How to Store Crypto Safely

Simply put, you’re the one responsible for the safety of your assets. Thankfully, there are several things you can do to reinforce their security, from keeping the wallet’s private keys protected to moving the coins off the exchange. This guide will touch upon what safe crypto storing actually means and dive deeper into the wallet types and key safety concepts.

In the eyes of most holders, the process of obtaining crypto is smooth. You simply get some coins from the exchange and safely store them in your wallet. Everything seems fairly quick and simple, so it’s easy to make the wrong assumption that the same goes for transaction reversals and private keys’ recovery.

The reality is that you’ve got no authority or organisation to turn to if your private keys get stolen or your wallet gets hacked. The main premise of crypto safety is clear: the person who holds the private keys owns the assets. It’s as simple as that.

This leads us to the first two terms essential for safely storing crypto. The first one is a custodial wallet, which is when you’re not in control of the private keys. Such wallets are mainly managed by major crypto exchanges, with holders being more in the role of creditors than genuine owners. Non-custodial wallets, on the other hand, are completely owned by the holders, as they control their keys.

Before we get into the basics of secure crypto storage, such as the choice of wallet types, it’s essential that you understand what the wallet is protecting. It all starts with the private keys and the seed phrase, so that’s where we’ll kick things off with this guide.

What is a Private Key?

Though you might think that cryptocurrencies are stored in digital wallets, they’re actually always stored on the blockchain. The wallet simply gives you access to the assets and confirms that you’re the rightful owner via private keys. Think of it as walking into the bank safe deposit vault.

You and everyone around you can clearly see all the safe deposit boxes, but only those with the access code can control what’s inside. The same goes for cryptocurrencies. They’re all visibly stored on the blockchain, but only the private key of your wallet can confirm your ownership of the coins. The private key is generated by your wallet as a long string of characters, and it’s the holder’s responsibility to manage those keys responsibly.

What is a Seed Phrase?

The most important thing to understand is that, if you happen to lose your private keys, there’s no way of retrieving them, so losing the key would also mean losing rightful ownership of the coins. Thankfully, the key isn’t the only way of recovering your crypto balance.

There’s also a seed phrase, which is a string of 12 to 24 words generated when you first create your wallet. Now, going back to our example: if the private key is the access code, you can think of the seed phrase as the master key.

It can regenerate your wallet on any device, which is a good thing. What’s not so good is that, as a master key, the seed phrase can also be used by anyone else to get hold of your wallet and everything inside it. That’s why it’s crucial to never share or digitally store the seed phrase.

Now that you know that the primary purpose of crypto wallets isn’t to physically store crypto but to hold the private keys that allow access to coins, it’s about time we discussed wallet types. You’ve probably heard the terms “hot wallets” and “cold wallets” before, but what do they actually mean? We’ll break it down for you.

Hot Wallets

As digital wallets connected to the internet, hot wallets allow you to access your crypto holdings via browser extensions or mobile apps. The fact that they’re online makes them convenient for daily crypto management, but it also makes them vulnerable to all sorts of online security threats, such as malware or phishing attacks.

That’s why it’s best to use multi-layered security methods when using those, including two-factor authentication (2FA), biometric verification, and local encryption. Considering their numerous vulnerabilities, hot wallets are mainly recommended for everyday traders storing smaller amounts.

Cold Wallets

Cold storage mainly refers to hardware wallets as physical devices. When using cold wallets, only signed transactions are transmitted online, so your private keys never reach the internet. That pretty much eliminates any chance of cyber attacks or phishing attempts potentially stealing your keys.

While their hacker-proof nature makes them a safer alternative to hot wallets, it’s also worth considering their cost. It’s not recommended to go after second-hand wallets, as they bring a higher risk of tampering, so you’d have to look for a certified manufacturer in your area to get one.

Plus, these make it more difficult to manage a large volume of daily transactions, so they’re best for holders storing larger amounts without the need to frequently access their crypto balance.

Custodial Wallets

Crypto holders who want nothing to do with the choice of a hot or cold wallet can simply leave their coins on the exchange. Many of the centralised crypto exchanges offer custodial wallets, which basically boil down to the exchange managing the crypto assets in your name.

They’re called custodial for a reason: the exchange has the private keys, and they execute trades and crypto purchases on your end. The problem is that exchanges are prone to all sorts of potential online attacks, which reflects your ability to make withdrawals.

Your seed phrase is the only thing that could help you prove ownership over a lost wallet’s balance, which is why it’s crucial to safely store it. Here are some tips to help you with that:

• Write it down by hand: The safest way of storing a seed phrase is by writing it down on a piece of paper and keeping it under lock and key. This prevents the chance of online leaks or someone else stealing the code.
• Store it offline and physically secure: Once you’ve written the phrase down, make sure you find a safe place to keep it without the chance of anyone else seeing it.
• Make more than one copy: Write more than one copy of the seed phrase while you’re at it, and make sure you safely store each and every one of them. This way, you won’t suffer a complete loss if you misplace the code or lose it in an accident.
• Never share it with anyone: If anyone asks for your seed phrase, take it as an immediate red flag. Cryptocurrency exchanges and wallet providers never do, so there’s no reason to share it with anyone.

Smart Tip: Treat your seed phrase the way you would treat a physical key to a safe containing your life savings. You would not photograph that key, store the photo online, or hand it to a stranger who called claiming to be from the bank. The same logic applies exactly.

Keeping your crypto balance on an exchange might be a convenient thing to do, but it’s never the safest. Here’s how you can safely move the balance from your exchange account into a digital wallet:

• Set up a wallet first: Software wallets require you to generate a new cryptographic keypair. Find a trusted application, download the software, and initialize a new local vault profile. Find the one you trust the most, visit the website, and set up a browser extension or a mobile app.
• Copy the receiving wallet address carefully: As you set up a wallet account, you’ll receive your public and private keys. The public key creates your wallet’s receiving address, and it’s a string of characters that you’d need to carefully copy and paste on the exchange to send your crypto over to the wallet’s balance. Make sure to note that if you miss even a single digit or character here, your crypto would be irretrievably lost. It would continue to exist on the blockchain, but you wouldn’t have ownership access.
• Send a test transaction first: To confirm the receiving address, simply send a lower test transaction like 0.001 Ethereum or 0.05 LTC first. If it goes through, proceed with the larger amounts.
• Confirm and wait: Once the transaction gets underway, all you can do is sit tight and wait as it’s processed. You can follow up on the transaction status in your wallet balance settings.

Storing your digital assets on a hardware wallet is one of the most secure ways of doing things, but there are still single points of failure worth considering. That’s why our team outlined the advanced methods of safeguarding your crypto from both online hackers and physical threats.

App-Based and Hardware Two-Factor Authentication (2FA)

SMS-based two-factor authentication simply won’t cut it against the increasingly sophisticated malware and phishing attacks. Instead, focus on setting up in-app authentication or use hardware security keys like YubiKey to secure your crypto accounts. Physical keys use a cryptographic signature to verify your identity, so there’s no way for hackers to steal and copy it.

Multi-Signature (Multisig) Wallet Architecture

Multi-signature wallets use multiple crypto keys to validate transactions. Here’s a simple example – let’s say you’re sharing a wallet with an associate using a 2-out-of-3 multisig configuration. That would mean there are 3 private keys, 2 of which are required to validate a transaction.

As the holder of one key, you’d create a transaction, which is then reviewed by the second-key holder, who decides to approve it. Every 2 out of 3 private keys generated confirm the transfer, making it more difficult for hackers to steal your keys.

Redundant Metal Backups and Passphrase Encryption

Not even having multiple paper wallet phrases saves you from potential physical damage or degradation over time. For that reason, it’s best to buy stainless steel or titanium backup plates that can withstand extreme conditions and temperatures, just to be safe.

You should also consider using the “25th-word passphrase” method. Adding an extra word to your 24-word phrase creates a safe pocket, as you can divide the balance into a main wallet that unlocks with a regular seed, along with a hidden wallet that can only be accessed by typing in the phrase containing an extra word.

• Sending crypto to the wrong network: Before you send transactions in crypto funds, make sure you’re sending your coins using the right network. For instance, stablecoins like USDT and USDC use TRC-20 and ERC-20 networks, among others. You can’t send a transaction in USDT using the Bitcoin network.
• Missing an address character: Even a single character missed could lead to lost funds when making crypto transfers. To increase security, you can use the QR code scanner that most wallet apps have to automatically copy the entire sequence without manually typing it out.
• Storing the seed phrase digitally: The worst user error would be to store your private key and the recovery phrase exclusively in a digital format, so make sure to reduce the digital footprint by saving those keys manually in a written format.
• Using a second-hand hard wallet: Second-hand wallets are often sold by scammers looking to steal your keys as soon as you deploy them, which is why it’s best to only purchase cold wallets from reputable sellers.
• Failing to apply multi-layered security: Crypto holders that fail to enable two-factor authentication are at risk of phishing attacks and unauthorised withdrawals. Using multi-factor authentication, like a secondary device for transaction confirmation, helps mitigate those risks.

• Review token approvals granted to decentralised applications and revoke access for dApps you no longer use.
• Keep your wallet software updated to get the most out of each security update.
• Don’t fall for scammy reward offers that would require you to share or verify your wallet’s address.
• Use multiple devices and wallets for different purposes to limit the exposure of each.
• Modern-day scammers have even found ways of stealing copied addresses via clipboard hijacking, so always verify receiving addresses before sending crypto.

Crypto storage safety is all about balance and finding the right approach for your use case. Having a custodial hot wallet might be easy and convenient for everyday crypto traders, but placing your keys in someone else’s hands is not the safest route.

It’s not that complicated; if you want utmost crypto security, simply control your own keys, store your seed phrase written on a piece of paper in multiple secure locations, and don’t share your keys. Knowing how to store crypto is just the first step in successful management of digital currencies. Take a peek at our blog for more crypto guides on how to do everything else.