Bitcoin and ether are no longer just the favorite assets of millennials, now institutional investors are buying them. That said, hackers aren’t slumbering either. In 2023, they stole more than $1 billion in cryptocurrency.
Unlike traditional currencies, cryptocurrencies have no physical form and are stored in digital wallets. This makes them vulnerable to theft or loss.
How to safely store cryptocurrency: basic concepts
Private keys are the only way to access digital assets. Unlike traditional banking systems, where institutions protect funds and support customers, the decentralized nature of cryptocurrencies transfers all responsibility for security to the users themselves.
There are two main ways to store cryptocurrencies.
Custodial storage of cryptocurrencies
Custodial involves handing over private keys to a third party, such as an exchange that manages them on the user’s behalf. This is convenient, but also comes with risks of the custodian’s security.
How not to lose assets on an exchange
Most people buy cryptocurrency on exchanges. To reduce risk, it’s important to make sure that the exchange is reliable.
For example, at Bitbanker we use KYC, AML verification, obtain all necessary licenses and tell our users about them in detail. This is how we ensure a high level of security for our users.
Non-custodial storage of cryptocurrencies
Non-custodial options allow users to have full control over their private keys, usually in the wallet. There are hardware (“cold”) wallets, which offer strong security by storing private keys offline, and software (“hot”) wallets, which are more user-friendly but could be less safe because of the constant internet connection.
What is the concept of self-custody? It involves managing private keys without third parties. Only you have access to your assets. Users of these wallets have to protect their private keys, for example with hardware or paper wallets.
Benefits of self-storage
- Control of the private keys by the owner only
- No risk of exchange bankruptcy
Drawbacks
- More complicated to manage
- You need to take care of your private keys on your own
Crypto-wallets have the cid-phrase, a set of words, that works as a master and allows users to recover their wallets if the private keys are lost or the device crashes. Protecting the cid-phrase is just as important as private keys, so it should be stored offline in a safe place.
5 popular ways to store cryptocurrency
Non-custodial cryptocurrency wallets
Let’s look at two well-known services.
Trust Wallet
A decentralized non-custodial wallet with full private key control. It was founded in 2017 and was acquired by the Binance exchange in 2018. Despite this the wallet has maintained its independence and autonomy.
Benefits
- Supports over 9 million digital assets, including bitcoin, ether, and NFT-tokens
- Available on mobile devices and as a browser extension
- Open source and transparency
- You can buy crypto with a bank card
Drawbacks
- Commissions for buying cryptocurrency can be high
- Potential vulnerabilities due to the browser extension
Trust Wallet is a proven option for those who are used to think about their private keys themselves.
Exodus Wallet
A popular cryptocurrency wallet with a great balance between convenience and security. Available on mobile devices and computers.
Benefits
- Intuitive design and easy to use interface
- Support for over 360 digital assets
- Integration with Trezor cold wallets
- Exchange some assets directly in the wallet
Drawbacks
- The code is not fully open source, which reduces transparency
- Supports fewer assets than Trust Wallet
Exodus gives advanced cryptocurrency management and secure storage with Trezor integration.
Hardware wallets
These are the best tools to hold cryptocurrency safely as private keys are stored offline.
Benefits
- Private keys are stored offline, making them less vulnerable to hacks
- Ease of use with the vendor’s apps
Drawbacks
- Cost is higher compared to software wallets
- Risk of losing your device or PIN
Let’s explore three brands of the most trusted hardware wallets.
Ngrave Zero
A new hardware wallet brand. It has strong security features.
Benefits
- EAL7 security certification
- Uses fingerprint and PIN for two-factor authentication
- Innovative cid-phrase generation using light sensor
- Metal card for cid-phrase storage
Drawbacks
- Supports a limited number of cryptocurrencies
- Fairly high cost (about $400)
Ledger
One of the best-known brands of the hardware wallets. The company produces two main models: Nano S Plus and Nano X.
Benefits
- Supports more than 5500 coins and tokens
- Compatible with more than 50 third-party wallets
- The Nano X model is equipped with Bluetooth to connect with your mobile device
Drawbacks
- There was a user data leak in 2020
- Failed PR due to Ledger Recover feature
The Ledger Nano S Plus and Nano X models cost $79 and $149, making them the most affordable hardware wallets.
Trezor
Trezor is the world’s first hardware wallet brand. The company has two models, the Trezor Model One and the Trezor Model T.
Benefits
- Completely open source
- Multi-signature feature and Shamir Backup to protect the cid-phrase
- CoinJoin support for anonymizing bitcoin transactions
Drawbacks
- Model T is quite expensive ($219)
- No Bluetooth
The new Trezor Safe 3 model provides a middle ground between the Model One and Model T offering strong security and USBC support for $79.
Tips for safe cryptocurrency storage
Simple security tips that can protect your assets.
- Use two hardware wallets to diversify your risks
- Record your cid phrases and store them offline on metal cards
- Don’t store private keys or cid-phrases digitally
- Keep your devices secure: regular virus scans, be careful when downloading files.