When you store traditional currency at the bank, you don’t usually worry about it disappearing because regulations and FDIC insurance protect your money.
With cryptocurrency, it’s up to you to find a safe and secure place for storing your funds because there’s no government safety net.
Here are the basic terms you need to know to understand crypto storage:
Wallet—A wallet is an app, website, or device that stores the public and private keys, or secret codes, that allow you to access the address on the blockchain and sign for transactions. You need a wallet to receive, send, or store cryptocurrencies.
Public and private keys—Keys come in pairs and can be generated from wallet software. You can use the public key to generate an address or many addresses for your wallet. Anyone can deposit coins into your public address, but you need the matching private key to access the coins. Private keys are your proof of ownership of your crypto funds.
Recovery seed—This is a special code that is generated when you set up your wallet—often a string of random words. If you ever lose the device on which you have stored your wallet (such as your computer, phone, or USB), you will be able to regenerate the wallet with these seed words.
- Whoever holds the private key can access the funds, so keep it safe.
- If you lose the private key, the funds are locked into that address forever.
- Consider backing up your private key in several safe spaces.
- If you lose your storage device and have not saved the recovery seed, both the wallet and the funds will be gone.
Where to get a wallet
Some exchanges offer wallets. You may also be able to download wallets created by developers through the major app stores.
When choosing a wallet:
- Check the provider’s credentials
- Look for wallets that keep your private keys in an encrypted (scrambled) form
Types of wallets
Choosing a wallet can be confusing. Here are the main terms and types:
|Hot or cold wallet?||Hot: • Connected to the Internet • Less secure||Cold: • Not connected to the Internet or can be disconnected • More secure|
|Single or multi currency?||Single: • Can store only one type of cryptocurrency||Multi: • Can store multiple types of cryptocurrency|
|Software or hardware or paper wallet?||Software: • Less secure • The application is run on the cloud, or software is installed on a device||Hardware or paper: • More secure • Hardware: the application is installed on a USB-type device • Paper: A piece of paper with your public and private keys on it|
- Choose a wallet from a reputable wallet provider, and consider using several wallets to spread out your risk.
- Set up two-factor authentication.
- Use a wallet with “multi-sig” capability. This means that more than one “signature” or private key is needed to authorize a transaction. A thief with only one of the keys will not be able to access your crypto.
- Don’t store your life savings in a hot wallet.
- Keep your computer, mobile, and wallet software updated with the latest security enhancements.
- Keep your devices in a safe place.