What is the safest way to store crypto?

You can store your crypto coins in many ways – but at some point you probably wondered “What is the safest way to store crypto?”. Not all options are equally safe and so, choosing how to store your crypto can be a hard decision. The consequences of making a bad choice can potentially cost you all your coins. As a crypto investor you have a limited set of options when it comes to the storing of your crypto. You can read about the different options below. We will discuss the merits and pitfalls of the various options afterwards. We hope the this will enlighten you and make you comfortable in deciding what works best for you.

What is it that I am storing?

It can be a bit abstract to think about crypto coins. What is a crypto coin really? How does it relate to blockchain? Should I use an antivirus program to protect it?
Let us make it very simple. Your crypto coin is really a private key, and this is what you need to store and protect. A private key is a long string of mixed numbers and letters, it could look like this: 1j23k1kKjbM213lnjHkjhbk5m1o5a11a3. If someone sees your private key, they have your crypto coins. It is that simple.

Now there is also something called a public key. This is the information about where your crypto is stored. You can think of it as a bank account or email address. If someone has your public key, they can send you coins. You don´t need to keep your public key safe. It cannot be used to access your funds.

Finally, there is a term called a seed phrase. A seed phrase is a way to recover your private key if you forget it. A seed phrase is typically a series of 20-30 words, it could look like this:

Kilo Wheel Small Agony Lawyer
House Water Tissue Image Ashes
Super Horse Heat Wash Mansion
Garden Green Door Break Haven

how to store your crypto the safe way

Which options are there for storing?

There are many options for storing crypto, so we are going to break them down a bit. Your private key needs to be stored in a wallet. You can either choose to store and safeguard your private key yourself or you can let someone else do it for you. There are two terms that you should familiarize yourself with. Non-custodial, which indicates that you store the crypto key yourself, and Custodial which indicates that someone else is storing your crypto for you. 

A custodial wallet

is like having money in a bank. You trust the bank to keep the money safe for you and rely on them to give you access to your money on demand. In the crypto world the crypto exchanges make up for the vast majority of custodial wallets. Binance, Coinbase, Crypto.com, Kraken all offer custodial wallets.

A non-custodial wallet

is comparable to storing cash yourself. You can hide it in your sofa, have it in a safe or something else. The risk is completely on you.

If you choose to use a non-custodial solution, and store the crypto key yourself, there are some different options. Many different types of wallets exist, and we will briefly cover them.

However, if you choose to use a custodial variant everything is out of your hands. Now, let´s go over the options you have for storing a crypto key yourself.

Software wallets

Software wallets are, as indicated, a piece of software that holds your crypto key. There are three types of common software wallets. (1) Web wallets. You access these through a browser. You don’t need to download anything, and you can access them from all devices easily. A great example is Metamask. (2) Desktop wallets. You download an application to your computer and access your crypto through that. On of the benefits of desktop wallets is that it´s easier to limit the exposure it has to the rest of the internet. A great example is Exodus. (3) Mobile wallets. The idea is the same as with the desktop version. You download a program on your phone and have access to your crypto through that App. A good example is Zengo

Hardware wallets

Hardware wallets are actual physical devices. The idea is to take your crypto away from your computer, phone, and the internet to protect it better. The most popular ones are Ledger and Trezor.

Paper wallets

Paper wallets are a piece of paper with your private key written on it. You can write your key on any piece of material and despite the name, paper is not recommended. There is no backup if your paper breaks, so many people choose to use metal as it is hardier. You can check out this solution from Cryptoseedcapsule.

Cold wallets

Cold wallets are completely cut off from the internet. The purpose is to reduce the risk of your getting hacked. Paper wallets are naturally cold wallets. Hardware wallets can be cold as well. It depends on the actual piece of equipment you are using. For the software wallets, a web wallet is never cold. A desktop wallet can be a cold. Some people store their crypto in a desktop wallet and completely isolates it e.g., by moving it to a USB or computer without internet access. The same can in theory be done to mobile wallets but it is much harder.

Hot wallets

This term is used to describe wallets that are connected to the internet. This covers all custodial and many software wallets.

which type of crypto wallet to use

What should I choose when storing my crypto?

There are many aspects to consider, but this article focuses on safety. The first thing you need to consider is if you trust yourself more than a custode for keeping your private crypto key safe. Both answers are equally legitimate.

In Western countries most people keep their fiat money (Government issued money) in a bank. They trust that the bank will keep the money safe from theft, water leakage, fire and similar. Even if something should happen, like your account being hacked, many banks are insured and can put up a guarantee for a certain amount of your savings. The same logic can be applied to crypto. Another added value of keeping your crypto in a custodial wallet is that some exchanges can help with password recovery. If you forget your account password, your crypto can often be claimed through various security questions.
On the other hand, choosing the right custode is paramount. It has happened in the past that some crypto exchanges were fraudulent and eventually stole the crypto from their customers. As Elon Musk currently acknowledged – not your keys, not your crypto. 

tweet from bill lee 21x.eth

Not your keys, not your crypto

But safeguarding your crypto keys yourself also comes with risks. One of the most commonly heard of issues is investors forgetting their private key and/or seed phrase. As previously mentioned, this will make it impossible for you to access your funds.
Another risk to consider is theft. You might write down your private key and hide it safely, but what if someone forces it out of you. A case is currently being investigated (December 2021) where burglars broke into a house and beat up a man until he gave them his crypto keys. The original article is in Dutch, but you can read it here.

We hope this helped you understand what to consider, when deciding how to store your crypto. There are other aspects than just safety. Some crypto currencies let you stake and earn money, you can read more about that here.

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