The 5 Safest Methods for Storing Cryptocurrency

The 5 Safest Methods for Storing Cryptocurrency

There are a lot of things that set traditional fiat currency and cryptocurrency apart, but they both have one important quality in common: they’re meant to be kept safe in a wallet. However, a cryptocurrency wallet functions a little differently from an ordinary wallet that holds paper fiat money or its digital counterpart. A crypto wallet is meant to store “keys,” or passwords that give users access to their cryptocurrency tokens. These wallets can either be “hot,” or connected to the internet, or “cold” and disconnected from the internet.

If you plan to trade in cryptocurrency, one of the first things you’ll need to do is decide what manner of storage option you want to use for your tokens. From a hardware wallet to an open-source Monero wallet for Monero (XMR) coins, here’s a briefer on some good wallet options for storing your cryptocurrency. Learn the pros and cons associated with each type of wallet, as well as some additional tips on keeping your hard-earned tokens safe.

Hardware Cryptocurrency Wallet

Traders who can afford it often choose to store their cryptocurrency in hardware wallets, or physical devices that record private keys for them. A hardware wallet can connect to the trader’s other devices through Bluetooth, USB, or a dedicated app. This type of wallet also allows its user to switch between “hot” and “cold” storage, connecting it to the internet when they want to trade and deactivating internet access when they’re done.

Serious traders like using hardware wallets because of their adaptability, as well as the level of protection they get over their keys. When a hardware wallet is cold, that means that the keys won’t be accessible over the connection even if a device linked to it, like a laptop, suddenly gets compromised. Compared to other options, however, hardware wallets often command the steepest price of ownership.

Software Cryptocurrency Wallet

Another popular option for crypto storage is the software wallet, or a wallet that’s accessible through either a browser extension or an app that’s web-based, desktop-based, or a mobile app. Many of these options are open-sourced, as well as intuitive and easy to use. Moreover, there are a lot of software crypto wallets that are either free or available for use with a minimal fee.

Ultimately, a software crypto wallet will be a good option for a thrifty trader or a newcomer to cryptocurrency. There are a few drawbacks, however, to using cryptocurrency storage that’s always hot by default, including increased security risk to online assets. In addition, some software wallets are exclusive to particular cryptocurrencies, so you may need to look around for one that can hold the specific coin you want to trade.

Custodial Cryptocurrency Wallet

Custodial cryptocurrency wallets are controlled by other parties, namely crypto exchanges. Users who want to store their tokens on a crypto exchange will have to create an account with their custodian, and they will only be able to check on their tokens by logging in.

This option is popular due to its simplicity and relatively shallow learning curve compared to other cryptocurrency storage methods. But a trader may not have full peace of mind knowing that another party has possession over their keys, and that logging into the exchange is the only way that they can access their cryptocurrency.

Multi-Signature Cryptocurrency Wallet

One innovative new method that’s now available to cryptocurrency traders is the multi-signature crypto wallet. As its name implies, a multi-signature wallet enables multiple users to have possession over a set of crypto keys. The primary user can allow their friends, family members, business associates, or other trusted parties to unlock the wallet, for example, if they have 2 out of 3 keys. Even if the last key is compromised, all parties that are privy to the 2 keys can ensure that all the other tokens are safe.

Being fairly new as a storage method, the multi-signature wallet may come with its own learning curve—not only for its primary owner, but everyone else involved. The primary owner must also be able to trust everyone who’s sharing their crypto keys with them, as one bad apple may compromise the whole bunch.

Pen-and-Paper Cryptocurrency Storage

Lastly, it’s also fine to depend on an “old-school” manual method for storing cryptocurrency keys, whether as a primary method for storage or as a backup to any other method listed above. You can write your crypto keys on slips of paper and keep them under literal lock and key, like in a vault or safety deposit box.

The upside of using a manual method for cryptocurrency storage is that your keys won’t be as susceptible to risks involving online connections. But of course, they won’t be free from common threats to assets kept in physical containers, such as material damage or loss of access due to loss of the owner’s key or combination.

Some Last Tips for Storing Your Cryptocurrency Safely

Regardless of whether you choose only one of these methods or a combination of two or more methods, there are some basic principles you should observe for safeguarding your cryptocurrency:

  • Know when to store your crypto in a "hot" or "cold" wallet. Experts recommend that you keep your long-term crypto assets "cold” while having just enough "hot" assets available for short-term trading purposes.
  • Create physical recovery options for your crypto. Write your keys down somewhere or keep them in a private file in case you lose access to the ones held online.
  • Protect your identity and wallet details. As a solo trader, never ever share your crypto seed phrase or multifactor authentication code for your crypto exchange account.
  • Keep abreast of the latest modi operandi employed by crypto scammers and phishers, as these nefarious actors are getting increasingly creative about their methods.

When you know that your tokens are safely tucked away in your wallet of choice, trading in cryptocurrency will be more fun and fulfilling to you. Choose your storage option wisely, and do your part to protect yourself and your cryptocurrency assets.