How to store your crypto in a secure way
Why do I think I can contribute when it comes to storing crypto?
I am an IT professional and being involved in crypto for three years now. Storing data, performing backups, recovering digital IP is part of my daily business so I consider myself an expert when it comes to keeping data secure and efficiently. I never lost any crypto due to false management. I gained experience with software as well as hardware wallets. I tested many different wallets for Bitcoin, Ethereum, Litecoin, Monero, and some other altcoins.
The outcome of this series will be to give you an understanding of what is important for your personal situation to store cryptocurrencies. At least you will be able to make a decision about what wallet you want to use based on your individual situation.
My personal challenge: I am a perfectionist and ideally would like to publish a quality article straight away containing all my ideas and insights. But instead of posting one article in three months’ time, I invite you to follow me throughout this series to see if there is something valuable here for you. I guess this is a much better approach for me to take. On top, I will make this series much shorter than the previous one as I think it is more enjoyable to read through at once.
Hopefully, you won’t join the people who have lost crypto due to bad management after reading my articles.
When I got started with crypto three and a half years ago, it was pretty much a no brainer. One bitcoin was traded around ~400$ and it was still a very niche idea to put any money into it. So tech-savvy people who were into mining just needed a reliable way of storing Bitcoin when they got their hands on bitcoins or any other cryptocurrency.
Question #1 to ask yourself: What cryptocurrency do I have? A few years ago, if you were pretty new to the crypto space chances were pretty high that you got interested in an article talking about bitcoin. So you started to look at ways how to get bitcoins. And hopefully, you managed to find a way to get your hands on some Satoshis through an exchange, a friend, mining, a faucet, etc. Most likely your first Satoshis were stored on an online platform. I remember users reported constantly losing bitcoins but not storing them on their own wallets. There was and still is a meme out there: Not your keys, not your bitcoins — and as far as I am aware of it refers to the Mt Gox ‘hack’ which happened years ago. People lost their bitcoins because they were stored on a crypto exchange called Mt Gox. This platform claimed that they got hacked and whooosh all Bitcoins were lost. Not sure how the lawsuit turned out…anyways :)
These days — especially if you are reading Publish0x — and if you have followed the crypto space for a few months you are aware that there are plenty of other cryptos out there like Litecoin, Ethereum, Monero, etc. A quick look at coinmarketcap.com will pretty much reveal how many different cryptocurrencies are available. No matter what crypto you are interested you will come across a few common concepts especially when you google for a wallet by typing the name of your cryptocurrency plus wallet — light wallets, wallets which require to synchronize with the full blockchain of your cryptocurrency, software and hardware wallets, etc.
Tip #1: Write down which cryptocurrencies you have and want to store in a wallet managed by yourself? Keep in mind that the reason why you want to store your cryptos in a wallet managed by yourself is that you want to be able to access the private keys for your bitcoins or other cryptos. Who owns the private keys of a crypto address, owns the coins.
Excursion: What is a private key for bitcoin? It is part of every crypto wallet and will prove that you own the public address people can send bitcoins to by signing transactions. If someone is able to extract the private keys from your wallet, your wallet is compromised, and you can consider your bitcoins as lost.
How I got involved in crypto myself?
So how I got started with crypto? Back in 2017 I logged on to my steam account and was browsing through the game library (steam is a gaming platform, just in case you don’t know). Many many years ago I played a few games and for some reason, I realized that virtual items from different games were actually traded — for real money on steam. While I browsing through my inventory I realized that one of those items I owned was actually traded for >500$+. Not on steam itself but on a specific trading platform I got a recommendation for. So I put this item up for sale and sold it within 24 hours. Suddenly I had $750 on this platform and started to look at the different opportunities to cash them out keen on going on a vacation to Spain. Paypal was the only suitable cashout option but I wasn’t really keen on paying ~15% off 750$ on fees to get $ changed in Euros and transferred to my Paypal account. Suddenly I spotted a Bitcoin symbol telling me that they will charge only 3% in fees for a payout to bitcoin. I thought this is reasonable compared to Paypal. Bitcoin was completely new to me at this stage, so I started to look at topics on how to get a bitcoin address. The wallet I used for my first Bitcoin transaction ever was: Electrum.
What is Electrum? Electrum is pretty much a software wallet for bitcoin only. It is a light wallet. This means the wallet works without having a full copy of the blockchain on your hard drive which can take a lot of space on your hard drive. You can pretty much start straight away using the functionalities of the wallet without waiting that the download of the blockchain data has finished. Before I start talking about Electrum I want to point out the obvious: Getting bitcoins worth $750, I consider my initial ‘deposit’ in the cryptospace as fairly small. But the whole process of getting a bitcoin address and requesting the withdrawal was so smooth and fast that I couldn’t even think about the fact that I had pretty much no idea what to do with bitcoins afterward. Even without knowing what I was doing with those virtual coins called Bitcoin, I was triggered by paying fewer fees compared to Paypal and the smooth process. I was fascinated by Bitcoin although I had a minimal understanding of what I was dealing with. I had no idea that I could easily cash them out through an Exchange in fiat or start buying stuff.
Tip #2 to ask yourself: What do I want to do with my cryptocurrency? Why do I want to store crypto in my own wallet? Will I use my crypto to purchase items? Will I use my crypto to pay at my favourite restaurant which has started to accept crypto a few weeks ago? Will I need to access my crypto frequently? Many similar questions will lead to the same profound question: How do I want to use the cryptocurrency I plan to save on my wallet? If you DO NOT want to spend your crypto regularly there is no need to think about a wallet installed on your smartphone only. I would recommend looking at a software wallet first which is being installed on your pc. Why? A software wallet installed on your PC will give you the best options for doing regular backups which I will cover later in this series as well. Most people are not backing up their phones which can cause major issues with apps of small developer groups. You don’t want to risk having delayed access to your crypto or even losing your crypto because the devs of your crypto wallet on your smartphone couldn’t deal with changes in the latest iOS or Android firmware. As a beginner stay away from mobile wallets. Some people may already ask what about hardware wallets. I will cover this question very soon.
Tip #3: Think about WHAT you want to do with your cryptocurrency next? This will determine what kind of wallet you might want to consider at the beginning. By now you should have an idea about the importance of private keys and be aware of the main advantage of using a light wallet over wallets which require to synchronize with the full blockchain of your cryptocurrency.
So what if you don’t want to spend your crypto on a daily basis to buy coffee or if you don’t want to spend crypto to buy any items. What if you think about storing bitcoin or any other cryptocurrency to hold them for a longer period of time. Suddenly we might not talk about managing 100$ in crypto on a wallet anymore. Suddenly we talk about managing thousands of dollars.
Tip #4: How much value (fiat) do I hold in crypto? It is similar to a very common question people ask me as an IT consultant every day. How much security do I need to put in place to protect my infrastructure? Do I need the latest technology to have the best security in place? Imagine you have your own business with daily revenue of 100$. Do you need the same security mechanisms as a billion-dollar company? Obviously — no, there is no need to spend millions of dollars to reach an appropriate level of security. Same questions you should ask yourself when it comes to your personal situation. What kind of wallet do you need to put in place that you feel confident that your crypto is stored in a secure manner?
Let us step up our example a little bit. Imagine you want a bitcoin wallet to hold Bitcoin long term. Chances are high that you think about using a hardware wallet or you are already in possession of one. However, I asked myself how can I achieve similar security without owning a hardware wallet? When I decided to hold my Bitcoin holdings I said to myself I want to be able to recover my wallet as quickly as possible. But on the other hand, I don’t want to miss out on security.
Step 1) I decided to store my handwritten recovery seed in one of those deposit boxes at my local bank.
Step 2) At this time I had a laptop and a desktop pc at home but I didn’t want to have my software wallet on the same operating system installed which I use on a daily basis. So I did two things in the beginning:
1) I installed a 2nd operating system on my hardware and was able to choose where to boot from
2) I installed my software wallet on a virtualized environment (VMware Workstation)
Both options strictly separate your software wallet from your operating system which might be used daily. A few months later I switched to a completely separate SSD. A 128 GB SSD costs $30–45 these days and I encrypted the whole SSD using Bitlocker. I can easily attach this SSD to my desktop PC and have a maximum of flexibility and security for myself. So even if I lose this disk or it gets stolen, the recovery of the lost or stolen disk alone can’t be done in a quick manner. But I can easily go to the next store and buy an SSD and have access to my crypto holdings reasonably fast or can restore my wallet on my existing machine at home if I need to.
Thanks for reading and hopefully I gave you some food for your thoughts and showed you, that storing crypto can be done without having a hardware wallet and provides at least a similar level of security.