Blog Crypto How to keep your cryptocurrency safe

How to keep your cryptocurrency safe

date January 6, 2021 time 4 min read 798 views

Owning cryptocurrency is one thing, but unless you know how to keep crypto safe, you leave your investments open to cybercriminals. In this article, we’ll teach you how to protect your funds and explain the different options for securely storing your crypto.

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 loan to cyberspace.

To this day, close to 20% of bitcoin has been lost or locked in wallets where the owners have forgotten the password.

What is the best way to keep cryptocurrency safe? 

One of the safest places you can store your money is on a major crypto exchange.

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

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

Lastly, if an exchange were to suffer a security breach, they offer insurance policies and guarantees that could be used to cover at least a portion of your lost funds.

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

There is a downside to storing crypto on an exchange — you don’t really ‘own it.’ Storing your crypto this way is similar to storing it at a bank. If the exchange goes bust, your savings, beyond the insurance cap, are at risk.

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

When you store your crypto lending in a personal wallet, only you have control over it. That said, more control means more responsibility.

If your funds stored in a wallet go missing or are hacked, there’s little you can do. And if you lose your wallet password, that’s it — you’re locked out for good.

When picking between an exchange or a wallet, you need to decide whether you’re prepared to take control of your assets and accept sole responsibility.

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’s important to 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’re easier to withdraw crypto from.

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

Hot wallet benefits

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

Hot wallet cons

  • Storing your crypto online makes it susceptible to cybercriminals.
  • Because of their privacy, many hot wallets are insufficiently reviewed.
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 (sometimes called storage) 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 your cryptocurrency safe by making it inaccessible to cybercriminals. If there’s no way to digitally access your crypto, it can’t be hacked.

In 2020, the most popular cold wallets were Trezor and Ledger.

When storing crypto with an exchange or third-party platform, always check if they have cold wallet. And keep in mind, while cold wallets are the safest, getting your crypto from them can take a little longer since they have to be physically plugged into a computer.

Cold wallet benefits

  • Many crypto owners prefer to store their money in cold wallets because it makes their crypto feel tangible. 
  • Your crypto is held offline 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.

Cold wallet cons

  • If your device is stolen or compromised, the responsibility is on you.
  • 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 — this information is sensitive.
  • 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 many aspects of finance and investing, your best bet is diversification. Hot wallets are great for crypto that you want to move quickly and often. Whereas cold wallets are ideal for the crypto you want to save for a long time (or if you have an enormous amount).

And when choosing a peer to peer lending sites that accepts crypto, you want to make sure they’re diversifying too.

Store your crypto securely AND earn interest for it at MyConstant

On MyConstant, 70% of your crypto is stored in hot wallets hosted on a dedicated server that’s insured up to $10 million dollars. (only qualified senior staff members have access to these wallets). The remaining 30% is held on a major crypto exchange.

And when you’re not using your BTC, ETH or BNB coins for loans, they earn 4% APY through our crypto lend.

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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George Schooling

George Schooling

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