If you are just getting started but you are still unsure how to protect your crypto assets, you’ve come to the right place. In this article we’ll try to guide you towards some of the best ways to keep your crypto assets safe from harm. In order to do that, we’ll have to ask ourselves some important questions and go over some of the basics in crypto and blockchain land.
Are you a ‘Hodler’ or a ‘Trader’?
One of the questions you should ask yourself before you getting started is this the following one:
Are you planning to hold your crypto currencies for a while without selling them or are you interested in trading them on cryptocurrency exchanges?
Before you are considering which security measures you should apply when it comes to buying, holding, transacting or trading your crypto assets, you should have a clear answer to that question as it could influence your decision between using what is known as a ‘Hardware Wallet‘, or whether a ‘Paper Wallet‘ is the better solution for you. So, don’t forget to answer this question for yourself as we will need it to help you find the best way to secure your cryptocurrency holdings at the end of this article. Before we get to that however, let us discuss the other available options to hold your cryptocurrency and briefly discuss why these solutions should be avoided. We are talking about about mobile wallets, desktop wallets, online wallets and cryptocurrency exchanges.
What about mobile wallets, desktop wallets or online wallets?
You might wonder why we are leaving out mobile wallets, desktop wallets and online wallets. This does not mean that you cannot use these kind of wallets, but you should understand that their security could be breached easier.
In order to use these type of crypto wallets you are using your computer or your mobile phone to connect with the network. Now, as long as you don’t have anyone spying on your computer or mobile phone, there is no problem. However, the fact of the matter is that whenever you are using any kind of ‘hackable’ interface you could be setting yourself up for an unpleasant surprise.
So, what about popular cryptocurrency exchanges, are they safe?
Many people still hold most of their cryptocurrency assets on exchanges like Coinbase.com, Binance.com, Kraken.com and so on. This is quite understandable if you consider that most people solely see their crypto assets as an investment & not as a hedge. This leads them to buy crypto assets on cryptocurrency exchanges purely as speculation and they never really go into the nitty gritty details about how you should securely hold your cryptocurrency. They see their crypto assets as a speculative vehicle and do not own the crypto tokens or coins for their utility.
Don’t get me wrong! These are all top notch exchanges and they use state of the art technology when it comes to security, however, the fact of the matter is that every now and then stories come out of their security getting breached.
While not every exchange has been hacked yet, you need to understand that allowing any third party handle your financial assets always bears risk. There is no other way around it! If you go this route, you are basically voting with your money and you’re saying that you prefer to hold a certain cryptocurrency rather than keeping dollars or Euro’s in your traditional bank account. You are not saying that you are interested in avoiding third party risk! You see, bank accounts and crypto exchange accounts are very similar in that you hand over the ‘trust’ factor from you to them. In other words, you are saying that you trust them more with ‘not losing your money or crypto’, then you trust yourself.
In some cases, this still might be a good choice if you feel you are unfit to take full responsibility for holding it on your own, just be aware of potential consequences.
Third Party Risk VS Personal responsibility with crypto
One of the big reasons to hold your own cryptocurrency has to do with the idea of eliminating third party risk. How you’d rate that risk is obviously a personal decision but in our mind, it makes more sense to avoid using third parties whenever possible.
The flip-side of this choice of course means that you choose to hold yourself accountable for securing your assets. So you’ll need to take the necessary precautions.
Think of it as ‘cash’ for example. If you’d hold significant amounts of cash you would probably:
- Keep it in a safe and dry place, like a safe for example.
- Don’t keep it all in the same place
- Don’t keep it home
Now, how you go about securing your cash safely is not the intent of this article so we won’t discuss it any further.
For your crypto assets on the other hand, we’ll discuss some of the precautions you should at least consider when trying to assure the safety of your assets. Remember that while taking responsibility for your own assets can be liberating, you should not take this lightly and consider the consequences if not executed correctly.
- Educate yourself
- Don’t keep them at home
- Don’t hold them in 1 place
- Use a Paper wallet or Hardware Wallet
- Use (to be continued)
The cryptocurrency and blockchain technology ecosystem is still pretty complicated to wrap your head around. In many ways you can compare it with the beginnings of internet when people were suddenly confronted with new ideas like websites, email, and so on…
While these concepts might have been overwhelming at first, over time we have all learned to use it. The ‘education’ roadmap for this new emerging technology will most likely not be any different.
Actually, for anyone reading and learning at this time, there is no other way of saying this. Getting properly educated about blockchain and cryptocurrencies is still pretty hard at this time. In part, because the entire cryptocurrency space is essentially fragmented in thousands of new ideas described in so called ‘white papers’.
The fact of the matter is that while they all use blockchain technology, the complexity and ease of use for any one of these projects can vary wildly and you should not simply assume that all these blockchain projects and their respective cryptocurrencies work exactly alike. There are many things to consider!
It is recommended that you start your educational journey for example with the Bitcoin ecosystem and then perhaps explore the Ethereum (ETH) ecosystem and so on. Over time, winning blockchain protocols will probably lead to consolidation within the space and a set of best practices will emerge, boosting mainstream adoption.
In the meantime however, we must remember that we are not talking about internet or email, we are talking about ‘money’. You don’t want to lose your digital assets due to the lack of education.
So what is the safest way to hold your crypto?
Education, Education, Education!
While you can play around with mobile wallets, desktop wallets, exchanges and so on, you should use hardware wallets or paper wallets to store your crypto currency! Not your keys, not your coins!
If you just want to hold it, a paper wallet is a superb and free solution. However, if you are planning to trade in and out of positions, consider buying a Hardware wallet like Ledger Nano X, Trezor or other.