The practice of storing your cryptocurrency on an exchange is not the safest option at all. The risk is lower for those exchanges that have insurance, keep the majority of their assets in cold storage, and employ other best-in-class security measures like penetration testing and regular audits. However, for utilizing other exchanges, the risk should only be temporarily tolerated. Or only tolerated if you are trading regularly and making use of the exchange’s unique capabilities, such as offering newer cryptocurrencies, etc.
If you are not trading regularly, you should consider one of the following wallet options to store their assets safely. Broadly speaking, there are five kinds of wallets: Web (cloud), Desktop, Mobile, Hardware, and Paper. Each has their own strengths and weaknesses, but we will just give a simple introduction here for the sake of brevity.
Web Wallets
Most web wallets are not much different from exchanges. The keys are often outside the end-user’s control and in the hands of a centralized third party. If the third party doesn’t employ the proper security techniques, then the cryptocurrencies stored there may be at risk. As with an exchange, the web based wallet can easily be accessed from anywhere, which is one of the main benefits. However, one should not compromise security and control for simplicity and convenience. Web wallets are the least recommended medium of long term storage that anyone would recommend.
Desktop Wallets
With a desktop based wallet, the private keys are stored directly on the computer where the software is downloaded. The user has full control, and no one else can lose, spend, or send his or her cryptocoins. There are two kinds of desktop wallets: a full client and a lightweight client. When we say client, it simply refers to the functionality of the software application that is running on the computer.
A full client is a much more intensive software application, whereas a lightweight client provides a more hassle-free approach to storing your cryptocurrency. The main difference between them is that a full client must download and process the whole blockchain before use. Desktop wallets offer decent security and control, provided the user knows security and keeps their computer clean and up-to-date.
Mobile Wallets
Technically, we are referring to wallets that store the private keys on a mobile device, as opposed to a third party’s servers or a home computer. Mobile wallets are similar to lightweight clients in that they don’t download the whole blockchain. Innovative investors can use them on the go should they need to transfer bitcoin to friends to pay for dinner at the local bar that accepts bitcoin for beers. However, they should never be used for long term storage, or the storage of large sums. Think of them as your pocket wallet, would you hold all of your life savings in that? It would be very risky and foolish!
Hardware Wallets
As bitcoin has become more popular and widely used, companies have sprung up that create dedicated hardware for storing private keys, and thereby storing and sending bitcoin or cryptocurrencies to others. Several hardware wallets provide a variety of functionality. A few popular hardware wallets are listed below;
- Trezor: This is one of the more secure ways to store bitcoin, as it generates private keys that never leave the device. This protects the data from viruses and malware that may impact other devices or online storage.
- Ledger Nano: This device plugs into a USB port and allows for the storage of bitcoin, ether, and other altcoins. It has a neat OLED display on what looks like a flash drive that provides confirmation when a transaction takes place on the device.
- KeepKey: This USB device not only securely stores bitcoin but also provides information on transactions and confirmations on its OLED display. It is also PIN-protected.
Paper Wallets
One of the simplest ways of storing private keys is also one of the most secure, if done properly. Welcome to the paper wallet, which involves writing the long alphanumeric string that is the public-private key pair on a piece of paper. A paper wallet qualifies as a form of cold storage.
The paper wallet can be locked away in a safe for decades, and so long as the specific asset’s blockchain continues to exist, that private key can be used to access it. Paper wallets support all cryptocurrencies because all they require are pen and paper. Many people store these in a fireproof safe deposit box or an equally secure location. These can be the most secure form of all cryptocoin storage mediums, if properly taken care of.
In Closing
No matter what type of wallet you decide to use, it is important that you keep the ideals of security as your top priority. The digital world is a lot different than the physical world, and bad things can happen in an instant! Protect yourself and your investments by taking the necessary precautions and preparations first. Store your larger savings in the most secure places possible, and don’t forget to take inventory every so often. It can seem complicated and daunting, but if you are a serious investor – you will understand the value of protecting your assets.
If you want to read more detail about cryptocurrency wallets, check our more detailed page here.