Nowadays, buying cryptocurrency is a quest. It is important to do this quickly, with a minimum commission, and it is desirable that the bank does not block the account, and the tax service does not make claims. But an even more important issue is the choice of where to store the cryptocurrency.
Let’s figure out together what storage methods exist, which ones should be used, and which ones should be avoided.
First, a little theory and terminology to better navigate the technologies for storing cryptocurrency assets. First of all, you need to understand that crypto-currency “storage” services are called “wallets” only conditionally and for simplicity. In fact, all your crypto is stored on the blockchain, and wallets are services for interacting with your crypto on the blockchain.
The main parameters of cryptocurrency storage services, i.e. wallets is a way to store private keys and a mode of operation.
Key storage method (custodial or non-custodial wallets)
Private keys are stored by the service itself, access by password, codes in sms / e-mail / authenticators, etc.
Quick and easy access
Wide functionality, exchange operations, etc.
Risk of sanctions and restrictions
Private keys are stored directly with the user
Full control over assets
More complex authorization
Inability to restore the wallet if the seed phrase is lost
Many keep their funds on cryptocurrency exchanges, which are examples of custodial wallets. It is convenient to store funds on the exchange, you can trade in parallel, but keep in mind that if the exchange has questions for you for some reason, access to your crypt will be blocked in a second.
Mode of operation (hot and cold wallets)
Hot wallets are constantly connected to the network, they work quickly and provide maximum functionality. Almost all hot wallets are custodial
Ease of use
Low burglary resistance
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Cold wallets are connected to the network only for a short period of time and only in order to transfer information about the transaction to the blockchain. Their functionality is limited, but resistance to hacking is maximum.
Online only at the time of the transaction
High burglary resistance
Thus, cold wallets are better suited for long-term storage, but if you actively use cryptocurrency, often make transactions, then a hot wallet is also indispensable.
Sometimes hot wallets are confused with custodial ones. This is a mistake, cold wallets are always non-custodial, but some hot wallets are also non-custodial.
In terms of usage, wallets can be local, i.e. installed on the user’s computer, mobile, i.e. on a smartphone, hardware, i.e. in the form of a flash drive, online, i.e. in the form of a website and even paper ones, i.e. simply printed on paper.
There are also cross-platform wallets that you can use both locally and on mobile devices, such as Metamask, Exodus, Blockstream Green, etc.
Since the beginning of my acquaintance with the crypto industry in 2017, I have tried almost all the services that are now on the market. Below I will share information on the appropriateness of using a particular wallet, based on my own experience.
If you use crypto as a means of payment
Today, I consider this way of using crypto to be enchanting madness. Firstly, the places where the crypt is accepted as a means of payment can be counted on the fingers. Why bother then? And secondly, the exceptionally high volatility of the crypto makes it impossible to estimate its fair exchange rates. It is worth recalling 2 pizzas bought in 2010 for 10,000 bitcoins. Yes, perhaps this deal was made in order to popularize the cryptocurrency, and no one thought that such a hype would rise, but the fact remains. Imagine that today you bought a Tesla with bitcoins. But what if in a few years the same amount of bitcoins could buy a whole fleet of cars?
However, if you want to play this game, take a look at the Blue wallet and Samourai wallet services.
If you trade and use crypto for medium-term investment projects
The best solution for these purposes is a cryptocurrency exchange. Exchanges provide ample opportunities for trading, including margin trading, as well as various opportunities for passive income, staking, etc.
When choosing an exchange, pay attention to the jurisdiction. US and EU jurisdictions are in the red zone of political risk. These jurisdictions have screwed up by imposing unilateral sanctions. You will never prove to anyone that “out of politics”, and the real goals of the sanctions are not political, so “give me back my money, please” or “I won’t do it again” will not work.
Today, I consider these exchanges to be the safest: Bybit, Huobi and FTX.
Do not forget about risk management, do not pour all the funds on the exchanges. Transfer to your account only those funds that you plan to use in trading, keep the rest of the crypto in cold wallets.
If you store crypto for a long time
In this case, you do not need frequent transactions, so the variety and richness of the functionality of the storage service does not make much sense. But what is really important is security, resistance to hacking and theft. For long-term storage, use only hardware or paper wallets.
In my understanding, a wallet is truly secure, provided that your funds cannot be stolen in any other way than by trapping you and torturing you until you give them back yourself.
From hardware wallets, I recommend Ledger and Safepal. Paper wallets are also reliable, but paper can be stolen, and if you steal a usb device, then without two-factor authentication, i.e. without access to your phone, you still won’t be able to steal the crypt.
To date, a universal wallet that would be good in everything does not exist. Wallet / wallets should be chosen depending on your tasks. Choose proven, proven services and don’t fall for unreliable services and outright scams.
It is worth noting that in the foreseeable future, laws regulating the crypto industry will inevitably be adopted in the Russian Federation, they will obviously make adjustments to the use of cryptocurrency, and to crypto trading, and to the methods of its storage. We will keep a close eye on any changes.
I remind you that I post operational information in my Telegram channel. I also share some real-time deals and investment ideas there.