When dealing with cryptocurrencies, storing your digital assets safely is just as important as choosing the correct coins to invest in. The first step to storing your coins is to obtain a cryptocurrency wallet, which is a digital wallet used to store and transfer cryptocurrencies. Here’s a quick guide to help you navigate the topic.
There are a number of choices available when it comes to storing cryptocurrencies; however, in order to make a good choice it’s necessary to understand how keys are stored and the difference between hot and cold wallets.
How a wallet handles public and private keys is extremely important. Every wallet contains both public and private keys and the public key is the address that people use to send you money. The private key gives you unique access to your assets and it is what you use to send money to other people. Therefore, the public key is to be shared whilst the private key should not be shared with anyone as a person with access to your private keys can use your wallet to send your money to any other addresses.
Wallets also fall into two categories of hot and cold storage. Hot storage refers to a device which is directly connected to the internet. These include exchange wallets, online wallets, desktop clients, and mobile wallets and hot wallets should function in a similar way as a real-world wallet. Use them to hold small amounts that need to be easily accessible
Cold storage refers to a device that stores your currency completely offline, this is the most secure method of storage and are best for long-term holders and people storing large quantities of cryptocurrencies. Examples include paper wallets and popular devices such as Trezor, Ledger Nano, and Keepkey.
Hot Storage Tips
Again, hot storage options include exchange wallets, online wallets, desktop clients, and mobile wallets. For increased safety, follow these tips:
- Firstly, all hot wallet options are only as secure as the device you use to access them, so be sure to keep your devices uncompromised and free from malware.
- Only keep funds on exchange wallets temporarily, exchanges are similar in function to cheque cashing facilities or a bureau de change. Many in the cryptocurrency space learnt the hard way after the Mt. Gox hack and fall of BTC-e.
- For online wallets always double check the address and only click on verified links. Once you have the correct address, be sure to bookmark it.
- Always use secure passwords, these should be at least 16 characters and can be made up of letters, numbers, and special symbols or long phrases that make brute force attacks a waste of time.
- Create a new email address that is only used for cryptocurrencies, this address can be used for online accounts or backup purposes on certain desktop and mobile wallets. Never use this address for anything else.
- Write down your backup phrase and store it offline. Desktop and mobile wallets generate a number of words (seed phrase) that help you access your account if you lose of forget your password. Keep this secret, and store it offline.
- Make sure your desktop or mobile wallet gives you unique access to your private keys.
- Use a multi-signature wallet. These wallets require cooperation between a number of parties and make life more difficult for hackers even if they obtain your private keys.
Cold Storage Tips
Cold storage represents the most secure option; however, it’s still necessary to consider these tips to ensure optimum safety:
- When generating paper wallets make sure your device is free from malware and double check the site you are using.
- Also keep your paper wallet in a dry, secure place. A paper wallet is just that, paper, and needs to be treated carefully.
- With cold storage devices be sure to follow the manufacturer’s setup instructions carefully, human error is one of the few drawbacks of using cold storage.
- Backup your hardware wallet and keep your restoration details safe. The principle here is the same as with hot wallet options.
- Store your hardware device in a secure and private location. Hardware wallets can still be affected by mishaps such as drops and spillages.
When dealing with cryptocurrencies it’s important to remember that you are your own bank, and as a result, your digital finances are only as secure as you want them to be. Also make sure to stay updated of the latest developments in order to ensure your funds are secure. If you hold several thousands worth of crypto, you should consider investing in a hardware wallet like the Ledger Nano S to safely store your coins.