives & devices. After completing the download process, it’s time to set a recovery (seed) phrase you can remember easily. If you ever forget this phrase, there’s every chance your device may format itself or “self-destruct” after several failed login attempts.
The seed phrase is necessary as it serves as the last line of protection if you ever forget your password or PIN. Create a new wallet address for every new asset you intend to store. You’ll use this address to send crypto from other wallets to your cold wallet.
Hot or Cold Storage: Which One Should I Choose?
People with a variety of cryptocurrencies to store often favor cold storage options, often disconnected from the internet. On the other hand, hot wallets are connected to the internet typically via a third party. Hot wallets are ideal for people using digital assets for frequent payments, and they have become a reliable tool for people living in countries where the currency or restrictions hinder trade and lead to loss of savings & investments.
There’s a third type storage mode known as paper wallets. A paper wallet usually has private keys and addresses printed or written on it. Naturally, paper wallets have slowly phased out because of their impracticality. You may permanently lose access to your assets if the paper gets damaged, stolen, or missing.
Every crypto wallet mode has pros and cons; your choice will boil down to your needs and what you aim to achieve with the wallet. Contrary to popular belief, as an investor, you do not have to choose between the different types of wallets; you can consider combining them. Many people maintain hot wallets with popular exchanges for frequent inflows and outflows. The same people may also operate cold wallets for long-term storage and security. Securing your wallets ensures you’re always in the best position to protect your assets proactively. Cryptocurrency is designed to be decentralized and not rely on any governmental authority to completely govern its movements and use. Crypto storage should never be a passive affair; you need to be vigilant and work to protect your assets actively.
