Comparison of methods and wallets
What wallets are there and which one should you prefer? Where is it safe to store cryptocurrency? In this article we will look at the main methods, the pros and cons of each of them.
Before we begin the analysis, it is worth noting that there are many ways to store cryptocurrency and each user uses one or another method depending on their goals. Some constantly trade cryptocurrency and keep their funds on the exchange, some buy cryptocurrency for storage and use various wallets for this, and some engage in staking.
Everyone makes a decision individually, and several different storage methods can be used at once. This is exactly what we will talk about in detail today.
Cryptocurrency storage methods
On the exchange account
The most common storage method is any CEX exchange (Binance, ByBit, OKX, etc.), because in order to trade cryptocurrency, you need to top up your crypto wallet. In this regard, exchanges are often used as a place to store cryptocurrencies.
However, this storage method is the most unsafe, as exchanges are vulnerable to hacker attacks.
The main problem with exchanges is that their servers are the custodians of private keys. Therefore, if an attacker gains access to them, he can easily take possession of the assets stored on the wallet. Some exchanges create reserve funds to protect against hackers or transfer part of the funds to their cold wallets. Therefore, before choosing an exchange, you should inquire and find out about the proposed conditions for storing your keys.
Exchanges may also block or restrict the withdrawal of your funds at the request of the authorities or in the event of sanctions.
Staking
This method is a cryptocurrency analogue of bank deposits. The user transfers his assets to the platform to confirm blockchain transactions or maintain the liquidity of other tokens, and in return receives a percentage of his contribution.
There are different types of staking, but that’s not what we’re talking about today.
This method is subject to the same problems as described above, since staking is quite often done on CEX exchanges, since they are trusted much more than DEX exchanges.
It is worth noting that you need to approach the choice of a site for staking wisely: use only proven sites, do not rely on large percentages of profitability on other sites or exchanges (this could be a scam) and do not use this method in the long term.
Tested sites include:
Binance (yield from 1 to 9%)
OKX (yield from 3 to 10%)
KuCoin (yield from 0.23 to 10%)
In the wallet
A cryptocurrency wallet is a tool that is designed specifically for storing funds and, if chosen correctly, provides the best security for your cryptocurrency.
There are two types of crypto wallets:
Custodial - provided and controlled by a third party. Usually these are exchange wallets, so the exchange acts as the guarantor of the wallet. It is important to consider that she has access to private keys and, therefore, to the funds in the wallet themselves.
Non-custodial - completely owned by the owner, who has access to the secret key or seed phrase. Responsibility for loss of access to funds in the wallet lies entirely with him, however, it is safest to store cryptocurrency in a non-custodial wallet.
A Seed-phrase is a list of random words (12, 18 or 24 words) used to recover your funds if you lose the password for your wallet application or the device on which your wallet is installed.
Examples of a non-custodial wallet are: MetaMask, TrustWallet, OKX Wallet and others.
Non-custodial wallets are also divided into two types:
Hot or software - do not have a physical shell and can be, for example, in the form of an application or browser extension. Again, MetaMask is a great example of such a wallet.
Cold or hardware - they look like a regular flash card. Cold wallets have a physical shell and are capable of providing complete autonomy and, as a result, almost one hundred percent protection of your crypto assets.
In the case of comparing a cold and a hot wallet, the cold one is the safest to store cryptocurrency, because only you will have access to such a wallet.
Now let's take a closer look at the types of cold and hot wallets.
Cold wallets
They got their name due to the fact that they are capable of being completely independent and autonomous, which means they are able to provide the highest level of security for your funds.
Cold wallets are divided into several types:
Hardware. Externally they look like a simple flash device for storing data. As long as no one other than the owner has access to the hardware, the savings are completely safe. It is worth considering that such devices are not cheap and are usually used to store large amounts of cryptocurrency. Examples of hardware wallets include Ledger and Trezor.
Desktop. They combine the advantages of hardware wallets and applications that are used to store cryptocurrency. In order to completely protect your funds from attackers, you should, if possible, install such a wallet on a PC without constant access to the Internet. In this case, your wallet will be maximally protected from hacking. Examples of desktop wallets are: Exodus and Electrum
Hot wallets
This type of wallet got its name as a counterweight to cold wallets, because it is connected to the Internet and some kind of blockchain, and therefore is intended for constant use. Constant connection is both a plus and a minus at the same time.
On the one hand, you do not need to constantly connect any device to your PC (as is the case with cold wallets), but on the other hand, if an attacker gets your secret phrase, he will have full access to your wallet.
Main types of hot wallets:
Browser extensions or plugins. Most often they are released for various platforms and browsers. The owner can access his funds at any time when there is an Internet connection.
It is worth considering that with unauthorized access to the browser, the attacker will have access to your wallet, and therefore to your funds. Therefore, browser wallets are most often used as buffer wallets or for storing small amounts. An example of a browser wallet is the previously mentioned MetaMask.
Mobile wallets. Available as an application for existing operating systems.
This method has the same problems as the browser extension/plugin. By gaining access to your phone, the attacker will have access to your funds. This storage method is also used as a buffer or for storing small amounts. An example of a mobile crypto wallet is the TrustWallet application.
Safety rules for storing cryptocurrency
Especially for you, we have prepared basic rules that should be followed when storing cryptocurrency in your wallet:
Write down and store the wallet access code on paper. Do not store it electronically
Download software only from the official resource;
Don't keep all your assets in one place
Do not put your funds in trust
Do not buy suspicious tokens, especially on DEX platforms, no matter what interest they promise you there
Do not participate in “marathons” to earn millions from a few dollars - in 99% of cases this is a scam
Do not connect your wallet to unknown DEX platforms, as there is a risk of compromising the wallet
Do not open links from strangers, as you may catch a virus that will give attackers access to your wallet
Do not give anyone access to your PC under any circumstances (neither directly nor through any of the applications)
Do not enter the wallet seed phrase when contacting any sites, this way scammers have the opportunity to steal all your funds
Check links to official project resources through coinmarketcap before clicking on them. Fraudsters disguise themselves as well-known projects and create phishing sites
Remember that you will not be able to cancel the operation, even if it was performed by mistake or at the initiative of an attacker
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