If you are thinking about investing in digital money, sooner or later, the question will arise for you: where to store the cryptocurrency to be sure of its safety. In this article, we will analyze the ways of keeping crypto assets and their pros and cons.
What are the specifics of cryptocurrency storage?
The unstable economic situation of recent years has made many business people and companies look toward investing in digital assets. Governments and central banks do not influence them; they are developing dynamically and have more and more application areas. Therefore, today, crypto enthusiasts know how to buy a cryptocurrency and where to store their digital assets. Bitcoins and other tokens are on the balance sheets of large international companies and are used by banks and financial institutions.
At the same time, the cryptocurrency does not lie in bank vaults like the traditional money we are used to. The fact is that cryptocurrencies do not have a physical form. These are not coins or banknotes but a transaction accounting unit in a decentralized payment system. Decentralization means no legal entity (bank or company) responsible for and controlling your savings. The blockchain, on which most cryptocurrencies are based, is a public network in which transaction data is available to all participants. At the same time, participants and holders of funds are anonymous – only their wallet numbers are visible.
It turns out that the cryptocurrency is not located on someone’s server or device, and the ownership of coins is the possession of a key that gives access to them.
Cryptocurrency wallets and keys – what is it?
Let’s analyze the basic concepts to understand where you can store cryptocurrency.
The public key is similar to the bank account number. To receive coins from someone, you need to provide this key to the sender. The public key is a sequence of characters that can be used as an address.
The private key, as the name implies, is known only to the coins’ owner. With it, he can “unlock” his funds, get access to them to pay for the purchase with cryptocurrency, sell them or transfer it to someone.
Thus, the cryptocurrency itself is stored on the network and assigned to some owner (“stored in his wallet”), and the owner can “unlock” it with his private key by entering it into the system. In the same place, he will enter the public key of the person to whom he wants to send tokens, and they will be assigned to the addressee. If the recipient wants to get rid of them, he needs his private key.
A cryptocurrency wallet is storage of these two keys. When choosing where to store your cryptocurrency, you sеlect the most reliable and convenient storage for your keys to tokens and transactions.
Types of cryptocurrency wallets
The easiest way to keep the keys to your funds is to write them down on paper. You will receive a “paper” crypto wallet where you can store cryptocurrency for a long time, isolated from Internet users and hackers. This kind of cold wallet is not connected to the network, from which funds cannot be sent quickly.
The advantage of such a wallet is that it is free and secure from any Internet threats. Minus – in the absence of backup: lost a piece of paper – lost money.
Cold wallets are also hardware wallets. It’s like a flash drive with your keys that you plug into your device when you need to send or receive money. Several manufacturers of such wallets are on the market, the most popular of which are Ledger and Trezor. Hardware wallets are very well protected from hacking. This is a device where you can safely store cryptocurrencies that you do not need regular access to. Of the minuses – the relatively high cost, the risk of losing the device itself, and with it, the money.
In addition to cold wallets, there are hot wallets hosted online. They allow you to quickly send or receive funds thanks to the constant access to the network. Such storage is also called digital wallets. Register on the site or the application and create a wallet in the desired currency. A cryptocurrency exchange can also act as a platform where even an inexperienced user can buy and store cryptocurrency.
There are two types of digital wallets: custodial and non-custodial.
Custodial wallets mean that the site itself has access to your private keys. The scheme of their work resembles an Internet bank since you share control over the funds with the service. The advantage of such a wallet is that the site takes on some concerns about your money’s safety. In addition, if you forget the key, you can restore it. There are also disadvantages: firstly, in the event of a hacker attack and hacking of the site, you risk losing your money, and secondly, scammers often create phishing sites that copy the design of such sites and steal users’ money. An example of a popular service offering non-custodial wallets to users is the Binance exchange.
In the case of non-custodial wallets, only you have access to the keys. Digital non-custodial wallets are a kind of application for quick access to funds. The main risk in using them is viruses and ransomware that can prevent you from accessing funds. In addition, you can lose the device itself, on which the wallet is located, or become a victim of theft. In this case, you will also lose access to funds. Suppose you are confident in your computer or gadget and use good antivirus programs. In that case, a non-custodial wallet is a convenient place where it is better to store cryptocurrency for a long time. Examples of popular non-custodial wallets are Exodus, Zeno, Abra, MyCrypto, and others.
Summary
Due to the specifics of cryptocurrency, the issue of its storage from the user’s point of view is reduced to storing keys for accessing funds.
There are several types of wallets where anyone can store cryptocurrency in 2021.
Paper Wallets: A piece of paper where you write down your private key.
Hardware wallets are a device that can be connected to a computer or phone when you need to send or receive funds.
Digital wallets: custodial (something like an Internet bank, not only do you have access to the keys, but also the site) and non-custodial (an application you install on your device, only you have access).
Remember that you risk losing funds when storing, purchasing, or selling. Always study the reputation of the service you trust with your money, read online reviews, and check the support quality.
Mine is an exchanger where it is safe to buy cryptocurrency, and you can store it after purchase in any way you choose.
