How to Store Cryptocurrency

Learn how to safely store your crypto and keep it secure

As a newbie getting started with cryptocurrency investments, one of the first things you must consider is how to buy and store cryptocurrency safely. Knowing how and where to store your crypto before pressing the “buy” button is essential so your crypto investment journey doesn’t suffer an early setback. One thing to note is that you can’t store cryptocurrencies in a regular bank account; they have to be stored in a crypto wallet on reputable crypto exchanges/apps or specialized devices. You have to choose a storage option that is both secure and accessible. Any mistakes can have consequences as significant as losing your entire crypto stash. In 2021, Stefan Thomas, a programmer and Bitcoin enthusiast lost 7,002 Bitcoins (BTC), now worth about $203 million, because he couldn’t remember his wallet password. To help you avoid a similar disaster, this crypto storage guide will explore the many storage options and the factors to consider before choosing an option that meets your preferred safety, security, and accessibility needs.

How to Store Cryptocurrency

You need a wallet to store cryptocurrency. A crypto wallet is a device or program that keeps your crypto assets, private keys, and various wallet addresses (public keys) all in the same place. 

Steps Required to Store Cryptocurrency 

When you purchase a crypto asset, you’ll need somewhere safe to keep it. Most crypto investors leave their crypto on the exchange where they bought the asset. These exchanges provide free hot wallets with little or no setup required, but you’ll need an account with the exchange to gain access to these wallets.  

Steps to Storing Cryptocurrency in an Exchange

• Step 1: Check out several crypto exchanges. You want to go with an exchange that supports a wide range of cryptos, has a good user experience (UX), and is supported in your country.
• Step 2: Open an account with your preferred exchange. Account opening usually takes around five minutes. However, you’ll need to satisfy the exchange’s know your customer (KYC) requirements.
• Step 3: Complete the KYC requirements. Submit personal information like an email address, phone number, and legal name. You may be asked to provide a utility bill, government-issued ID, or other supporting documents to verify you’re a real person.
• Step 4: Deposit your crypto. You can safely store your crypto after setting up your wallet. Depositing crypto requires a wallet address, often within your preferred crypto’s transaction page. To get the wallet address you need, simply search for a string of 40 alphanumeric characters anywhere on the screen or initiate a deposit transaction and it should appear.

Best Cryptocurrency Exchanges

Steps to Storing Cryptocurrency in Cold Storage

• Step 1: Buy a cold storage device. We recommend a portable device with Bluetooth connectivity.
• Step 2: Download the corresponding software on your PC. Most cold wallets come as USB drives or small devices and might need help to connect to your phone directly. 
• Step 3: Save your recovery (seed) phrase. Make sure you can remember this phrase at all times. If you forget it, your cold wallet could format itself after multiple failed attempts, causing you to lose all your crypto. Recovery phrases are crucial and MUST be kept safe. Only your seed phrase can save you if you forget your pin or password.
• Step 4: Create a new wallet address. For each new crypto you wish to store, you’ll use this address to send crypto from your other wallet to your cold wallet.
• Step 5: Send your crypto to the corresponding address on your cold storage wallet. Be sure to check that you’re sending your crypto to the correct address. Sending crypto to the wrong address, for example, sending Bitcoin to an Ethereum address, might result in the permanent loss of the asset.

Best Cold Wallets

Steps to Storing Cryptocurrency in a Hot Wallet

• Step 1: Set up your preferred wallet. Setting up an account usually takes 10 to 15 minutes, and most wallets require a steady internet connection during onboarding.
• Step 2: Go through KYC. KYC is mandatory for many hot wallets, although some allow you to skip this process and do it later. 
• Step 3: Check if your preferred hot wallet is ready. Some wallets don’t require additional actions to set up a hot wallet for individual cryptos, while others require adding the cryptocurrency you wish to store/use manually. To do this, you need to search and click “add.”
• Step 4: Deposit your crypto. You can now give your wallet address to anyone who wants to send you crypto.

Best Hot Wallets

Steps to Storing Cryptocurrency in a Paper Wallet 

• Step 1: Access a computer you’re sure is free from any malware. If you can afford it, get a new personal computer for this step. The reason is that generating paper wallet credentials with an infected computer makes your wallet vulnerable and unsafe for crypto. 
• Step 2: Visit a paper wallet generator site. These free sites can help you generate the credentials you need, such as the private and public keys, in seconds. 
• Step 3: Generate an address. Select the number of addresses you want to generate and click “generate.” Some sites can generate up to 10,000 addresses at once. 
• Step 4: Print out your paper wallet. Since you want to preserve your crypto offline, one common method is to print out the wallet and fold it with the crypto address showing outside while the private key is in the inner flap. This will make it more difficult for someone to view your private key at a glance. 
• Step 5: Send crypto to your paper wallet. After sending your crypto, keep the wallet in a secure location, away from potentially damaging elements like moisture and heat. Since crypto is virtual, you can send crypto to any wallet, whether paper, digital or physical, as long as you have an address to use.

What You Need to Open a Cryptocurrency Account 

Opening a cryptocurrency account is quick if you have the necessary details. A few wallets even allow you to open multiple user accounts on the same wallet. Remember, you’ll need to provide the necessary KYC details; these details help exchanges and wallets keep money laundering and other financial crimes in check. 

Research the Cryptocurrency Account

Running background checks before you sign up with an exchange/wallet is crucial. These checks save you a lot of headaches and prevent you from falling into the hands of scammers posing as legitimate business owners. The first place to look is the company’s website. There are several questions to ask, including:

• Does the website look suspicious? 
• Does the URL correspond with the company’s name? 
• Who runs the exchange? 

Although many things are anonymous in the crypto space, owners of wallets/companies rarely are. If you’re satisfied with the company’s website authenticity, head to social media to check out its official social media handles. Also, pay attention to any red flags and listen to what other people are saying about the company. Do a lot of people say it’s inefficient? 

Sign Up 

To use a cryptocurrency wallet/exchange for the first time, you need to sign up with some details and documents to give the exchange some background information on you. Here is the information most exchanges require:

• Name
• Date of birth
• Email address
• Phone number
• Home address
• Social Security number
• Driver’s license or passport

Understand the Basics

Since cryptocurrency is money, it needs to be kept safe: away from hackers, scammers, and other bad actors. If these people get ahold of your crypto, they can send it to another wallet or sell it for money, leaving you with nothing. In choosing a crypto wallet storage option, consider one with a security system that makes it difficult for anyone to hack your wallet and steal your assets. 

There are different types of secure wallet options you can go with, including crypto exchanges, cold storage wallets, paper wallets, and hot crypto wallets. If you want to access your crypto more quickly, choose either a crypto exchange or hot crypto wallet. If you’d like to focus more on security and storing cryptocurrency offline, cold storage or paper wallets  are ideal options.

Cryptocurrency Exchange 

A crypto exchange is an application that lets you access crypto and carry out crypto-related transactions. Most wallets are free to download but involve a transaction fee for sending or selling cryptocurrency. Coinbase, Binance, and Kraken are all popular examples of cryptocurrency exchanges.

Cold Storage Wallet

A cold storage wallet is a type of wallet not connected to the internet. With these types of wallets, your crypto is safe from hackers, so these are ideal for storing large amounts of cryptocurrency. Many users go for Trezor and Ledger. 

Hot Crypto Wallet 

Unlike a cold wallet, a hot crypto wallet is connected to the internet. That means you need an internet connection to access your crypto. Although these wallets are more susceptible to hacks, they make accessing your crypto frequently for transactions easier. Numerous hot crypto wallets are available on the market today, but Guarda and Mycelium are good picks based on security.

Paper Wallets

Although paper wallets are now phasing out, they‘re still practical for storing cryptocurrencies. A typical paper wallet contains your private keys and your address printed on it. Paper wallets are relatively safe, but if the paper gets stolen or goes missing, the thief could easily read your keys and take your crypto, or you lose your crypto forever.

Know the Risks

No cryptocurrency storage method is 100% safe, even with the various security measures. 

Risks of Storing Cryptocurrency in an Exchange 

Storing your crypto on an exchange is often regarded as the easiest way to keep it, but you can also quickly lose it to hackers. If your exchange gets attacked, you could permanently lose your crypto, even though your passwords and private keys are safe.

Risks of a Cold Storage Wallet

Typically, cold storage is the safest way to store your crypto away from online hacks and security breaches. But you can also lose your crypto, especially if you lose your device or it gets stolen. Furthermore, water or fire damage can permanently cause your crypto to go down the drain, especially if you did not back up your seed phrase.

Risks of a Hot Crypto Wallet 

Hot crypto wallets pose almost the same risk as storing crypto on exchanges. However, they’re relatively safer. If your device gets hacked or you accidentally install malware, your wallet could be completely drained.

Risks of a Paper Wallet

Your paper wallet is highly vulnerable to physical damage or wear and tear. These wallets are pretty inexpensive, but they‘re easy prey for attackers. The attacker only needs to get a hold of the paper to rob you. So, even if you have copies of the paper wallet, it doesn’t help much since your private keys are on any copy you print out or keep in your device’s storage as a soft copy.

Factors to Consider When Opening a Cryptocurrency Account 

Security:  Review an exchange’s security features before setting up an account. We recommend you go with one that offers two-factor authentication or an additional security measure to the usual password feature. 

Fees: Many exchanges charge a small fee for sending, selling, or buying cryptocurrencies. If you would like to trade cryptocurrency often, your best bet is to go with an exchange with moderately low fees to save you the extra money spent on charges. 

Number and quality of supported cryptocurrencies for options trading: If your goal is to trade a variety of crypto assets, you will need to choose an exchange that offers more than just BTC and Ethereum (ETH).

Storage and custody: Using a custodial storage option like a hot crypto wallet is better if you’re not too good with keeping passwords and passphrases. These options keep your crypto for you and can help you recover your password if you forget it. 

Customer service: Although many exchanges have a customer care center or an email to reach them in case of issues, it’s preferable to go for one with a live chat option. Those have faster reply times and can be convenient for wallet-related emergencies.

FAQs

How Do You Store Large Amounts of Cryptocurrency?

You can store large amounts of cryptocurrencies by any storage method, but storing them in cold wallets is best. Cold wallets are the most secure option and can store any amount of cryptocurrencies for a long time.

Can You Store Cryptocurrency Offline?

You can store cryptocurrency online as well as offline. Offline storage options include cold storage wallets and paper wallets. These days, people rarely use paper wallets. You should get a solid, secure cold wallet to keep your crypto offline.

Are Cryptocurrency Exchanges Safe?

Cryptocurrency exchanges are not entirely safe. An exchange can easily be hacked, and your wallet might be part of the unfortunate ones affected. You should store crypto on exchanges mostly if you make a lot of crypto transactions or trade crypto.

Can You Store Multiple Cryptocurrencies in One Wallet?

Yes, you can store multiple cryptocurrencies in one wallet. Many cryptocurrency wallets and exchanges automatically create separate wallets for as many cryptocurrencies as they support. In a few cases, you’ll have to manually add a new wallet for the new crypto you want to store. The best wallet to store all cryptocurrency would be a cold, portable and secure one.

What Are the Different Types of Cryptocurrency Exchanges?

Centralized 

A centralized exchange is a cryptocurrency trading platform where you buy, sell, and transfer crypto with the help of an intermediary (the exchange). These exchanges help you with crypto transactions for a fee; however, your crypto might be used by the exchange for personal uses, which is what happened with FTX. To access an account with a centralized exchange via the web, you’ll need a password or PIN most times. With apps, you can open your account regularly with little or no security.

Decentralized

Decentralized exchanges (DEXs) are created to eliminate the control and need for a middle entity. Instead, they run on smart contracts and do not hold your crypto for you. With DEXs, the exchange cannot access your crypto and misappropriate it. To use these types of exchanges, you must hold your crypto separately in another wallet and connect it to the decentralized exchange (DEX) when you want to transact. When you’re done, immediately disconnect your wallet from the site for security reasons. Although decentralized exchanges are harder to use, they are more private and can help you transact anonymously, as they don’t require KYC. 

Hybrids 

A hybrid exchange combines the features of both centralized and decentralized exchanges by allowing you to carry out high-volume transactions. However, some hybrid exchanges require KYC for huge transactions. With these kinds of exchanges, you can be sure of faster transactions, as users are matched with each other on a decentralized database.

Read the original article on Investopedia.