Storing your crypto safely is crucial to stay ahead of potential intruders.
Using custodial wallets (crypto exchanges) to park your funds is not ideal. A recent example of failure is FTX, where a hacker swooped away $400 million worth of crypto.
Software wallets like Metamask are easy to set up and use but risky, so we wouldn’t recommend keeping large amounts of crypto there.
Luckily, hardware wallets are a secure alternative for individuals who keep large funds untouched.
Check out the comparison below to know how each wallet option differs when it comes to security.
Best Way To Store Crypto Long-term: A Quick Cheat-Sheet
|How It Works
|Online wallet stores the private key on your device
|Easy to use, Good for smaller transactions
|More susceptible to hacks and theft
|Metamask, Trust Wallet
|Hardware device to manage your digital assets. Works offline.
|Simple interface, Funds can be recovered even if the device gets lost
|Funds are lost forever if you lose your private key.
|Ledger, Trezor, Arculus
|Access your funds using a crypto exchange
|Easy to buy, swap, and manage crypto in one place.
|You don’t entirely control your funds. [Dangerous]
|A single private key shared between multiple parties
|Authenticates transactions on multiple servers
|No Hardware Security Module
What Is the Safest Way To Store Cryptocurrency? Not a Hot Wallet But…
What Is a Hot Wallet in Crypto?
A hot wallet is a software wallet typically used to send and receive crypto. Hot wallets have a public key and a private key. These wallets require you to download an application on your device.
Software wallets are usually considered unsafe since private keys are stored digitally. Users are also at risk of a phishing attack that could expose their private key and result in loss of funds.
It is recommended to store only a small amount of crypto in hot wallets.
How Does a Hot Wallet Work?
Hot wallets act as a bridge between your browser and the blockchain. It allows you to send, receive, or swap tokens and NFT using the internet.
A hot wallet allows you to receive funds using a public key, aka your wallet address.
Whereas the seed phrase is the secret word phrase which should be backed up securely AND NEVER SHARED
You cannot access your hot wallet funds if you lose the private key/seed phrase.
Note: Hot wallets, or software wallets, are used as an interface bridge to hardware wallets. This is considered safe as the crypto actually resides in your cold wallet. The software wallet is just used as a UI. Most popular software wallets (like Metamask) are compatible with most hardware wallets.
Pros and Cons Of Hot Wallets
Hot Wallet Examples
- Edge Wallet
Safest Ways To Store Crypto: Best Cold Storage Wallet
What Is a Cold Wallet Crypto?
Cold wallets are small hardware devices that connect to your computer or mobile using Bluetooth, USB, or even NFC.
Since hardware wallets do not connect to the internet, they’re considered highly secure.
Hackers cannot access your private key, even if they break into your computer remotely or gain physical access to your hardware wallet (and don’t know the pin code).
Hardware wallets like Ledger Nano or Stax are ideal for storing large amounts of crypto. Using them in conjunction with software wallets makes up a secure and easy way to manage your crypto.
Types Of Cold Wallet Crypto
A tiny USB stick is the first thing that comes to mind when discussing storing our crypto offline. Ledger Nano X and Trezor Wallet are options that fit into this category.
However, options like a paper wallet or an NFC wallet card could also be considered depending on their security level.
How Do NFC Wallets Work?
An NFC wallet is another cold storage option that is much easier to use and secure. Arculus, an NFC wallet, uses 3-factor authentication- biometric, numeric pin, and NFC.
While this is a safe way to sign transactions, there are several limitations to an NFC wallet.
Mainly, the card would only work on mobile devices with NFC technology.
How Do Paper Wallets Work?
A paper wallet is simply printing a private key on paper. This should only be a temporary option since paper wallets can easily get displaced or damaged. You might need a fireproof and waterproof safe to store your paper wallet, which only adds to the inconvenience.
Pros and Cons Of Cold Wallets
Cold Wallet Examples
- Ledger Nano X
- Trezor Hardware Wallet
How Do MPC Wallets Work?
MPC or Multi-party computation lets you distribute the private key between multiple servers.
Signing transactions using an MPC wallet requires real-time authentication from the selected parties
Hence, there’s no single point of compromise like we have in traditional software wallets like Metamask.
Another advantage of using an MPC wallet is it uses cryptography to encrypt your private key share. This makes sure your private key share is never revealed. A complete private key is never generated on any of the devices used by the parties while signing transactions.
Moreover, the parties are only aware of their key share, further increasing trust.
The gas fees on MPC are the same or even lower than what you pay on other software wallets.
Recovering your lost private key share is also easier on an MPC wallet since the backup can be authenticated by other parties.
MPC is more secure than a traditional online wallet at any point. However, it is not completely free from vulnerabilities.
What Are the Best Methods of Storing Your Cryptocurrencies?
To sum it up, never put all your funds in one place.
Software wallets should only be used for day-to-day transactions of small amounts.
Using a custodial wallet( Coinbase exchange) to access your crypto might be easy since you can buy and sell the tokens without moving your assets. However, it is highly risky, and you don’t directly control your funds (including the risk of frozen assets).
The best method to store your crypto securely is to spread it out over a few hardware wallets and use a combination of hardware wallets and MPC.
ZenGO is an excellent option to get started with an MPC wallet. Ledger is a great option for a traditional hardware wallet.
While traditional hardware wallets might be difficult to use with those tiny screens and button pair, you could switch to a touch-screen hardware wallet like Ledger Stax.
The initial investment of buying hardware wallets might be a burden, but in long term, it safeguards your funds for good.
Safest Way To Store Crypto: FAQs
Keeping your crypto on a hardware wallet is considered safer than using an exchange.
Crypto exchanges face a constant risk of getting hacked and losing funds.
Furthermore, you are trusting the company or exchange behind your hardware wallet, and things like the FTX debacle or Celsius debacle have made this a questionable decision.
Coinbase is a crypto exchange where you can buy, sell, and swap cryptocurrencies. While Coinbase itself has a great record, storing your crypto on an exchange is not the safest option.
The least safe place to keep your cryptocurrency is a custodial wallet where your funds are managed by an external party. It is also dangerous to keep many cryptos in a software wallet like Metamask without pairing them with a hardware wallet.
You can store crypto offline using hardware wallets or paper wallets. You can use multiple hardware wallets to manage backups.
You can store private keys securely using a fireproof and waterproof safe. You can also use Cryptosteel, a metal device to securely store your private key.