Many newcomers to cryptocurrencies face the difficulty of storing their digital assets. The crypto industry is developing very quickly but has not yet reached sufficient maturity to compete with the banking industry in terms of security and usability.
You can lose cryptocurrency by negligence, there are also many scammers in the industry. Therefore, for novice users, it is important to familiarize yourself with the main ways of storing cryptocurrency. This will help you gain a deeper understanding of the topic and feel more confident in that area.
Table of Contents
Storing cryptocurrencies on the exchange is the easiest and most affordable way. When creating an account on the exchange, each user is provided with a wallet that supports all the coins traded on the platform. It allows you to quickly swap ETH to BNB, as well as sell and buy coins. In addition, the loss of a password does not turn into a disaster – a registered user can contact technical support and access to the account will be restored.
However, the main disadvantage of this approach is the security issues on the exchanges. No platform can guarantee 100% protection of client funds, as hackers are always on the lookout for vulnerabilities on large trading platforms. The leaders of cryptocurrency exchanges also warn about the insufficient reliability of exchange storage.
Cryptocurrency should not be invested more than you are willing to lose if something goes wrong. Exactly the same applies to the storage of coins on the exchange. Leave as many funds in the wallet as you need for trading, the rest is better to keep offline.
In 2018, 54% of trading platforms had security issues. Over the past few years, the situation has improved significantly, in particular, two-factor authentication is present on almost all platforms. However, hackers are also on the alert and continue to improve their skills. Therefore, the warning about risk diversification will never cease to be relevant.
Hardware wallets – devices that resemble flash drives, are considered the most reliable way to store cryptocurrency. However, you need to be careful, as even such devices can have vulnerabilities. In December 2019, experts at the Kraken exchange discovered that a KeepKey wallet could be hacked in 15 minutes. At the same time, the cost of an attack is only about $75.
However, this method is still more reliable. To hack the device, you need to hold it in your hands in the truest sense of the word. If it is stored in a safe place, the risk is minimized.
Last year, Ledger wallet sales doubled after the Binance hack. However, even such devices may have vulnerabilities or bugs in operation.
When choosing a hardware wallet for storing cryptocurrency, you need to remember that the loss of a pin code can lead to the loss of funds. In addition, the disadvantage of hardware wallets is the possibility of their loss or damage in a physical way. For example, your dog may chew on it.
Storing cryptocurrencies in online wallets is similar to the exchange option, where the fate of your funds depends entirely on the service. Online wallets are convenient, but still not secure. Hackers can use many methods to steal your funds, including hijacking a user account or the service itself or creating phishing pages. Therefore, it is not recommended to store a large amount of funds in an online wallet and you need to be extremely careful.
Depending on how private keys are stored, online wallets can be hybrid or traditional. Hybrid wallets use separate key storage and multi-signature, while traditional wallets store private keys on the service, and only a backup copy is available to the user.
The key benefit of hybrid wallets is that the users’ coins are not completely accessible to the developers. Without your knowledge, they will not be able to exchange TRX for CAKE and transfer coins in an unknown direction. Payments are made only with the joint participation of the client and the company, which increases the level of security. However, the loss of the passphrase will be irretrievable and the user will not be able to regain access to their cryptocurrency.
A local wallet is the most versatile way to store funds. To do this, you can use applications on PCs, mobile devices, or extensions for browsers. To find a suitable option, just go to the official website of the project and download the desired program. However, this method has its own difficulties.
For those who need constant access to their coins to conduct transactions, the option for mobile devices is suitable. However, the cryptocurrency will not be stored on the device itself, so it can only be accessed with an internet connection. If the device is lost, digital money can be recovered.