If you’re new to cryptocurrency, you’ve discovered it’s unlike traditional banking. Bitcoin, Ethereum, Litecoin and other currencies exist on a decentralized, open network called a blockchain. You may be thinking that all you have to do is buy some coin through whatever means are available and the blockchain will take care of the rest. Sadly, that’s not always the case.
While the technology behind blockchain makes it quite secure, that security does not extend to the means you use to interact with the network. The good news is that it’s pretty easy to get your currency into a safe place, while taking into account access, ease of use and security. The safest place for your cryptocurrency may in fact be an old-fashioned piece of paper.
Exchanges such as Coinbase give you the option to buy crypto coins and sell them for fiat currency, such as the U.S. dollar. If you leave your coins on the exchange, you can take advantage of rising prices by selling at a profit or bailing if the price goes down. You can use your exchange wallet to transact over the blockchain, including using your crypto coin to buy goods and services.
But with the convenience of an exchange comes greater risk. By leaving your currency on an exchange, you’re trusting that entity to hold it for you and keep it secure. Exchanges are vulnerable to hackers who can steal cryptocurrency, leaving investors holding the losses. In December 2017, South Korean exchange Youbit lost 17 percent of assets as the result of a hack.
Online Cryptocurrency Wallets
Other online wallets, like Blockchain.info, are not linked to an exchange platform, although they allow you to send and receive cryptocurrency. You can also use these to trade your digital coins. Because the wallet is still online, however, it may be hacked. If a rogue actor somehow gets hold of your wallet keys and steals your currency, you may be out a significant amount of cash.
Desktop Cryptocurrency Wallets
A desktop application that holds your digital currency has one important distinction from online wallets: it does not link to the internet. You have the convenience of ease-of-use without the fear of an exchange going bankrupt. However, if someone hacks your individual computer, it’s still possible they’ll run off with your coin as well.
Offline Cryptocurrency Wallets
Those who hold a lot of cryptocurrency use the safest method from protecting their coins from online hackers: storing them offline and off their devices. The key point here is that all you really need to access your wallet is your wallet ID and your digital keys. That’s a series of numbers, digits and words. All of that is stored in the memory of the blockchain, so you don’t need an online wallet to use it.
All you need for an offline hardware wallet is an external hard drive or USB stick. You can also get specially made devices like Trezor and Ledger Nano that makes it a bit easier to set up and retrieve your coins when you need them.
A word of caution, however — if you lose your device or your keys, there’s no other way to access your cryptocurrency. So put that USB in a safe place.
Probably the most low-tech way to hold your cryptocurrency is to create an offline paper wallet, like the one offered at BitcoinPaperWallet. It’s not as user-friendly as an online or exchange-linked wallet, but you’ll have no worries about hackers stealing your funds. Just be careful not to get it wet or lose it in the weekly recycling pickup.
To choose the best option, look at your goals for cryptocurrency. If you’ve got enough to spread it around, try a few different wallets to spread out the risk.