Blog Technology How to keep your cryptocurrency safe

How to keep your cryptocurrency safe

date January 6, 2021 time 5 min read 101 views

Owning cryptocurrency is one thing but unless you know how to keep cryptocurrency safe, you leave your investments open to cyberhackers and fraudsters. In this article, we’ll teach you how to protect your funds and explain the different options for storing your crypto. This will enable you to take the necessary steps to keep your cryptocurrency safe.

20% of existing Bitcoin has been lost and will likely never be recovered.

While blockchain can be great for preventing institutional fraud, crypto exchanges often leave the backdoor open for internet thieves. And poorly designed or complicated personal wallets have frequently contributed to people losing their crypto to cyberspace.

If you’re serious about investing in crypto, you need to ask yourself what you’re doing to keep your cryptocurrency safe. And we’re going to walk you through some of the ways you can start today.

What is the best way to keep cryptocurrency safe? 

Despite their drawbacks, if you are new to the world of crypto, arguably the safest place to store your money is on a major exchange. This is simply because they are easier to navigate for a beginner. 

Remember that 20% of Bitcoin tokens have been misplaced by users. Keeping all your cryptocurrencies in one place reduces this risk.

More importantly, exchange platforms -while centralized – can go to greater lengths to prevent hacks. Coinbase, for example, claims they keep 99% of user assets in offline cold storage which means that your crypto cannot be hacked. 

What’s more, if they were to suffer a security breach, many exchanges offer insurance policies and guarantees that could be used to cover at least a portion of your lost funds. Good luck getting that out of your cold wallet.

What is the difference between storing my crypto in an exchange vs a wallet?

Here’s the downside of exchanges: if you keep your crypto on an exchange like Coinbase, you don’t really own it. Storing your crypto in this way is similar to storing it in a bank. If the platform goes bust, your savings beyond the insurance cap are at risk too.

While exchanges are growing increasingly regulated in many regions, they don’t necessarily need to follow local laws and regulations. This is the main reason why people use personal wallets.

When you store your crypto in a personal wallet for safekeeping, you and only you can control it. Of course, more control means more responsibility. 

If your funds stored in a wallet go missing or are hacked, recovering them is on you. And if you lose your wallet code or password, then there is often little you can do to find it again.

Ultimately, when deciding whether to keep crypto on exchange or wallet, you need to decide whether you are prepared to take control of your assets and take on the responsibility that comes with this.

Keep your cryptocurrency safe by storing your C-phrase offline
Keep your cryptocurrency safe by storing your C-phrase offline (source: pxhere.com)

Hot wallets vs cold wallets

To make an informed decision about whether to keep crypto on an exchange or personal wallet, it is important to also understand the different types of wallets available.

Hot wallets mean instant access wherever you are in the world

A hot wallet allows you to store your crypto online. Personal hot wallets are non-custodial: your wallet, your crypto. Most online platforms use hot wallets as they are easier to withdraw crypto from.

The most popular hot wallets are Monarch, Exodus, and Electrum. Exodus tends to be recommended for beginners due to its ease of use whereas Electrum is popular among advanced users. 

Pros of hot wallets

  • Hot wallets give you instant access to funds.
  • Many hot wallets are free to use and beginner-friendly.
  • You can access your hot wallet on desktop and mobile, wherever you are in the world.
  • You can earn interest on holdings.

Cons of hot wallets

  • Storing your crypto online makes it vulnerable to hackers. There is a higher risk associated with hot wallets.
  • Not open source. The code for hot wallets often isn’t public meaning it doesn’t get reviewed by community members to evaluate its quality.
Hot wallets leave your cryptocurrency vulnerable to cyber attackers
Hot wallets leave your cryptocurrency vulnerable to cyber attackers (source: pixnio.com)

Cold wallets mean you are safe from online threats

A cold wallet allows you to store your crypto offline in the form of hardware or paper wallets. 

Hardware wallets are flash drives that plug into your computer. A paper wallet is a printout that contains the keys and QR codes necessary to make a crypto transaction.

The principle of these offline “physical” wallets is to keep cryptocurrency safe by making it inaccessible to cyberhackers. If there is no way to digitally access your crypto, it can’t be hacked.

In 2020, the most popular cold wallets were Trezor and Ledger. Of the two options, Trezor being the most affordable.

When storing crypto with an exchange or third-party platform always check if they have cold wallet storage. Cold wallet storage is always safer, however, it may mean that there are some delays when accessing your money.

Pros of cold wallets

  • You physically own your own money. Many crypto owners prefer to store their money in cold wallets because it makes their crypto feel tangible. 
  • Your crypto never goes online so hackers cannot access your private key. 
  • As long as you keep your recovery phrase safe, you can transfer your crypto to a new physical device if it gets lost or damaged.
  • No one can access your crypto without both the device and your C-phrase. With discrete and thorough storage of both elements, a cold wallet is arguably the best way to keep cryptocurrency safe.

Cons of cold wallets

  • You are responsible for your wallet. If your device is stolen or compromised, it is your responsibility to know how to restore your crypto.
  • If you use a paper wallet, your private keys are stored on paper. If your printer stores the image that it prints, there will be a digital image on the cloud.
  • Cold wallets are usually only offered for major cryptos like BTC or ETH.
Cold wallets offer protection against cyber hackers
Cold wallets offer protection against cyber hackers (source: pixabay.com)

Which is better? Hot or cold wallets?

As with anything in finance, your best bet is always diversification. Hot wallets are great for your funds that you want to move fast and cold wallets are great for the funds you want to save for a long time.

Get acquainted with both and use the mixture you think suits your style the best.

And when choosing an exchange or crypto handling platform, you probably want to find one that uses a mixture of hot and cold wallets as well.

We offer a storage option for your crypto that involves a mixture of hot and cold wallets and rates up to 9% APY on your idle BTC, ETH, and BNB…

Store your crypto securely AND earn interest for it at MyConstant

At MyConstant, we take every measure we can to ensure that your crypto is safe.

We’re designed to be non-custodial, protecting your investments by sending your money to our trust partner, Prime Trust. They use a mixture of hot and cold wallets to ensure your crypto is as safe as possible and accessible too.

And as we do not hold your money, if we were to hypothetically go under, we could never disappear with your funds, unlike many exchanges.

Not only do we everything we can to keep your cryptocurrency safe, but we also offer crypto-lend feature having the interest up to 11% on BTC, ETH, and BNB on our platform with anytime withdrawals. Try finding THAT on an exchange.

Interested in online storage options outside of the exchange? Want better crypto loan options for your idle funds? Sign-up for a free account today and see how you could be doing more with your money.

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