Storing your cryptocurrency
Securing the bag
Cold storage is more secure than hot storage.
Hot storage includes leaving your cryptocurrencies in an exchange wallet after you buy them. With hot storage, your coins are stored online by the exchange’s servers, and they keep custody of your private keys.
Your private key grants access to your funds, so its security is imperative. By storing your coins in a centralized exchange like Coinbase (fiat money → crypto) or Binance (crypto → more crypto), it creates a single point of failure that is the exchange’s server. While convenient , this makes your funds vulnerable to hacks, corruption, or plain incompetence. Also — due to the immutable nature of blockchains and the lack of regulation in the space, stolen funds are almost never recovered. Crypto is truly the wild west of the Internet. Protect yourself.
Check out the worst exchange attacks here.
The most secure way to store cryptocurrency is with a hardware wallet such as the Ledger Nano S or Trezor. These devices look similar to USB drives. However, they are engineered to keep your private keys secure. Your keys are stored offline and never leave the device, even when you connect it to a computer to perform transactions. They are kept completely hidden.
Here is a nice video on how to set up your Ledger Nano S.
Desktop software wallets are another cold storage option for cryptocurrencies. With desktop wallets, your keys are stored on your computer instead of a third-party’s server. They provide a convenient solution to cold storage since they can run parallel to your hot storage at any time (keeping everything in one place). However, your computer is still susceptible to malware that can infiltrate and steal your funds rather easily. Be wary holding large amounts of cryptocurrency here for a long time.
Here are some of the top desktop wallets.
To store ERC-20 tokens, two convenient solutions are MyEtherWallet and Metamask. Metamask is also an Ethereum browser that lets you interact with Dapps. Hardware wallets also allow you to store your ERC-20s.
As always, physically write your private keys on a few pieces of paper and keep them in different places (for the Nano S, your private key will be a string of 24 random words). In the case of you losing/breaking your hardware wallet or computer, you will need your private key to recover your funds. Writing it down is the only way to ensure that you can access your key securely, and that you have a backup in case of an emergency.