By Doug Young

storing cryptocurrency

Learning how to store cryptocurrency safely and securely is of paramount importance if you are considering buying cryptocurrency from a broker or trading it on an exchange.

Most people will have heard of the Mt. Gox heist in 2014 when hackers got into the exchange and helped themselves to a cool $473 million, and the more recent $530 million heist of Coincheck, the Japanese exchange in January 2018.

The big lesson to be learnt from these two incidents is that exchanges are vulnerable and you should not rely on them to store your purchases. You should remove them and decentralize their storage at the first opportunity.

Taking the time to learn how to store cryptocurrency safely is all part of your investment!

Where Do You Store Cryptocurrency?

The place where you store cryptocurrencies is called a ‘wallet’. There are different varieties of these and each provide you with different forms of access and storage plus different levels of security.

How to store cryptocurrency on a wallet? Well actually it’s not your cryptos that are stored on it. More accurately what’s stored on it are private keys which are essential when it comes to accessing a cryptocurrency address and having the facility to spend the funds. These private keys are necessary when signing a transaction and if you lose them you lose access to your cryptos so effectively you lose your cryptos too.

You can see therefore that it’s essential that you safeguard your private key and don’t give it to anyone. That goes hand in glove with not using any online web wallets for storage as these could be hacked. Examples of these are Coinbase and which would keep your private key on their servers.

How To Store Cryptocurrency Securely

Cryptocurrency Wallets

Before investing in cryptocurrency it’s advisable to learn about the different varieties of wallets, how they work and how to store cryptocurrency on them.

There are two elements to a cryptocurrency wallet, namely a private key and a public address. You use the private key to access your wallet. You provide the public address to other crypto users to receive funds, normally in the format of text or a QR code.

The wallet is specific to the cryptocurrency that is stored within it. Effectively this means that a cryptocurrency holder uses the wallet to enable them to act as their own bank, with all the responsibility for security that this entails.

Hot Vs Cold Wallets

When learning how to store cryptocurrency it’s important to make sure you know how to differentiate between a hot wallet and a cold wallet.

A hot wallet could be as simple as a phone or computer which is internet connected. Hot wallets (online devices) are used by exchange platforms to manage users’ private keys for them. When you’re using a hot wallet you’re relying upon the security protocol of the wallet provider. This is not wise. By storing cryptocurrency online you are leaving yourself open to hackers and internet thieves. A hot wallet can be used to store small amounts of cryptocurrency for payment purposes but you shouldn’t store large amounts of capital on one.

How to store cryptocurrency offline? Use a cold wallet. A cold wallet is a wallet solution which is not internet connected. Such wallets are normally in the form of software which can be installed on a pc or phone, or hardware which is a purpose built secure device for storing cryptocurrency. Of the two types, hardware wallets offer more security.

How To Store Cryptocurrency On a Paper Wallet

Paper wallets are the cheapest and least secure way to store your cryptocurrencies. They used to be very popular but now they have been overtaken by hardware wallets and offline storage. In its most basic form, with a paper wallet you simply print out private and public keys. This gives you very little security because the printed keys give you access to your coins and if you lose your paper wallet you basically lose your coins!

You can create a more secure paper wallet but it’s quite a technical and long winded process. You will require:

  • an offline computer
  • a bootable operating system
  • a USB flash drive
  • a printer
  • … good technical knowledge and a lot of patience!

With security in mind you then have to:

  • open a BitAddress
  • generate an RNG (Random Number Generator) which you use on your brain wallet (your mind)
  • print it
  • encrypt it (for additional security) using Bip 38

This is clumsy and you could end up with an unsafe wallet if you don’t really know what you’re doing.

How To Store Cryptocurrency On a Hardware Wallet

cryptocurrency walletHardware wallets have grown in popularity because they are so easy to set up and use. No technical knowledge is required.

Basically it’s a small computer or smart card. Whenever you make a transaction the wallet will sign it within a secure and unhackable environment. The transaction will be conveyed to your computer which you in turn send to the network. This process is virtually impossible to hack.

You will require a hard drive seed for backing up your hardware wallet and as an extra safeguard it’s wise to print the backups on paper too.

Needless to say you must guard your wallet carefully to make sure it cannot be damaged or stolen. Some people choose to keep more than one copy. For additional security you can password protect the wallet, making sure that no one else can get access to it.

Cryptocurrency Cold Storage

How to store cryptocurrency offline on a physical wallet with cold storage:

The final and most secure way to store cryptocurrencies is with an offline software wallet. These are very similar to hardware wallets but you will need to use a dedicated and offline computer to run your physical wallet.

This is created entirely on the computer itself, using a public HD seed and it’s just a watch only type of wallet that you can add to a regular network or computer. The implication is that you are able to receive payments online but the private keys and your funds are securely offline.

It’s a simple case of adding the newly received funds to your offline wallet where they are then safe and secure. This is a bit more complex than with a hardware wallet but it’s not as complex as making the paper wallet secure.

For larger investment amounts this is a common means of cold storage.

About the Author: Doug Young
Doug YoungDoug is a highly experienced professional and widely trusted authority in financial investing, commodity trading, and precious metals. With over 20 years of expertise, he helps others make informed decisions by sharing a combination of personal experience, extensive knowledge and meticulously researched information on gold IRAs, precious metals investing and retirement planning. He regularly writes news items on these topics. He has considerable experience of evaluating Gold IRA and Precious Metals Companies, gained over a period spanning more than a decade.

See full bio