Storing cryptocurrency isn’t as simple as saving dollars in a bank. With digital currency, users select the best storage method based on how much security they need, their frequency of transactions, and how they want to control their crypto holdings. No matter if you want to trade crypto or hold it for the long term, you will need to find the best way to store crypto—and in the crypto world, it means the safest one.
What Is the Safest Way to Store Crypto?
Although the final choice depends on your preferences and circumstances, the overall safest way to store crypto is a hardware wallet like Ledger or Trezor. These wallets will typically set you back around $100 but will keep your crypto assets secure—as long as you don’t lose the physical device that stores your keys.
The Different Ways to Store Crypto
There are different ways to store crypto, from cold wallets to hot wallets, each with unique features, strengths, and weaknesses. Here’s a guide to understanding the main types of crypto storage to help you choose what’s best for your digital assets.
Cold Wallets
Cold wallets, or cold storage, are offline storage options for cryptocurrency holdings. They’re often used by those who prioritize security over convenience. Because they’re kept offline, cold wallets are an excellent choice for storing large amounts of cryptocurrency that don’t need to be accessed regularly. Since cold wallets provide a strong layer of security, they are less vulnerable to hacking attempts or unauthorized access.
Cold wallets store private keys offline, often on hardware devices or paper, eliminating the risk of online threats. When keeping funds in a cold wallet, users hold complete control over their private keys, hence the sole responsibility for safeguarding their assets. Cold storage is considered the most secure option for long-term storage, making it a preferred choice for those holding significant digital currency.
Examples: Popular hardware wallets like Ledger and Trezor use USB drives to store private keys offline. They come with robust security features, including a PIN and a seed phrase, adding an extra layer of security to protect crypto holdings.
Want more privacy for your crypto funds? Check out our article on anonymous crypto wallets.
How to Use Cold Wallets
To use a hardware wallet, one connects the device to a computer, enters a PIN, and launches specialized software to send or receive crypto transactions.
Pros and Cons
Pros
- Offers the highest level of security and offline storage
- Perfect for long-term holding or large amounts of cryptocurrency
- Users retain complete control over private keys
Cons
- Not suitable for frequent transactions due to offline access
- The initial setup may be confusing for beginners
- Hardware devices can be costly
Hot Wallets
Hot wallets are online digital wallets connected to the internet, making them convenient for crypto users who perform daily transactions. They’re ideal for managing small amounts of cryptocurrency for day-to-day use but come with a slightly lower level of security than cold wallets due to the online connection. Hot wallets include several types, such as self-custody wallets and exchange wallets, each with varying levels of user control.
Self-Custody Wallets
Self-custody wallets, or non-custodial wallets, give users complete control over their private keys. This means the user is solely responsible for securing their digital wallet, which often involves creating a seed phrase as a backup. Self-custody wallets are often favored by crypto users who value autonomy and want to avoid reliance on a third party.
Examples: MetaMask, a browser extension and mobile app. Highly popular for DeFi and NFT transactions, it supports Ethereum and other compatible tokens. AliceBob Wallet, an all-in-one wallet that lets you securely manage 1000+ crypto assets.
How to Use Self-Custody Wallets
To use a self-custody wallet, download a wallet app, set a strong password, and generate a seed phrase. The seed phrase is critical as it’s the only way to recover funds if the wallet is lost. Users can store small amounts of cryptocurrency here for quick access or keep larger sums if they’re diligent about security.
Pros and Cons
Pros
- Users have complete control over private keys and assets
- Generally free to use, with easy access on mobile devices
- Supports a wide range of digital assets
Cons
- Higher risk of loss if the seed phrase is misplaced
- Potentially vulnerable to online hacking
Mobile Wallets
Mobile wallets are software wallets installed on mobile devices—a solution ideal for crypto transactions on the go. These wallets offer convenience and are often non-custodial, meaning users manage their private keys. Mobile wallets are excellent for small crypto holdings reserved for quick transactions.
Examples: Mycelium, a crypto wallet known for its security and flexibility, especially for Bitcoin users.
How to Use Mobile Wallets
Users can download a mobile wallet app from any app store that supports it or the wallet’s official website, set up security features like PIN or fingerprint recognition, and generate a seed phrase. Once funded, mobile wallets are ready for everyday purchases or crypto transfers.
Pros and Cons
Pros
- Highly accessible for daily transactions
- Supports a wide range of digital assets
- Many options are free and quick to set up
Cons
- Lower level of security compared to cold wallets
- Vulnerable if the mobile device is compromised
Multi-Signature Wallets
Multi-signature (multi-sig) wallets require multiple private keys to authorize a transaction, adding an extra layer of security. This feature makes them optimal for shared accounts or organizations where multiple parties approve crypto transactions.
Examples: Electrum, a crypto wallet that offers multi-signature capabilities for Bitcoin users.
How to Use Multi-Signature Wallets
Setting up a multi-sig wallet involves specifying the number of signatures required for each transaction, which can range from 2-of-3 to more complex setups. Each authorized user has a private key, and only when the specified number of keys is entered can a transaction go through.
Pros and Cons
Pros
- Enhanced security with multiple layers of approval
- Reduces risk of unauthorized access
Cons
- Complex to set up and maintain
- Less convenient for individual users
Exchange Wallets
Exchange wallets are a specific type of custodial wallet provided by cryptocurrency exchanges. While they allow users to trade, buy, and sell digital assets conveniently, exchange wallets aren’t ideal for long-term storage due to security risks. They are, however, useful for those actively trading cryptocurrency or needing quick access to fiat currency options.
An exchange wallet is automatically created for users when they open an account on a crypto platform. In this scenario, the exchange holds private keys, so users don’t have full control and rely on the platform’s security practices.
Examples: Binance Wallet, a wallet service provided by Binance, integrating seamlessly with the Binance exchange.
How to Use Exchange Wallets
After signing up with an exchange, users can fund their accounts, trade, or hold assets in the exchange wallet. Some platforms offer enhanced security features like two-factor authentication and withdrawal limits to protect funds.
Pros and Cons
Pros
- Very convenient for trading and frequent transactions
- Often provides access to a wide variety of digital currencies
Cons
- Limited control over private keys
- Susceptible to exchange hacks and technical issues
Paper Wallets
A paper wallet is a physical printout of your public and private keys. Although largely obsolete today, some still use paper wallets as a cold storage option, especially for long-term storage. However, they can lack convenience and are more prone to physical damage or loss.
Users generate the wallet online, print it, and store it somewhere safe, such as a bank vault. Once printed, though, the information is static, so users will need to transfer assets to a new wallet if they want to spend them.
How to Use Paper Wallets
To spend funds stored in a paper wallet, users import the private key into a digital wallet or manually enter it to initiate a transaction. That’s why paper wallets have a reputation as one-time storage for those not planning to access their assets frequently.
Pros and Cons
Pros
- Provides offline storage and high security if kept safe
- Simple and free to create
Cons
- Prone to physical wear, damage, or loss
- Difficult to use for daily transactions
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What’s a Safer Way to Store Crypto? Custodial vs. Non-Custodial
Choosing between custodial and non-custodial wallets depends on each crypto user’s needs for security and control. Custodial wallets, managed by a third party, are easier for beginners but come with less control over private keys. Non-custodial wallets, like self-custody wallets, provide complete control but require users to handle their own security measures, including managing a seed phrase.
For those with significant crypto holdings or who prioritize security, non-custodial cold storage options, like hardware wallets, are often best. On the other hand, custodial exchange wallets might be suitable for users who trade frequently and prefer convenience. Balancing the level of security with convenience is key, and many users may opt for a combination of hot and cold wallets for maximum flexibility and security.
How to Keep Your Crypto Safe: Top Tips For Securing Your Funds
Choose the Right Type of Wallet. For maximum security, consider a cold hardware wallet, like Trezor or Ledger, that keeps your crypto offline. Cold wallets (also known as offline wallets) offer better protection against hackers compared to hot wallets (online wallets connected to the internet).
Be Mindful of Wallet Addresses. Always double-check your wallet address before transferring funds. This can prevent funds from being sent to the wrong wallet address—an action that can’t be reversed.
Consider Non-Custodial Wallets. A non-custodial wallet gives you full control of your crypto keys, unlike custodial wallets that are managed by a crypto exchange. With such a wallet, only you have access to your private keys, reducing third-party risk.
Use Strong Passwords and Two-Factor Authentication. Always enable two-factor authentication (2FA) on any wallet software or crypto exchange account you use. A strong password and 2FA add layers of protection for both hot and cold wallets.
Limit Funds on Exchanges. Keep only trading amounts on crypto exchanges and move the rest to a secure personal wallet. Crypto exchanges are vulnerable to hacks, so cold hardware wallets and other types of personal wallets provide safer cryptocurrency storage.
Store Backup Keys Securely. Write down your recovery phrases for hardware and paper wallets and store them in a safe place. Avoid storing these keys on your phone, email, or computer.
Separate Hot and Cold Wallets. Use a hot crypto wallet for frequent transactions and a cold wallet for long-term storage. This way, your main holdings are offline and less exposed.
Use Trusted Wallet Software. Always use popular wallets from reputable sources to avoid malware or phishing scams. Research types of wallets and reviews before installing any wallet software.
FAQ
Can I store crypto in a USB?
Technically, yes, but it’s risky. Instead, use a cold hardware wallet designed for secure crypto storage. Unlike dedicated hardware wallets, USB drives will “put” your encrypted information (a.k.a. your keys, because you can’t store actual cryptocurrency on the device) on your PC or laptop when you connect the USB to it, which opens it up to spyware and other potential risks.
What is the best way to store crypto?
A cold wallet, like a hardware or a paper wallet, is the safest for long-term storage. It keeps your assets offline, reducing the risk of online theft.
Is it better to keep crypto in a wallet or on an exchange?
It’s safer in a personal wallet, especially a non-custodial cold wallet. Exchanges are convenient but vulnerable to hacking.
Is storing crypto offline worth the extra effort?
Yes, especially for large holdings, as offline wallets reduce exposure to online attacks. Cold storage is the best choice for secure, long-term storage.
What is the best way to store crypto keys?
Write them down and keep the paper in a secure location, like a safe. Avoid digital storage, as it’s vulnerable to hacking.
Disclaimer: Please note that the contents of this article are not financial or investing advice. The information provided in this article is the author’s opinion only and should not be considered as offering trading or investing recommendations. We do not make any warranties about the completeness, reliability and accuracy of this information. The cryptocurrency market suffers from high volatility and occasional arbitrary movements. Any investor, trader, or regular crypto users should research multiple viewpoints and be familiar with all local regulations before committing to an investment.
