According to Chainalysis, hackers stole over $3.8 billion worth of crypto in 2022. So if you’re considering investing in crypto this year, it helps to think of how to store your crypto coins safely.
This article covers custodial wallets, hot wallets, offline crypto wallets, and what each wallet type is best for so you can choose the best crypto wallet that fits your needs.
Types of Crypto Storage
Basically, there are 3 main types of crypto storage, namely:
- Custodial (exchange) wallet
- Non-custodial Hot wallet
- Offline crypto wallet
Store Cryptocurrency In An Exchange
One of the best crypto wallets used by many new and small-scale crypto investors and traders is a custodial wallet.
Custodial crypto wallets are offered by crypto exchanges and are best for storing digital assets that you’re actively trading or investing on the exchange.
Your crypto assets are automatically deposited in your exchange’s custodial wallet when you trade on the exchange.
The exchange acts as your custodian and does its best to manage your wallet and securely store your crypto keys for you.
However, custodial wallets have their downsides, including:
- Prone to hacks: Crypto exchanges are prime targets of cyber attacks. Cases exist where millions have been stolen from centralized crypto exchanges.
- Mismanagement: Crypto exchanges have been accused of using users’ funds to secretly fund their operations, hence being unable to fill concentrated orders.
- Collapse: FTX and MT. Gox are great examples of collapsed crypto exchanges that left crypto traders and investors holding the bag.
That said, crypto exchanges have been taking several steps to enhance the security of their custodial wallets and safeguard user assets, including:
- Insurance: Providing insurance for user assets in hot and cold wallets
- Enterprise-level cold storage: Keeping a majority of assets in offline cold wallets where they cannot be accessed.
- Wallet segregation: Keeping user funds and exchange funds in separate wallets
- Proo-of-Reserves: Keeping 100%+ on-hand reserves to prove that user funds held in the exchange are backed 1:1.
- User protection fund: Setting aside a fund to compensate users if assets vanish from their custodial wallet, not due to their own fault.
Some of the best Canadian crypto exchanges that you can use to safely trade and store your crypto include:
|Exchange||Supported coins||Trading fees|
Store Crypto In a Hot Wallet
A hot wallet is an online software wallet that stores your crypto assets on the internet. It’s the best crypto wallet for storing digital assets you plan to move in the short-to-medium term.
The wallet generates the public and private keys you need to transfer, store, and access your digital assets. Most software wallets integrate easily with crypto exchanges and hardware wallets to make it easy for you to transfer your crypto assets.
The downside of hot wallets is that they require an internet connection to operate, making them vulnerable to cyber-attacks. Thus, it’s advisable that you only access your hot wallets via a secure private network.
Some of the best hot wallets that you can use to store your crypto include
- Trust Wallet
Store Cryptocurrency In Cold Wallet
Also known as a hardware wallet, an offline crypto wallet is the best and most secure crypto wallet.
They come in the form of portable USB devices that store your crypto keys offline and are best for storing large amounts of crypto over an extended period.
Thus, they overcome the limitations of both custodial and hot wallets: They give you full control of your private keys and are extremely hard to compromise.
But, unlike custodial and hot wallets which are usually free, you’ll pay a premium for an offline crypto wallet device.
Some of the best cold wallets you can buy include:
|Cold wallet||Coins supported||Built-in exchange||Price|
|Ledger Nano X||5,500+||Yes||$209|
|Trezor Model T||1,800+||Yes||€189|
|Ledger Nano S||5,500+||Yes||$114|
How to sell crypto from a cold wallet
You can sell your crypto from your cold wallet using the wallet’s built-in exchange. For instance, Ledger offers a built-in exchange on Ledger Live, while Trezor offers one on Trezor Suite.
Alternatively, transfer your crypto to your exchange’s custodial wallet, then create a sell order on the exchange.
Store Crypto In a Paper Wallet
Though they are becoming outdated, paper wallets are also great offline crypto wallets. You write your crypto keys on a piece of paper and store them safely where only authorized individuals have access.
However, paper crypto wallets have several downsides, like:
- Paper can deteriorate over time or get lost
- Ink can bleed
- Paper can get soiled in water or dirt
- Someone can steal the paper
So if you choose to write down your crypto keys, make sure you keep the paper in a secure safe box and check it regularly.
How to Choose The Best Crypto Wallet
There’re several factors that you should consider when choosing the best crypto wallet that fits your crypto storage needs. The top ones include:
- Supported coins and blockchains
- Amount and value of your crypto
- How often you plan to move your crypto
- Robust security features
- Cost: especially hardware wallet
- Recovery options, just in case you lose your private keys
- Ease of use: If you’re a beginner, choose a platform or device that is easy to understand and navigate.
The best way to store crypto is by using the best crypto wallet. Keep small amounts of assets you are actively investing or planning to move shortly in a custodial or hot wallet. Otherwise, transfer a majority of your crypto assets into an offline crypto wallet and lock them in cold storage.
Yes, crypto grows in a cold wallet when your digital coins increase in value, and you sell to lock in capital gains. You can also stake your crypto right from your offline crypto wallet to earn staking rewards.
Yes, Ledger wallets are safe for cold crypto storage. They’re made with CC EAL5+ Secure Element chips, making them some of the safest and most secure cold storage wallets out there.
Storing your crypto in a wallet is better than an exchange because you get full control of your crypto keys. Unless you’re actively trading or investing your crypto through an exchange, it’s better to transfer your coins to a non-custodial wallet and lock them there.
- Trezor vs Ledger Crypto Wallets
- Ledger Nano X Crypto Wallet Review
- Cheapest Crypto Exchanges With Low Fees
- Bitget Proof Of Reserves
Disclaimer: Cryptocurrency is a volatile and speculative investment. If you decide to invest, we recommend you do your own research and only commit funds you can afford to lose. The author may own one or more of the crypto assets mentioned in this article.