Safest Way To Store Crypto: How To Protect Your Digital Assets

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Nov 5, 2023
6
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Safest Way To Store Crypto: How To Protect Your Digital Assets

In the world of cryptocurrencies today, there are numerous innovations and promising projects to be noted. However, for those intending to enter this market, the key question becomes how to best ensure the secure storage of their assets. Only after a thorough analysis of this issue can one proceed to fully leverage the advantages of decentralized technologies.

Recently, we wrote about a hacker who stole $768,000 using a fake Ledger Live application. Today, we will discuss how cryptocurrency owners should always use official sources to download applications and wallets, as well as keep their security systems up to date.

Always exercise caution when it comes to the security of your digital assets when buying, storing, and investing, as in most cases, recovering lost assets can be a serious challenge.

Review of reliable cryptocurrency storage methods

There are several ways to securely store digital assets. You can store them on an exchange, which is convenient, but in this case, you forfeit full access to your keys.

A more reliable option is to use a wallet that allows you to have full control over your keys, or a cold storage, which is not connected to the internet, considered the most secure method of key storage. It's important to keep your private keys offline in a secure location.

The emergence of the world's first cryptocurrency, Bitcoin, created by Satoshi Nakamoto, was accompanied by the introduction of the first prototype of a cryptocurrency wallet known as Bitcoin-qt. This wallet was later renamed Bitcoin Core and continues to be one of the most common methods for storing bitcoins to this day.

Bitcoin Core is specialized software designed for storing, sending, and receiving digital currency. To perform these operations, two keys are required: a public key (address) and a private key. To use this wallet, it is necessary to download the entire blockchain.

Bitcoin сore and its principles in cryptocurrency operation

  • All transactions are conducted directly between users.
  • Receiving cryptocurrency is only possible through a transfer to a public address.
  • To send cryptocurrency, it is mandatory to sign the transaction using the private key.

Blockchain is a secure decentralized storage for cryptocurrencies, accessible from anywhere in the world with a private key. Successfully completed transactions are irreversible, and the public ledger ensures transparency of accounts and transactions. Modern wallets are designed with these principles in mind and provide convenient solutions for various tasks, adding new features and capabilities.

Types of Cryptocurrency Wallets

Before acquiring cryptocurrency, it's important to decide how you plan to store it and choose an appropriate wallet. There are two main categories of cryptocurrency wallets: hot and cold.

Hot wallets: actively used for sending and receiving funds. They are constantly connected to the internet, which increases the risk of asset loss or theft. Therefore, it's not recommended to store large amounts of cryptocurrency in hot wallets.

Cold wallets: infrequently used and remain offline from the internet. They provide a secure place to store significant amounts of cryptocurrency.

It's important to note that the same wallet can be used as both a hot or cold storage, depending on how it is configured and used. For example, if you've downloaded Bitcoin Core on your computer and keep it offline for an extended period, that wallet can be considered cold storage. If your computer with Bitcoin Core is constantly connected to the internet and actively used for transactions, then it would be considered a hot wallet.

Light and heavy wallets

Wallets can be divided into two main types based on the amount of memory required for their operation on a user's device:

  • Light Wallet (also known as an SPV wallet): It is a simplified application designed solely for conducting transactions. This application does not require the download of the entire blockchain network. Instead, it exchanges data with network nodes to verify transactions and balances. This reduces the amount of memory required to operate on the user's device.

  • Heavy Wallet (or Full Node): It requires the downloading and storage of the entire blockchain network. This can require a significant amount of disk space, especially for cryptocurrencies with large blockchains, such as Bitcoin, which has a size of around 400 gigabytes. Heavy wallets provide a more complete and independent access to the blockchain and can support additional features, such as mining, smart contract development, and other capabilities, in addition to simple sending and receiving of coins.

Active usage of cryptocurrencies

The main advantage of active cryptocurrency usage is revealed through the convenience of hot wallets. The key feature of this method is that it doesn't require downloading the entire massive blockchain ledger. Moreover, hot wallets often provide additional features that contribute to more prompt and efficient transactions, enhancing the overall cryptocurrency user experience.

Online wallets

This category includes wallets that can only be accessed through a web browser on a computer. These online wallets are specialized services designed for managing and using digital assets. It's important to note that the assets stored in such wallets are under the control of the company providing this service. Therefore, it's essential to thoroughly examine it before use to assess the level of reliability.

Browser extensions

This lightweight software is developed as a browser extension, providing convenience in usage. It's important to remember that browser-based wallets require users to independently secure their devices, and in the event of a computer being infected with malicious software, wallet information can be compromised. Therefore, it's important to store the private key on a separate medium to have the option to regain access to the wallet through another device if necessary.

Cold wallets

Investors and users dealing with large sums of cryptocurrency or planning for long-term storage often prefer to use cold wallets. These individuals seek a secure place to store their digital assets and protect them from potential theft and loss.

Wallets for download

These are the traditional type of cold wallets that require downloading the entire blockchain onto your computer. These wallets provide a high level of security as they disconnect the device from the network and are rarely used for conducting transactions. For example, the Bitcoin blockchain today takes up about 400 GB, and downloadable wallets are suitable for those who prioritize such a high level of security.

However, it's important to note that it's not necessary to choose wallets developed exclusively for a specific cryptocurrency. Some platforms offer similar security levels for other cryptocurrencies as well. Therefore, you can consider various options for cold wallets, even if they were not created by the developers of the cryptocurrency itself.

Hardware wallets

This is a compact device designed for secure storage of private keys and conducting transactions, known as a hardware wallet, due to its lack of internet connectivity. To make a transaction, it needs to be connected to a computer via USB, and the user must input the amount and recipient's address. The operation is confirmed through a physical button, ensuring reliable protection of private keys, even when connected to a computer with malicious software.

Paper wallet

Storing bitcoins on a paper wallet is an economical and secure method. This wallet is a simple piece of paper with public and private keys, which can be represented as QR codes. To receive funds, you need to provide the public key, and to send them, you enter the private key and create a transaction, which is convenient with QR codes.

Multicurrency wallet

Multicurrency wallets allow you to store various cryptocurrencies in one convenient place, simplifying the management of diverse assets and providing additional features such as trading, integration with decentralized applications, buying cryptocurrencies, and participating in staking.

One of the most popular examples of a multicurrency wallet is Trust Wallet. This mobile application, available for Android and iOS, supports over 53 blockchains and more than 160,000 assets. When using it, users do not need to download all blockchains - having public and private keys is sufficient for receiving and sending coins. Trust Wallet can be used as both a hot wallet and a cold storage, and it can be accessed from any device when needed.

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