Investing in cryptocurrencies presents substantial risks. With market volatility, lack of regulation, and the constant threat from hackers and scammers, newcomers to the crypto scene must understand proper ways of storing cryptocurrencies before making any purchases.
Proper storing of cryptocurrency safeguards your investment from premature setbacks. You should always keep cryptocurrencies in a secure and readily accessible place, with options including crypto exchanges or wallets. Both of these methods have their merits and drawbacks, with neither offering absolute security.
This guide will walk you through the two main methods of storing cryptocurrencies—exchanges and wallets—highlighting their advantages and disadvantages to help you make an informed decision.
Crypto Exchanges
Digital marketplaces known as crypto exchanges allow you to buy, sell, and store crypto. They come in two flavors: centralized and decentralized exchanges.
Centralized exchanges (CEXs), which resemble traditional online platforms, are user-friendly and typically include customer support. Notable examples include Binance, Coinbase, and Kraken. Centralized exchanges might even provide compensation following hacks or errors, thus offering a better starting point for crypto beginners.
Decentralized exchanges (DEXs), on the other hand, utilize blockchain technology to enable peer-to-peer trading. Examples like Uniswap, AAVE, and PancakeSwap can be more challenging to navigate.
When using an exchange, your account essentially acts as a wallet—though it’s more of a custodial wallet where the exchange controls the assets and users do not have access to their private keys.
A private key, an essential cryptographic password, must remain secret, as storing your crypto on an exchange means placing full trust in it.
Proper research is crucial when selecting an exchange; consider its user-friendliness, support in your country, and transaction fees. Bear in mind that exchanges can fall prey to both external attacks and internal mismanagement.
Those seeking control over their crypto may prefer shifting funds to a crypto wallet for self-custody.
Crypto Wallets
In contrast to exchanges, a crypto wallet—either a physical device or software—lets you store your crypto assets while maintaining control over your public and private keys.
There’s a distinction between hot and cold wallets, neither being entirely free from risk. By understanding both, you can choose a storage method that aligns best with your needs for secure crypto storage.
Hot Wallets
Online, software-based wallets, known as hot wallets, remain connected to the internet and can send or receive cryptocurrency. These wallets can be online, mobile, or desktop, and many, like MetaMask, Exodus, and Mycelium, are available for free.
Some hot wallets are tailor-made for specific cryptocurrencies or platforms; for example, MetaMask supports Ethereum transactions, while Coinbase Wallet caters to users of the Coinbase exchange.
Nonetheless, the constant internet connection of hot wallets puts them at risk for cyberattacks—therefore, choosing a reputable hot wallet and exercising caution against malware is essential.
For added security, consider offline storage in the form of cold wallets.
Cold Wallets
As offline storage solutions, cold wallets span from USB drives to paper wallets, safely storing users’ keys away from online threats. People who intend to hoard substantial cryptocurrency sums for extended periods often opt for cold wallets, such as the Trezor and Ledger.
While these wallets are less susceptible to digital threats, physical loss or damage poses a significant risk. Hence, securing a backup of your seed phrase is vital.
Factors to Consider When Choosing a Crypto Storage Method
Selecting a suitable method for storing cryptocurrencies depends on individual preferences and intended crypto use. Here are important considerations:
- Security: Your chosen storage should boast robust security features, such as two-factor authentication and a strong track record in protecting user assets.
- User Experience: Aim for user-friendly exchanges or wallets, especially if you are new to the space.
- Type and Volume of Crypto: Specific wallets cater to particular tokens. Storing large amounts carries higher risks, making secure options like cold wallets more desirable for sizeable investments.
- Trading Frequency: Those intending frequent trades should opt for easily accessible storage, such as hot wallets, which are convenient for minor, speedy transactions.
- Costs and Limits: Understand the fees associated with storage and choose accordingly. While hot wallets are generally free, purchasing a cold wallet can run between $100 to $1000. Check also the withdrawal limits before deciding.
- Insurance and Recovery: Some services offer insurance against theft, and options like recovery seed phrases can be critical in retrieving lost private keys.
Conclusion
Maintaining the safety of your crypto assets is a significant responsibility. Whether you opt for exchange storage or a personal wallet, the security and convenience of your chosen method are paramount.
As you align your storage choice with your crypto plans, remember that no method is entirely risk-proof. Ultimately, the security of your assets rests in your hands.