Most people would agree that 2022 has been nothing short of a disaster for the cryptocurrency industry. In addition to overall declining prices, the crypto space has been repeatedly rattled by bankruptcies, severe bridge hacks and the collapse of large-scale crypto ecosystems.
As users frantically scramble to remove their funds from compromised or insolvent platforms, the time has never been better to discuss the safest ways to store crypto. The following discussion will explore the most secure way to protect your crypto assets, in addition to a few key tips for holding your crypto.
What Are Crypto Wallets?
A crypto wallet is a tool that enables users to interact with blockchain networks. They are necessary when receiving or sending digital currencies such as Bitcoin or Ethereum. Unlike traditional wallets, cryptocurrency wallets don’t truly store your funds. Instead, your coins belong to a blockchain system as pieces of data, and the wallet serves as a means to access them.
Generally speaking, all crypto wallets contain a public key and a private key. A public key is used to generate wallet addresses, which enable you to receive payments. Conversely, a private key can be thought of as a digital signature that allows you to verify transactions and control the coins associated with the wallet.
Users can choose from three groups of cryptocurrency wallets: software, hardware and paper wallets. However, wallets can be further classified as either hot or cold and as custodial or non-custodial depending on the way they function.
Cold wallets refer to wallets that generate keys without any Internet connection, which makes them extremely resistant to cyber-attacks. Hot wallets are wallets that are somehow connected to the Internet and, therefore, are more prone to hacking attacks. Lastly, a wallet can be either custodial or non-custodial. A custodial wallet service (like Coinbase or Kraken) holds onto the user’s private key, making itself responsible for safeguarding a user’s funds. Alternatively, a non-custodial wallet provides users with sovereignty over their private key, and with it absolute responsibility for protecting their holdings.
What Are the Safest Wallets to Hold Crypto?
Centralized Exchanges — Least Secure
Centralized exchanges are a type of exchange that is controlled by a third party (referred to as an exchange operator), to ensure that trading and customer sign-up operate smoothly on a large scale.
Keeping your cryptocurrency on centralized exchanges is the least secure way of storing your cryptocurrency. This is a widely accepted fact in the crypto space and the reason why leading exchanges such as Binance advise users to store long-term holdings in self-custodial wallets. There are two key reasons why holding crypto on exchanges is risky.
Exchanges are responsible for holding onto the crypto (private keys) for all their users. This factor makes them a huge target for hackers trying to hack and break in. While exchanges take multiple safety precautions and often offer insurance funds, they are not immune to hacks. KuCoin is a global leading crypto exchange based in the Seychelles. In 2020, it was targeted, and cybercriminals managed to steal over $281 million worth of tokens and coins.
Another key risk of holding your crypto on a centralized exchange is that the exchange owners could go bankrupt — as demonstrated by FTX. This situation can result in an irreversible loss of funds for investors.
Software Wallet — Somewhat Secure
Software wallets are another popular option for storing your crypto assets. While you don’t have to worry about an exchange getting hacked, mismanaging your crypto or becoming insolvent, software wallets are only as safe as your device.
For this reason, it is oftentimes safer for users to store their crypto on leading exchanges as opposed to on their desktop or mobile device. However, if you follow recommended security procedures and keep private keys and recovery phrases offline, software wallets are better than exchanges.
Hardware Wallet — Most Secure
Hardware wallets are universally considered to be the safest way to hold your crypto. They consist of physical devices that store and generate keys without any connection to the Internet and, as such, fall into the classification of cold wallets. These keys are generated based on random number generation (RNG) algorithms and are stored in the device itself.
While hardware wallets are not as convenient as the preceding options because of limited accessibility, they are the best way to store large amounts of crypto.
Best Hardware Wallets
Plenty of different hardware wallets are available to choose from in the cryptocurrency market — each of which ranges in price and features. Here are a few of the best hardware wallets you can use today:
Ledger’s hardware wallets are some of the most trusted hardware wallets in the world. Users can choose from the Ledger Nano X wallet ($150) or the Ledger Nano S Plus wallet ($79). Both wallets allow users to store countless different coins and tokens. The service also receives overwhelmingly high ratings for user satisfaction and user-friendliness.
Ledger exceeds industry standards for security and supports tamper-resistant Common Criteria (CC) EAL5+ certified Secure Element (SE) chips on all nanodevices. The company also undergoes independent audits from the French National Agency for the Security of Information Systems (ANSSI). However, it is important to note that Ledger is not open-source. This means that Ledger, unlike competitors such as Trezor, doesn’t allow users to independently audit the firmware’s security.
Trezor hardware wallets are developed by Satoshi Labs, which was the first hardware wallet provider of note in the world. The most recently developed hardware wallet was the Trezor Model T, which differentiates itself from other wallets through its touchscreen interface. Like Ledger, Trezor Wallet enables users to store countless coins and tokens including Bitcoin, Dogecoin, Ethereum, and more.
The Ellipal Titan is the world’s first air-gapped cold storage wallet (wallets that are completely disconnected from the internet and any form of wireless communication). Ellipal circumvents wireless connections such as Wi-Fi, USB or bluetooth through the use of QR codes for data transmission.
The wallet cannot be broken open without causing irreparable damage, deleting all private keys when a break is detected. Ellipal supports over 10,000 coins and tokens from over 41 different blockchains.
Best Practices For Storing Cryptocurrencies
So you decided to choose the safest way to hold your crypto assets by using a crypto wallet. Well done! Here are some steps you can take to further protect your crypto:
- Don’t keep crypto on exchanges for a prolonged period or longer than necessary.
- If you use a hardware wallet, choose a pin code that is hard to guess and never put your 24-word recovery sheet online.
- Don’t boast of your crypto holdings publicly under your real name or identifiable address.
- Always assume that your devices can become compromised at any time and act with caution.
- When using software wallets, be aware of phishing sites.
- Always use two-factor authentication when possible.
So, What’s The Safest Way to Hold Crypto?
Overall, it is best practice to use a hardware wallet to maximize the security of your crypto. They give you an extra layer of security from phishing sites, malware and cyber-attacks. While hardware wallets can be relatively expensive, they are definitely worth the investment as they give you peace of mind that is not possible when relying on exchanges or software wallets.