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Cryptogambling / The Best Crypto Storage Options to Keep Your Crypto Funds Safe

The Best Crypto Storage Options to Keep Your Crypto Funds Safe

Publish Date: 07/03/2023

Crypto storage can be a bit of a headache – not because it is particularly difficult to navigate but because there are so many options to choose from. While safety from hacks and cyber threats is the fundamental aim, Crypto wallets offer so much more than that.

Ranging from your ability to trade efficiently and generate passive income to being able to purchase certain digital assets —your choice of storage can greatly impact your crypto trading experience.

In this article, we explore the 4 broad categories of Crypto wallets while helping you weigh up the pros and cons of each. But first, let’s begin by exploring the key factors you must consider before making that choice.

Factors to Consider Before Choosing a Crypto Storage Option

Navigating smart contracts requires an even smarter choice of crypto storage. Whether you’re a noob or a seasoned pro, there are essential considerations that you must make before you can make an informed decision about your ideal crypto storage option. Here are 3 factors to consider:

  • Storage Timeline: Are you planning to lock away your crypto assets long-term?
  • Trading Frequency: Are you an active trader who needs to move your cryptocurrency around frequently? Or Do you use cryptocurrencies for everyday transactions and payments?
  • Multi-chain Activity: Do you interact with DApps across different blockchain networks daily?

These questions will help you assess the potential risk factors you may likely face in your day-to-day interactions with cryptocurrencies. Now that we’ve got this out of the way,  it’s time to make a decision.

These Are The Best 4 Crypto Storage Options Available

There are 4 broad classes of crypto storage options available today. Hot Wallets, Cold Wallets, Paper Wallets, and institutional Custodian services.

Each has its own unique advantages and disadvantages, so it’s important to understand them before choosing the best option for your specific needs. Let’s dive in.

1. Hot Wallets

Hot wallets, or Software wallets, are cryptocurrency wallets connected to the internet, making them easily accessible and convenient for frequent transactions. These wallets are typically software-based and can be accessed through desktop or mobile devices.

Smartphone showing crypto wallet application. Surrounded by different icons.

With Hot wallets, you can stay connected to the crypto markets in real-time without committing your private keys into the hands of a third-party such as custodial exchanges, CeFi protocols, and trading platforms.

Pros and Cons of Using a Hot Wallet

Here are some potential pros and cons of using a hot wallet:

Pros:

  • Easy accessibility: Hot wallets are software applications that can be easily downloaded and installed on devices like smartphones or computers. This makes them easy to access and use for everyday transactions.
  • Speedy transactions: Since hot wallets are connected to the internet, they can quickly send and receive transactions. This makes them ideal for situations where fast transaction times are important, such as trading or buying goods and services.
  • Low cost: Many hot wallets are free or have very low fees, making them a cost-effective option for managing cryptocurrency.
  • User control: With a hot wallet, you have control over your private keys and can manage your own security while maintaining a high frequency of use. To fortify the security of your hot wallet, you should take extra steps such as setting up two-factor authentication or using a strong password.

Cons:

  • Security risks: Because hot wallets are connected to the internet, they are more vulnerable to hacking attempts and other security risks than offline or cold wallets. Likewise, if you lose your mobile phone or have your computer access compromised, your funds could be at risk.
  • Prone to software bugs: Software bugs or glitches can cause hot wallets to malfunction or lose funds.
    Also, with every software, there is a need to update operating systems for application bug fixes and version upgrades from time to time. This may render your hot wallet obsolete if left unattended for a long time.
    While these software issues are relatively rare, they can very much occur and lead to irretrievable  losses of funds
  • Limited storage: Some Hot wallets are typically designed for smaller amounts of cryptocurrency, making them less suitable for long-term storage or larger amounts of funds.

Examples of Hot Wallets

Generally, due to the risks involved, Hot wallets should only be used to store small amounts of crypto. And they are best suited for active traders who must constantly be connected to the markets.

There are many different hot wallets available; some of the most popular ones are Exodus, Trust Wallet, Atomic Wallet, and MyEtherWallet. It’s important to note that the security and features of each hot wallet can vary, so it’s a good idea to do your own research and choose a wallet that meets your specific needs and preferences.

2. Cold Wallets

A cold wallet is a type of cryptocurrency wallet not connected to the internet and is typically stored on physical devices such as USB drives, external hard drives, or paper. Cold wallets are also known as “offline wallets” because they are not accessible online.

Person Holding Smartphone

The primary benefit of using a cold wallet is the high level of security it provides for your cryptocurrency holdings. Since it’s not connected to the internet, there is no risk of hacking, malware attacks, or other online threats that could compromise your funds. This makes cold wallets ideal for long-term cryptocurrency storage of large amounts of crypto.

Pros and Cons of Using a Hot Wallet

Here are some potential pros and cons of using a cold wallet:

Pros:

  • High security —Cold wallets offer high security because they are not connected to the internet, which means they are not vulnerable to hacking attempts or other online threats.
  • Long-term storage —Cold wallets are ideal for long-term cryptocurrency storage or large funds because they provide a secure offline storage option.
  • Private key control — With a cold wallet, you have complete control over your private keys, which means you can manage your own security and protect your funds from potential theft or loss.
  • Less prone to bugs and glitches —- Cold wallets are typically simple hardware devices or pieces of paper, they are less likely to experience software bugs or glitches that could lead to loss of funds.

Cons:

  • Less convenient —Cold wallets are less convenient to use for everyday transactions because they require physical access to the device and may take longer to set up and use.
  • Risk of loss or damage  —Physical cold wallet devices can be lost, damaged, or stolen, which could result in the loss of your cryptocurrency holdings if you do not have backup copies of your private keys. To underline this risk, a recent BBC report showed that about 3.7 million Bitcoins have been lost. And many of the owners have hired specialist recovery companies to salvage them.
  • Potentially higher cost – Cold wallets are typically more expensive than hot wallets, especially if you opt for hardware wallets, which can cost anywhere from $50 to $200 or more.

Ultimately, the decision to use a cold wallet should be based on your own risk tolerance and the level of security and convenience that you require.

3. Paper Wallets

A paper wallet is a physical copy of a cryptocurrency wallet’s public and private keys, usually printed on paper or written down by hand. Paper wallets are a type of cold storage and provide an offline, secure way to store cryptocurrency.

 

A Paper Wallet

Sample Paper Wallet. Source: Blockgeeks

To create a paper wallet, you can generate a new wallet address and private key pair, usually through a website or software application. Once the address and private key are generated, you can print out a paper copy or write it down on paper.

It’s important to keep the paper wallet in a secure location, such as a safe or safety deposit box, to prevent theft or loss.

To use a paper wallet, you can simply enter the public key into a hot wallet or other software application to send funds. However, it’s important to note that once you use the private key to access your funds, the paper wallet is no longer secure and should not be used again.

Pros & Cons of Using a Paper Wallet

Pros:

  • High security: Paper wallets offer a high level of security because they are not connected to the internet and are not vulnerable to online threats such as hacking or malware.
  • No hardware cost: Unlike hardware wallets, which can be expensive, paper wallets can be created for free using open-source software.
  • Easy to create: Creating a paper wallet can be a simple and straightforward process that can be completed in a matter of minutes.
  • No need to trust a third party: Because you control your private keys, there is no need to trust a third-party service to hold your cryptocurrency.

Cons:

  • Risk of loss or damage: Paper wallets can be lost, damaged, or stolen, potentially resulting in the loss of your cryptocurrency holdings.
Damanged Paper Wallet

Damaged Paper Wallet. Source: Reddit

Damaged Paper Wallet. Source: Reddit. 

  • Single-use only: Once you use the private key to access your funds, the paper wallet is no longer secure and should not be used again.
  • Less convenient: Paper wallets are less convenient to use than hot wallets because they require manual public key entry to access your funds.
  • Potential for human error: If you make a mistake when writing down the public or private key, you could lose access to your funds permanently.

Paper wallets are one of the most secure and convenient ways to store cryptocurrency offline. However, paper can degrade over time or be damaged, potentially leading to loss of funds. Additionally, if someone gains access to the paper wallet, they can easily steal your funds, so it’s important to keep the wallet in a secure location and take appropriate precautions to protect your private key.

4. Custodial Storage Services

A crypto custodian is a financial services institution that stores digital assets on behalf of investors —either for extended periods of safekeeping or “transitory custody” while carrying out specific transactions.

Crypto custody services are particularly important for institutional investors, such as hedge funds, pension funds, and family offices, who are increasingly interested in investing in cryptocurrencies but require high security and regulatory compliance.

Pros and Cons of Using Custodial Crypto Storage Services

Pros:

  • Convenience: Convenient and easy to use for beginners
  • Insurance Coverage: Often have insurance coverage in case of theft or loss
  • Customer Support: Offer customer support and assistance with account management
  • Additional Services: May provide additional services such as trading or lending

Cons:

  • Third-Party Risk: You know what they say, “not your keys, not your coin”. Custodial storage services usually require that you relinquish custody of your private keys. For instance, if the company goes bankrupt while holding your crypto, you may struggle to retrieve your assets.
  • High Risk of Hacks & Thefts: Because crypto custody companies are known to keep large volumes of digital assets, they are often prime targets of hackers and other malicious actors looking to score big.
  • Privacy Concerns: Crypto custody firms may ask you to provide personal bio-data information for KYC/AML compliance. This may not be the ideal option for you, if you prioritize the privacy and anonymity of your transactions.

Examples of Crypto Custody Companies

Here are some examples of well-known crypto custody companies:

Fireblocks: Fireblocks is a cryptocurrency custody and asset transfer platform that offers institutional-grade security solutions.

Screenshot of Fireblocks Homepage

Fireblocks Institutional Crypto Custody Service

For their institutional Custody service, Fireblocks uses a patented technology called “Secure Transfer Environment” (STE) to securely move digital assets between different parties.

BitGo: BitGo is a cryptocurrency custody and security company that provides institutional-grade storage solutions for digital assets.

Screenshot of BitGo Homepage

BitGo Crypto Custody Service

Quite remarkably, BitGo is one of the biggest players in the Crypto custody industry. They currently have over $40 billion in assets under management.

Anchorage: Anchorage is a cryptocurrency custody and trading platform that provides institutional-grade security solutions.

Screenshot of Anchorage Homepage

Anchorage Crypto Custody

Anchorage offers advanced features like insured custody, biometric security, and institutional-grade auditing.

Conclusion

Summing up, there is no “one size fits all” approach when it comes to safe and secure crypto storage. Different users and stakeholders in crypto have different needs, and as such, they are exposed to different risks. Hence they have different crypto storage needs.

And more importantly, keep in mind that the Crypto industry is highly-dynamic. Technologies and innovations are emerging to meet the changing needs of the market. Hence, you must stay informed to remain in tune with the latest innovations.

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