How to store your cryptocurrencies
Storing your cryptocurrencies is the responsibility of the owner. Here is how to safely store your cryptocurrency so you don’t lose any money.
When thinking of the best crypto trading platform in South Africa to buy your digital currencies, it’s important to think of where to store them. That’s because cryptocurrencies don’t have the same protection as cash in a bank account or other investments made through a broker. That means storing your crypto coins is your responsibility as the owner.
Considering that it’s the owners’ responsibility to store cryptos, you’ll lose your money if you lose access. That’s a common issue in the crypto market since the invention of bitcoin, and it’s estimated that around 3.7 million BTC has been lost forever. Here are several options for storing your cryptocurrency safely.
Storing Your Cryptos In A Custodial Wallet
The custodial wallet is considered the default choice for storing cryptos. This type of storage involves a third-party holding the cryptos for you on either cold storage (offline), hot storage (online), or combining both.
After purchasing digital coins from a cryptocurrency exchange or stockbrokers, they’ll put them in a custodial wallet of their choice. However, you can transfer the digital coins to a cold or hot wallet if you want full control of your storage. Nonetheless, not every cryptocurrency platform will let you do that.
Some cryptocurrency buying apps and stockbrokers will only let you sell or buy cryptocurrencies without transferring them anywhere. That means the only option you’ll have is to use the custodial wallet they offer.
Lots of crypto investors use their custodial wallets without issues, and there are several advantages to using this kind of wallet:
- It has the least amount of work on the investors’ part.
- It’s easy to access your crypto coins when you’re trying to trade them.
- There’s no need to worry about losing control of your wallet.
While custodial wallets aren’t as secure as a personal wallet, they’re more convenient for first-time crypto investors. That means if you choose to use a custodial wallet, you’ll need a platform with high-security standards.
Storing your Cryptos in a Cold Wallet
Cold wallets are offline cryptocurrency wallets. These cold crypto storages use different methods, including creating your free paper wallet. However, the most common type of cold wallet is using a hardware wallet.
Hardware wallets are typically small electronic devices that connect to a computer and store your cryptocurrency. The devices can also connect to the internet to receive and send cryptos, but the funds stay offline.
Here’s how they work:
- Each cold wallet can store specific types of cryptocurrency. Some of them can store over 1000, while others keep a much smaller number like Bitcoin and several others.
- When connecting hardware to the computers, you can create an address to receive your digital coins to the wallet.
- The wallet can send cryptocurrencies to other crypto addresses.
Every hardware wallet comes with a recovery phrase known as a recovery seed. That allows you to recover digital currencies even after losing the device. That means anyone who accesses this phrase can steal your digital currencies.
Storing Your Cryptocurrencies In A Hot Wallet
A hot wallet refers to an application used for storing cryptos online. Hot wallets come in the form of mobile and desktop apps, while others are web-based.
The main advantages of such wallets include:
- Significant control over your cryptocurrency
- Most hot wallets are free
- Hot wallets are pretty easy to use, and you can easily receive/ send cryptocurrency quickly.
Similar to hardware wallets, these wallets feature a recovery phrase. This phrase comes in handy when getting back your cryptocurrency if you ever lost access to the wallet. The only problem is that wallets are at a higher risk of being hacked. However, many investors use hot wallets without them being hacked regularly.
Storing Your Cryptos In A Physical Wallet
Also known as a paper wallet, physical wallets are a type of cold storage. The paper wallet refers to a printout of your private and public keys, usually as scannable QR codes and a string of scannable characters.
The keys are used in making cryptocurrency transactions. Paper wallets use public keys to transfer cryptos, but you’ll need to scan your public and private keys to transfer your cryptocurrency. They also have the same advantage as hardware wallets, offering greater security as the cryptocurrency is stored offline.
Physical wallets are practically free to make, and they’re great for anyone looking for maximum security at a low cost. However, the main disadvantage of paper wallets is that they’re not very user-friendly for investors.
Best Practices When Storing Your Cryptocurrencies
Here are some safety tips to ensure that your cryptocurrency is safely stored:
- Store most of your digital currencies in a cold wallet since it’s the most secure choice.
- Use hot wallets for small amounts of cryptocurrencies to make them readily available for trading
- Record your recovery phrases physically by writing them down or use steel tools designed to record recovery phrases.
- Avoid sharing your private keys or recovery phrases with anybody and stop saving them on your computer.
