What is the safest way to store cryptocurrency?

You work hard for your money, so it’s imperative that it stays safe and out of the wrong hands.

With regular ol’ Canadian dollars, keeping your money safe often means selecting a reputable financial institution, using strong passwords for online banking, and regularly monitoring your accounts for fraud.

However, when you dabble in cryptocurrencies, you need to be particularly careful about who you trust with your money. That’s because the digital nature of crypto makes it inherently prone to hacking attempts.

Thankfully, there are ways to keep your crypto secure. Let’s do a deep dive into the most secure crypto storage techniques and we’ll offer up some top tips for protecting yourself when you invest in digital assets.

How to Hold Cryptocurrency Safely

Before we get into the details of how you can safely store crypto, it’s important that you understand that there’s no such thing as a completely foolproof way to prevent hacking attempts on your crypto.

This might sound scary, but it’s vital to recognize that there are people out there who want to steal whatever money, assets, and information they can get their hands on. The sooner you understand this, the better prepared you’ll be to keep your crypto and other assets as safe as possible from the threat of theft.

In fact, these sorts of hacking attempts are just as big of a problem with regular bank accounts as they are with crypto wallets. But the new, fairly unregulated, and decentralized nature of crypto poses unique risks that you don’t get with fiat currencies like the Canadian dollar.

With that in mind, the most secure method for storing crypto is usually in an offline hardware wallet that’s kept in a safe, private location.

What is a Hardware Wallet?

If you’re new to the world of crypto, the words “offline hardware wallet” might sound like a bunch of techy jargon, so let’s break down what this means.

Basically, anyone who owns crypto should have something called a crypto wallet to safely store their private keys and public addresses.

Your private keys are a secret set of numbers that identify you as the owner of crypto assets that are stored on the blockchain. Meanwhile, your public addresses are what you give to other people so they can send you crypto. Think of this like a public-facing email address that people can send money to.

A crypto wallet provides a theoretically secure place to hold onto your private keys and public addresses. It does not actually store your crypto as all crypto is stored on the blockchain.

Rather, any crypto on the blockchain that’s associated with your private keys is yours and yours alone. Giving someone access to your private keys effectively gives them the power to take your crypto without your knowledge.

There are many types of crypto wallets out there and we won’t get into the details of them here. But a hardware wallet is effectively a small device (usually shaped like a USB stick) that’s not connected to the internet. Storing your private keys on a hardware wallet makes it very difficult for anyone to gain access to your private keys and your crypto.

Why are Hardware Wallets More Secure?

Now that you’ve got a better understanding about what a hardware wallet is, let’s talk a bit about why they’re often the best method for secure crypto storage.

The primary benefit of hardware wallets (also called cold wallets) is the fact that they’re not connected to the internet.

Most hackers use the power and interconnectivity of the internet to gain access to information and assets. So, keeping your private keys off the internet is one of the best ways to keep them safe.

On the other hand, so-called online or hot wallets store your private keys on the internet. Although most companies that provide online wallet services have very good security features, keeping your private keys online makes it easier for hackers to gain access to your information.

Of course, there have been a number of hacking issues in the past that explicitly targeted hardware wallets. For example, in 2021, some cyber criminals sent fake hardware wallets to crypto investors. These fake wallets were tampered with so that hackers could gain quick and easy access to an unsuspecting investor’s crypto.

Thankfully, stories like this aren’t common. But they underline the fact that there is no infallible way to store cryptocurrencies.

There are steps you can take to prevent hacking, such as using a hardware wallet and checking for any evidence of tampering before you trust it with your crypto. However, vigilance and good safety practices are key to secure crypto storage.

Another Secure Storage Option: Paper Wallets

As a final note on secure methods for storing cryptocurrency, we should also mention that you can opt to use a paper wallet rather than a hardware wallet.

Paper wallets are another form of cold (offline) storage. But instead of using a USB stick-like device, paper wallets store your private keys on pieces of paper.

These wallets were pretty popular in the very early days of the cryptocurrency movement, but they’re not as common anymore. They have a clear advantage over hardware wallets because they’re pieces of paper that can't be hacked. But what you gain in security, you lose in convenience.

Therefore, for most crypto investors, paper wallets just aren’t practical. You should certainly consider them if you’re storing very large quantities of crypto, but might not be the best choice for the average investor.

Crypto Storage Safety Tips

Keeping your crypto secure is an ongoing process. Having a quality hardware wallet is just one part of this larger process. In addition to having and using a hardware wallet, there are plenty of other steps you can take to store your crypto securely. With that in mind, here are 5 crypto storage safety tips to get you started.

1. Be Internet Smart

First thing’s first: if you’re going to invest in crypto, you need to know how to keep yourself safe on the internet. Since crypto is a digital asset, anything you do on the internet could potentially compromise your device’s security, which could put your money at risk.

General internet safety precautions will go a long way toward keeping your assets secure. These include:

• Avoiding websites that don’t have valid SSL certificates (look for the HTTPS in your browser’s URL bar)

• Ensuring that your Wi-Fi connection is secure (consider a secure VPN if necessary)

• Using two-factor authentication when logging in to websites (especially with crypto exchanges)

• Having up-to-date anti-virus software on your devices

• Treating all unsolicited and potentially suspicious text messages, emails, and phone calls with a healthy air of caution

Following these general guidelines for internet safety can help prevent your computer from getting infected with malware or anything else that could compromise the security of your crypto. Hackers are getting smarter, but you have the power to keep your devices secure.

2. Use a Reputable Crypto Exchange

Most people who buy cryptocurrencies do so using some sort of crypto exchange. These exchanges act like a kind of marketplace where you can buy and sell dozens of digital assets, like Bitcoin, Ethereum, and Dogecoin.

The world’s largest exchanges are what we call “centralized exchanges,” which means that they’re run by a single company. These companies provide us with a straightforward way to connect with other crypto investors and to trade assets. But these companies also pose a potential security risk if they’re not reputable organizations.

Therefore, whenever you buy crypto, be sure to do so with a reputable exchange. Crypto is minimally regulated in many countries, so oversight of exchanges can be fairly limited.

Because of this, you need to do your research to ensure that you’re trusting a reputable exchange with a solid track record of preventing cyberattacks before you start using that platform. A fancy new exchange might advertise low fees or cool features, but do you really trust them with your money?

3. Avoid Keeping Coins on an Exchange

Most crypto exchanges give you the option of storing your crypto on the exchange’s hosted wallet service after you make a purchase. Doing so is simple and convenient, but it’s often a major security risk.

When you store your coins on an exchange, you give a company full control over your private keys. While most major exchanges are quite reputable, you don’t necessarily want to give some company all that power over your assets. Plus, crypto exchanges are prime hacking targets, simply because they have control over so many private keys.

Moral of the story? It’s usually best to avoid keeping coins on an exchange. As soon as you buy crypto, consider transferring your assets to a personal wallet where you have full control over your private keys.

4. Store Your Wallet in a Safe Place

Using a hardware wallet for your crypto is often a great idea. But a hardware wallet won’t do you any good if someone else can get access to it.

The fact that hardware wallets are physical items means that they’re susceptible to theft, just like any other valuable electronic device. At the same time, even the simple act of misplacing your hardware wallet could mean that you lose access to all of your hard-earned crypto.

That’s why it’s so important that you find a secure place to store your hardware wallet. This generally means leaving your wallet in a hidden place at home or, if you’re storing very large amounts of crypto, potentially in a safe deposit box. Doing so can prevent theft, loss, or damage to your wallet.

Of course, there are methods of recovering your private keys, even if you no longer have access to your hardware wallet. This normally involves using the recovery phrase (seed phrase) that you wrote down when you activated your wallet.

But it’s best if you can avoid losing your wallet in the first place so that you don’t have to deal with the stress of trying to recover lost crypto.

5. Use Address Whitelisting

Address whitelisting is an underrated, yet very effective technique, for keeping your crypto secure.

With address whitelisting, you can limit crypto withdrawals from a wallet or exchange to a set of pre-approved public addresses. These public addresses can be for wallets that belong to you, your friends, your family, or whoever else you regularly send crypto to.

Establishing address whitelisting can prevent someone from withdrawing your funds to an unapproved address. This makes it very difficult for a hacker that’s gained access to your private keys or log-in information to steal your crypto.

A savvy hacker could try to add their own public address to your address whitelist by logging into your exchange account, but doing so usually requires a 3 to 7 day hold period. During that hold period, you’d likely receive some sort of alert telling you that someone tried to add a new address to your account. If that happens, you can stop the crypto transfer before it’s too late.

How Do I Keep My Cryptocurrency Safe?

Keeping your crypto safe is of the utmost importance when you invest in digital assets. The best way to store crypto is usually in an offline hardware wallet. However, using a hardware wallet should be just one part of your overall security strategy. Always practice safe internet browsing techniques and only use reputable exchanges to help protect your crypto from cybercriminals.