You can use one or more ways to store your cryptocurrency such as Bitcoin, Ethereum, and other alt-coins. Each method carries its own risks, some much more than others. We’ll take a brief look at the following ways:
Removable media or hard drive
Firstly, keep in mind that you’re not actually storing your coins. Only the private keys that verify your ownership or entitlement to the cryptocurrency.
Hot vs Cold
There are two high level categories of storage: hot and cold. Hot storage is a storage method that connects the storage facility to the web. It allows for quick access and transfer of crypto. Cryptocurrency held in an exchange is an example of hot storage, as is your PC wallet that is connected to the net.
For security reasons some exchanges do hold part of the total funds in cold storage at all times- although you won’t see this and it won’t be apparent.
Here’s a short overview if you can’t be stuffed reading the rest of the post!:
Ok, so let’s explain some of the methods for storing your cryptocurrency.
An only wallet is software that is hosted by a third party that allows you to access, store, or transfer your currency. Online wallets allow you to transfer your coins to a wallet that is hosted by another party i.e you access it through a web site.
You are essentially placing your trust in a third party. Without thorough checks and with little regulation, it’s difficult to say which online wallet assures the highest level of security.
Online wallets do offer the convenience of anytime access, from anywhere.
Provides easy access through a website
No need to remember long seeds and usually offers two factor authentication
Easy to use and navigate
Requires little technical knowledge
Can reset passwords
Stored on a third party hosting service by a third party
Little to no regulation
Easy target for hacking
Account can be compromised like any other online service
Exchanges are primarily used to convert fiat money into cryptocurrency or provide trading between the different cryptocurrencies e.g. trade Ripple between Litecoin or vice versa.
Most security issues historically have occurred at exchanges. Prone to hacking (and fraud), exchanges are regarded as the leastsecure method to store your currencies. They make good targets for hacking unfortunately due to their popularity.
It is recommended that exchanges are only used to do what their core function is- exchange currency. Only leave a liquid amount that you need to trade the currency, then transfer the residual using your favorite storage method.
Low fees to transfer between coins
Access to a large number of altcoins
Offer multi wallet capability (storage for multiple cryptocurrencies)
No technical knowledge required to setup
Offer two factor authentication
Prone to hacking or fraud
Little to no regulation
Access can be taken away without notice- regardless of the reason as third party has full control
You don’t control or own your private keys
They control the coins in case of crypto forks and may not relinquish additional coins earned from forks
You don’t receive any ‘gas’ from coins that generally do payouts – somewhat like a dividend (e.g. NEO pays gas on the NEO coins you would otherwise hold in your own wallet)
Offline methods are the most secure ways to store your cryptocurrency. Once again though, they also have their pros and cons.
Personal Storage Device
Cryptocurrencies can be ‘stored’ on removable media such as USB stick or memory card, CD, or external hard drive. The best things about these is you can store them offline anywhere, in a safe, or a bank deposit box. Read more on backing up your cryptocurrency here.
It is less convenient as it requires either transfer of large data files or certain files from the wallet software.
Requirements for different currencies can also vary. However it doesn’t require any advanced level of technical knowledge.
PC or laptop storage
Another good option is to leave them on your PC. However most PCs are connected to the web. They are also prone to hacking, corruption and errors, loss of data, malware and viruses, etc.
PCs require you to install relevant wallet software or applications, with most only compatible with certain cryptocurrencies. On top of this some applications do require a decent level of technical knowledge.
Security levels dependent on you- from least to highly secure
Can use further encryption methods and software
Can create backup options
Able to connect online easily to transfer coins- although not as convenient as through online exchange/wallet
Time consuming process to use or backup the funds
Prone to data corruption, lost passwords, malware, keyloggers etc
May require multiple applications or software for alt-coins (i.e. a separate client is required to run each alt-coin you own)
Risk of being stolen or damaged (data erosion may also occur depending on the storage device)
May require repeat backup process every time funds are used
A paper wallet is a basically a sheet of paper which contains the printed version of your cryptocurrency private and public keys. There are multiple options with paper wallets also. For example you can get them as gift cards or bank cards- which allow someone to transact with the funds only once, or you can create your own print out at home.
Remember that you don’t store coins as such, and it is through the private keys that ownership is verified. So to access the currency you only need to input the private (withdraw) or public key (to deposit) that is printed on the paper.
Paper wallets can easy be created using online and downloadable software. However security, once again, can be hard to determine for third party software.
Securing your paper wallet will be like securing physical cash in fiat currency. You’d keep it somewhere secure, where it is less likely to fall into the wrong hands. However keep in mind that a person would only needs to take down the private key (as with a credit card number) to be able to transact with the coins (just like a person doesn’t need the physical credit card to transact but only know the credit card number, date, and security digit at the back of it).
One of the most secure options
Easy to store and up to you how you store it
Easy to create and back up
Can backup in multiple locations
Can easily provide as a gift
Highly inconvenient, especially if using the funds for regular exchange or transactions
Have to protect from damage, theft and prying eyes
Reliance on third parties to convert to printable code
Requires bit of technical knowledge without using online software
Here’s a great video found online that goes on how to create and use a paper wallet for Bitcoin.
With growth in blockchain technology as well as in the alt-coin markets, comes innovative solutions. Hardware storage devices (hardware wallets) specific for cryptocurrencies are one of these solutions.
There are multiple hardware options available these days. So it’s just a matter of finding one that is compatible with your coins, offers sound security measures, and comes with decent application that offers a simple interface and convenience.
one of the most secure options
more convenient that removable storage device or paper
offers built in encryption
offers backup options through paper
some offer protection or backups in case of damage or theft
Can be limited in options based on your location (may not be available where you are)
Further backups maybe required as redundancy options
Guide to storing your cryptocurrencies securely
Okay, that’s all good. But what do I do to store my cryptocurrency?
As you have read, there are multiple methods to secure your cryptocurrency. The optimum method is really up to you and based on your personal situation and what you are comfortable with.
Offline methods do offer the most secure option though especially hardware designed for this purpose specifically.
The following is a quick guide to creating your own storage process:
Store small amount for transactions in an online wallet or PC wallet connected to the web. Remember, online wallets will allow you to access your currencies from anywhere.
Store the bulk of your funds in an offline wallet, first use PC software, then backup onto a removable storage device.
Make sure PC is running virus and malware protection, and is free of keyloggers
You can create a further backup either using a paper wallet and/or USB stick
Use password protection or encryption on your storage devices
Store the paper wallet/USB stick in a safe
If you’re adamant you could store the paper wallet or USB stick at a bank security deposit box
So remember- regardless of the method you use, creating a backup of your wallet or private keys is an absolute must.
As you can see several options exist for storing your cryptocurrency these days. However we are still a while away from quick, convenient, online storage solutions.
Achieving the highest level of security is time consuming. It can even seem daunting especially if you only have a small amount to be looking after, but not impossible. But remember that the person that has access to the private and public keys is the actual owner of the coin. So always secure your keys.