As a newcomer to cryptocurrency investments, one of the first things you must consider is how to buy and store cryptocurrency safely. Knowing how and where to store your crypto before pressing the “buy” button is essential to avoid early setbacks. Cryptocurrencies cannot be stored in regular bank accounts; they must be stored in a crypto wallet on reputable exchanges/apps or specialized devices. Choosing a storage option that is both secure and accessible is crucial, as mistakes can lead to significant losses. For instance, in 2021, Stefan Thomas, a programmer and Bitcoin enthusiast, lost 7,002 Bitcoins (worth about $203 million) because he couldn’t remember his wallet password.
To help you avoid similar disasters, this guide will explore various storage options and the factors to consider before choosing one that meets your safety, security, and accessibility needs.
How to Store Cryptocurrency
You need a wallet to store cryptocurrency. A crypto wallet is a device or program that keeps your crypto assets, private keys, and various wallet addresses (public keys) all in one place.
Steps Required to Store Cryptocurrency
When you purchase a crypto asset, you’ll need a safe place to keep it. Most investors leave their crypto on the exchange where they bought it. These exchanges provide free hot wallets with little or no setup required, but you’ll need an account with the exchange to access these wallets.
Storing Cryptocurrency in an Exchange
- Check Out Several Crypto Exchanges: Choose an exchange that supports a wide range of cryptos, has a good user experience (UX), and is supported in your country.
- Open an Account: Account opening usually takes around five minutes. However, you’ll need to satisfy the exchange’s know-your-customer (KYC) requirements.
- Complete the KYC Requirements: Submit personal information like an email address, phone number, and legal name. You may need to provide a utility bill, government-issued ID, or other documents to verify your identity.
- Deposit Your Crypto: After setting up your wallet, you can safely store your crypto. Depositing crypto requires a wallet address, often found within your preferred crypto’s transaction page.
Storing Cryptocurrency in Cold Storage
- Buy a Cold Storage Device: A portable device with Bluetooth connectivity is recommended.
- Download the Corresponding Software: Most cold wallets come as USB drives or small devices and might need help connecting to your phone directly.
- Save Your Recovery (Seed) Phrase: This phrase is crucial and must be kept safe. If you forget it, your cold wallet could format itself after multiple failed attempts, causing you to lose all your crypto.
- Create a New Wallet Address: For each new crypto you wish to store, use this address to send crypto from your other wallet to your cold wallet.
- Send Your Crypto to the Corresponding Address: Ensure you’re sending your crypto to the correct address. Sending crypto to the wrong address can result in permanent loss.
Storing Cryptocurrency in a Hot Wallet
- Set Up Your Preferred Wallet: Setting up an account usually takes 10 to 15 minutes and requires a steady internet connection.
- Go Through KYC: KYC is mandatory for many hot wallets, although some allow you to skip this process and do it later.
- Check if Your Hot Wallet is Ready: Some wallets require additional actions to set up a hot wallet for individual cryptos.
- Deposit Your Crypto: You can now give your wallet address to anyone who wants to send you crypto.
Storing Cryptocurrency in a Paper Wallet
- Use a Malware-Free Computer: If possible, use a new personal computer to generate paper wallet credentials.
- Visit a Paper Wallet Generator Site: These free sites can help you generate the necessary credentials, such as private and public keys.
- Generate an Address: Select the number of addresses you want to generate and click “generate.”
- Print Out Your Paper Wallet: Print the wallet and fold it with the crypto address showing outside while the private key is inside.
- Send Crypto to Your Paper Wallet: After sending your crypto, keep the wallet in a secure location, away from damaging elements like moisture and heat.
What You Need to Open a Cryptocurrency Account
Opening a cryptocurrency account is quick if you have the necessary details. Some wallets allow you to open multiple user accounts on the same wallet. You’ll need to provide KYC details to help exchanges and wallets prevent money laundering and other financial crimes.
Research the Cryptocurrency Account
Running background checks before signing up with an exchange/wallet is crucial. These checks save you from falling into the hands of scammers. Look at the company’s website and ask:
- Does the website look suspicious?
- Does the URL correspond with the company’s name?
- Who runs the exchange?
Check the company’s social media handles and listen to what others are saying about it. If many people say it’s inefficient, consider it a red flag.
Sign Up
To use a cryptocurrency wallet/exchange for the first time, you need to sign up with some details and documents to give the exchange background information on you.
Understand the Basics
Cryptocurrency needs to be kept safe from hackers, scammers, and other bad actors. Choose a crypto wallet storage option with a robust security system. Options include crypto exchanges, cold storage wallets, paper wallets, and hot crypto wallets. For quick access, choose a crypto exchange or hot wallet. For more security and offline storage, cold storage or paper wallets are ideal.
Cryptocurrency Exchange
A crypto exchange lets you access and transact with crypto. Most wallets are free to download but involve transaction fees. Popular examples include Binance
Cold Storage Wallet
A cold storage wallet is not connected to the internet, making it safe from hackers. These are ideal for storing large amounts of cryptocurrency. Popular options include Trezor and Ledger.
Hot Crypto Wallet
A hot crypto wallet is connected to the internet, making it easier to access your crypto frequently. However, they are more susceptible to hacks. Good picks based on security include Guarda and Mycelium.
Paper Wallets
Paper wallets are practical for storing cryptocurrencies but are vulnerable to physical damage or theft. They contain your private keys and address printed on them.
Know the Risks
No cryptocurrency storage method is 100% safe. Here are some risks:
Risks of Storing Cryptocurrency in an Exchange
Storing crypto on an exchange is easy but risky. If the exchange gets hacked, you could lose your crypto permanently.
Risks of a Cold Storage Wallet
Cold storage is safe from online hacks but can be lost if the device is stolen or damaged. Always back up your seed phrase.
Risks of a Hot Crypto Wallet
Hot wallets are safer than exchanges but still vulnerable to hacks and malware.
Risks of a Paper Wallet
Paper wallets are inexpensive but vulnerable to physical damage and theft. If someone gets hold of your paper wallet, they can steal your crypto.
Factors to Consider When Opening a Cryptocurrency Account
- Security: Choose an exchange with strong security features like two-factor authentication.
- Fees: Look for exchanges with low fees if you plan to trade frequently.
- Supported Cryptocurrencies: Choose an exchange that offers a variety of crypto assets.
- Storage and Custody: If you’re not good with passwords, use a custodial storage option like a hot wallet.
- Customer Service: Prefer exchanges with live chat options for quick support.