Storing Your Cryptos

What Does Storing Crypto Mean?

“Storing” crypto is a bit of a misnomer.  Because crypto assets are digital and virtual, there’s nothing to store in a physical sense.  Of course, when you buy stock, you don’t receive a physical asset either (or a physical stock certificate), however, a so-called “custodian” keeps a record of your stock ownership on file.  Examples of custodians include stock brokerage firms such as Charles Schwab, and asset management firms such as Vanguard.

These regulated entities serve as custodians for your assets, taking custody of and storing your stocks, mutual funds, and any uninvested cash in a segregated account.

In the future, custodians for crypto assets will be a central part of the mainstream custodial industry, and, initially, the first-mover custodians will focus on the institutional market. In the short-term, however, as an individual crypto trader, you are responsible for acting as your own custodian, taking responsibility for storing your crypto assets.

What Needs to be Stored—Your Private Cryptographic Keys

Each crypto asset’s blockchain houses the official record of all crypto transactions for that asset (See User Guide: What is Crypto?).  Remember that the blockchain is simply a digital ledger. In the old days before computers, transactions were stored in ledgers that were physical books. Exchanges kept the official record of all transactions in these books. 

But because a blockchain is a digital version of a traditional ledger, all transactions are represented by bits of digital code. The digital identifier for each buyer and seller is known as an address. Blockchains for cryptos are secure databases that compile all transaction records.  The crypto blockchains are known as “transparent” databases because they’re open for all to see.  The blockchain tracks the transaction history and crypto amounts of each address.

These addresses, known as a “public keys”, are in digital code and do not identify the actual owners.  Crypto assets are based on a cryptographic system that uses linked pairs of keys: public keys, which are distributed widely and publicly, and private keys, which are known only to the owners. In a cryptographic system, anyone can encrypt a message using the other party’s public key, but only the owner’s private key can be used to decrypt the message.

So, the key to the system, and literally it is a key, is the “private key” that links to your public key. It is needed to decode and access the records of your digital transactions and assets.

Storing crypto means protecting your private keys in a safe place, because if any unscrupulous people get ahold of them, they can transfer your assets and you’ll never get them back. The safe places to store your digital private keys are known as “wallets”.

It is vital to remember that you must keep your private keys truly private. They’re literally the keys to unlocking and accessing your crypto assets. You must make sure that your private keys are secure. 

A wallet is used to store and keep track of your cryptos, as well as to send and receive them.  There are different forms of wallets: hot, cold, and integrated exchange wallets.  Some wallets can handle multiple cryptos while others are designed for a single crypto.

Consider Bitcoin.  If you own any Bitcoin, your Bitcoin wallet holds the private key to your Bitcoin as stored in the blockchain.  If you want to transfer Bitcoin, your private key unlocks your Bitcoin in the blockchain and enables the transfer to someone else’s public address.

“Hot Wallets”

A “hot” wallet is a storage alternative that requires an internet connection, either on your computer or on a mobile device.  The advantage of a hot wallet is that it is very convenient.  You just open the app, usually with a password or PIN (and for even better security with a multi-factor identification process), and you can immediately access your crypto. It may even serve as an exchange for multiple cryptos. (see Integrated Wallets below). 

The disadvantage of a hot wallet is that if someone gets ahold of your computer or phone, they could potentially access your wallet.  Of course, they’d also have to get past various password or PINs and possibly multi-factor identification. A hot wallet is only as secure as your computer or device.

Some crypto developers create wallets that are specific for their cryptos.  Examples include Cardano (Daedalus), Neon (Neon), VeChain (VeChainThor), and Monero (MyMonero).

“Cold Wallets”

A “cold” wallet is a type of offline storage.  It could be a paper wallet—literally a piece of paper with your private key printed on it—or it could be a USB storage device or a more sophisticated hardware wallet.  A hardware wallet is a small device that you plug into your computer only when you need to make a transaction or check your holdings.

The advantage of a “cold” wallet is that it is not online—it’s not accessible via the Internet—thus it’s much more secure because there is little to no risk of someone accessing your private keys if they hack your computer or phone.  A cold wallet is less convenient for executing transactions yet more secure against hackers.

A paper wallet is the ultimate in security—but only if you don’t lose it!  Keep it safely locked away in fire-proof storage, and, hopefully, with a duplicate safely secured in a different location.

Integrated Wallets

A hybrid version of a hot wallet is an integrated wallet that functions as both a wallet and a crypto exchange.  These are extremely convenient and user-friendly.  We use the Exodus wallet. 

The Exodus wallet is a convenient way to store your cryptos, keep track your portfolio and exchange cryptos.  It also interfaces with the popular Trezor hardware wallet (a cold wallet) so that it becomes a hybrid exchange and cold wallet.

Here’s a screen shot of the Exodus wallet interface from the website. The Home screen presents an attractive overall view of holdings in the wallet and a listing of all holdings.

Another version of the Integrated Wallet are the popular and regulated fiat-crypto exchanges like Coinbase and Gemini.  These are convenient for storing fiat currency while you are waiting to exchange into major cryptos like Bitcoin, and also for storing those cryptos.  Remember that major crypto-fiat exchanges like Gemini and Coinbase are well-established, insured, and regulated institutions that keep the majority of their crypto in “cold storage” (i.e., offline). They are very secure hot wallets.  But the only sure-fire way to have total control and security with your digital assets is to store them in a cold wallet.

Summary

With custodians not yet a mainstay part of the crypto industry, you will need some way to store your cryptos — and storing your cryptos means storing your private keys.  Hot wallets, because they are connected to and access using the internet, are convenient but less secure. 

Integrated exchange wallets allow hot wallet storage along with a convenient crypto exchange, all behind a single log-in.  And integrated exchange wallets are developing interfaces with hardware wallets to enable convenient exchange access combined with cold storage (such as Exodus with Trezor). 

Cold wallets are more secure because your private keys are stored in such a way that hackers can’t access them.  Types of cold wallets include paper (which should be securely stored in multiple locations), USB devices, and hardware wallets.  Remember, though, that if you lose your cold storage, you’ve lost your crypto assets.

What type of wallet should you use? What’s in your wallet? Experienced traders tend to use hot wallets for smaller amounts that are more likely to be traded over the short-term.  For longer-term storage of larger amounts, they prefer to use some form of cold storage.  We suggest starting small with a major fiat-crypto exchange like Coinbase.  We use Coinbase for our own fiat-to-crypto exchanges (See User Guide: Trading Crypto (Part 1)—Crypto Exchanges). You can then branch out into an integrated wallet like Exodus, or individual wallets for cryptos like the wallet at blockchain.com, and eventually into cold storage when your crypto holdings become large enough.

Note: other than being account holders and users, we have no other connection with any of the products and services mentioned. We receive no compensation or any other benefit from these organizations.  We don’t recommend them over their competitors.  We have featured them based solely on personal experience and familiarity with the products and services.