How to protect your cryptocurrency assets - A bullet-proof way to protect your crypto
I have tried many ways to store crypto and decided to share some of my knowledge and experience on how to store crypto as safely as possible. With the advent of cryptocurrencies, the way to store funds has changed drastically. With the initial idea to eliminate the middleman between two individuals wanting to exchange money comes another risk which includes storing your money safely. With no banks to manage transaction, every holder of cryptocurrencies can be considered his or her own bank. In case you lose access to the wallet you are using, there is nothing anyone can do to help you recover it. For that very reason, it is very important to make sure that the funds you have are properly secured and will be safe in case of unforeseen circumstances.
How people lose their access to crypto forever
Back in the day, Bitcoin was not yet considered as an assured digital currency of the future, which is why some BTC holders did not pay a lot of attention to the safety of their funds. The reason why that was the case is simply because cryptocurrencies have not yet established themselves, the volatility was extreme and the price was small. Some of the early miners replaced their hard drives which led to a loss of their mined coins, others just forgot access to their wallets. The first known use of BTC as a currency happened on May 22, 2010 when Laszlo Hanyecz bought two Papa John’s pizzas. This goes to illustrate how some people used to treat BTC lightly at the beginning.
Nevertheless, loss of cryptocurrencies continues to happen nowadays as well due to poor management of one’s wallets or choosing questionable crypto exchanges and keeping the assets on them. Those exchanges may get hacked, or they can escape with your money by committing a fraud, which is why it is very important to choose reputable cryptocurrency exchanges with strong track record and cybersecurity, and ideally not keep your funds there but on a personal wallet.
Current ways of storing crypto
There are many ways to store your crypto today. The most popular choice is mobile and software wallets as they are the easiest to set up and access. They are a fairly good option, but you need to make sure that you write down your seed phrase and store it carefully. If you happen to lose the seed phrase (which happens sometimes), you will not be able to restore your access.
Cold wallets
Cold wallets can be considered as one of the most if not the most secure way of storing crypto. I personally use it to store the majority of my crypto holdings as I find it secure and bulletproof from technical problems such as a hardware wallet or your device breaking or getting lost. It records public and private keys of a given wallet. If you happen to record those and put them somewhere safe where only you or people you trust can access , it is very unlikely that anyone other than you will gain access to your cryptocurrencies. However, the major downside is that you may be limited in the amount of funds that you may send since you will need access to those keys whenever you want to send money. Unless they are stored in a limited number of copies, this method does not differ much from a mobile or software wallet.
Hardware wallets
There are a number of well established hardware wallets such as Trezor or Ledger. It is important to purchase them from the official seller and make sure that the package has not been tampered with. The main benefit of hardware wallets is that they require an actual device to be connected in order to send a transaction. The device itself has a code that has to be typed directly in the device in order to confirm each transaction. Moreover, some hardware and software wallets can be integrated with each other for a superior security and user experience. For example, you could connect Ledger (Hardware wallet) and Exodus (Software wallet) in order to have your funds neatly displayed on your computer and use Ledger to confirm whenever you need to send a transaction. The downside of hardware wallets is that the device itself can be lost or damaged, in which case you will be temporarily blocked from accessing your cryptocurrency assets. You will need a seed phrase to restore the access on a new device, which is why it could be a good idea to record the seed phrase and store it somewhere safe, as well as have another backup device ready for setup just in case.
Cryptocurrency exchanges
Cryptocurrency exchanges are not the safest places to store your crypto funds for several reasons. First of all, it is always linked to your account and can be withdrawn if someone has access to your email and usually a phone number. In reality, even an email could be enough, since extremely prepared hackers can intercept your SMS verification (given that they are close enough) with enough effort. 2FA is a safer alternative, however, if you happen to lose your phone or it gets stolen, you are at risk of losing your cryptocurrencies.
Moreover, you are always at risk of losing your crypto even if you do not get hacked personally. Crypto Exchanges have been hacked before and it can happen to anyone. There is no guarantee that it will not happen to you, and if it happens, there is no guarantee that the exchange will reimburse your losses.
WEB 3.0 wallets
If you want to trade on decentralized exchanges, you would need something called a WEB 3.0 wallet, such as Metamask. Metamask is a very popular option to access all of DeFi infrastructure. Essentially, it is a browser extension which allows you to quickly access your crypto. Moreover, it allows you to participate in DeFI easily by integrating smart contract ecosystem which does not require any knowledge of contracts for you. WEB 3.0 wallets can be considered as secure as software wallets, in other words, you would still need to make sure that your seed phrase is stored safely somewhere offline.
Last words of Wisdom
It is very important to pay attention to your cybersecurity since no one will do it for you. There is no best way of doing so, however if you follow some guidelines, you can limit your risks drastically.
My personal advice to store your crypto funds would be a combination of the methods listed above. In order to safe and utilize your cryptocurrencies in the best possible way way, you will require a combination of:
Cold Wallet
WEB 3.0 and/or Software Wallet
Hardware Wallet (will be a great addition)
Cryptocurrency exchange accounts
While all of those ways are going to make your personal cybersecurity quite strong and it is likely to ensure the safety of your own funds from being stolen, it does not protect you from losing access to your crypto due to human error. Storing all of your seed phrases securely and offline is one thing that you will have to take care of yourself.
Seed phrases and private keys are best stored offline in a place you believe to be the safest. Chances are you won’t be needing them very often, so the best way would be to manually write them down on a piece of paper or a dedicated notebook which can be accessed by you and people you trust with all of your crypto funds. Also, it would be best if you have several copies saved in several places, but remember that this place has to be as safe and trusted as possible. Storing a copy hidden at your home and another one at home of close family relatives could be a good option which I would recommend.
It would be a good idea to separate your holding in a cold wallet or a hardware wallet and store it somewhere safe (like a storage cell in a bank), while keeping the rest on a combination between software/WEB3.0/hardware wallets. It generally isn’t a good idea to store your cryptocurrencies on exchanges, but that is also an option an many people store a portion there in order to have access to liquidity instantly in case they want to trade quickly.