It can be highly confusing to store and manage your bitcoin because of private keys, recovery phrases, and the lack of dispute mechanisms. When you take into account how valuable your crypto becomes over time and the fact that transactions are irreversible, this situation simply gets worse. For both newcomers and seasoned investors, this succinct reminder on the best places to keep your cryptocurrency outlines everything you need to know.
Exchanges (Least Secure)
If you are actively trading, keeping your cryptocurrency on exchange platforms like Coinbase, Binance, and others is a necessary evil. Exchanges have the drawback of keeping the cryptocurrency for all of their members. As a result, hackers can use them as a giant honeypot to try and hack into.
For instance, in 2019, 7,000 Bitcoin (or nearly $40 million at the time) were stolen from Binance, the then-largest exchange in the world by trading volume. Binance was fortunate to have sufficient funds to cover their losses, but not every exchange was. The well-known bitcoin website Buy Bitcoin Worldwide points out that just in 2019 exchange hackers stole $283 million in cryptocurrency.
If you absolutely must maintain cryptocurrency on exchanges for trading, think carefully about only retaining what you absolutely must keep on exchanges for trading.
Decentralized exchanges (DEXes), which don’t require you to give up ownership of your private keys, are an additional choice. DEXes have advanced significantly in recent years, but they still have a long way to go before they can compete with centralized exchanges (CEXes) in terms of factors like liquidity and speed. Consider KyberSwap (which allows you to exchange Ethereum and ERC20 tokens), dYdX (which allows you to trade ETH on margin), and Synthetix (ETH derivatives).
With KyberSwap, you can transfer Ethereum tokens easily without giving up ownership of your cryptocurrency.
Computer Wallets (Somewhat Secure)
Another choice for storing your cryptocurrency assets is software wallets for desktop and mobile devices. Software wallets are only as secure as your device, even though you don’t have to worry about an exchange getting hacked, stealing your money, or otherwise mismanaging your cryptocurrency.
Many individuals may find that exchanges are more secure than their desktop or mobile device. However, software wallets are preferable to exchanges, at least for lesser amounts of cryptocurrency, assuming you follow proper security practices and save any private keys and recovery phrases offline. Think about using a hardware wallet for larger sums (discussed in the next section).
Exodus, Jaxx Liberty, and Atomic Wallet are a few examples of well-known software wallets. You can swap assets directly from the aforementioned wallets. even though they are typically more expensive than those for centralized exchange services.
You can exchange assets directly from some software wallets, including Exodus.
Device Wallets (Most Secure)
Using a hardware wallet is said to be the safest method for keeping your cryptocurrency. This is due to the physical impossibility of your private keys, which enable the spending of your cryptocurrency, to leave the hardware wallet device. Before transactions are broadcast to the blockchain, you must additionally confirm transactions on the device, providing you with an additional degree of security.
Hardware wallets have the drawback that they are better suited for long-term keeping than for active trading. You must first move assets out of your hardware wallet before trading, unless you’re utilizing it with an exchange (often only DEXes) or another service that supports trading with hardware wallets.
The price of hardware wallets is another drawback. A hardware wallet is still a wise investment to protect your money if the value of your assets surpasses $55 (the cost of the base model Trezor One hardware wallet).
Trezor One, Trezor Model T, Ledger Nano S, and Ledger Nano X, in order from bottom left to right. The two most widely used hardware wallets are Trezor and Ledger. The KeepKey hardware wallet, which is popular but not as well-known as the Trezor or Ledger, is seen in the top left corner.
Multisignature wallets
A multisignature wallet is another option for storing your Bitcoin. Multisignature wallets, as the name implies, need several signatures to approve transactions.
As an illustration, if you and a business partner maintained some cryptocurrency funds jointly, you could design a multisignature wallet that required 2/2 transactions to be successful.
Multisignature wallets have a significant drawback in that they are inconvenient and unsuitable for frequent, daily use. A use case that required approval from several stakeholders would be more appropriate, such as a treasury fund.
The multisignature wallets Electrum and Armory are both well-known.
You can build multisignature wallets with hardware wallets acting as cosigners using Electrum.
Conclusion
Since you have to fundamentally rethink how you manage your money, correctly storing your bitcoin can seem like a very strange concept. This brief guide should have filled in some knowledge gaps or served as a fast reminder of best practices.
