How to Securely Hold Cryptocurrencies

There are two types of keys, public and private keys. Public keys are what generate your wallet addresses, which are also public. These addresses are used for you to receive cryptocurrency when purchasing cryptocurrency, or withdrawing cryptocurrency from an exchange, you would provide your public wallet address to receive the cryptocurrency.

A private key is essentially a complex password, these keys are generated by the digital wallets that hold cryptocurrencies. These private keys derive a seed phrase, which is usually a string of 12 or 24 words. The seed phrase acts as your recovery phrase, and is the MOST IMPORTANT aspect of holding your assets (cryptocurrencies). If anything happens to your wallet, you would need your seed phrase to recover all of your assets. If anyone has access to your seed phrase, they have full access over everything you own.

You may have heard the phrase “not your keys, not your coins”. This means, if you don’t have your seed phrase, you ultimately do not have full control over your cryptocurrencies. Exchanges do not provide you with seed phrases, they hold your phrases for you and also assume liability of your assets. For beginners, or people that do not want to be liable for their own cryptocurrencies, using an exchange may be a good idea. Keep in mind, the CEO of a Turkish cryptocurrency exchange recently has “gone missing” and took all of the customers’ assets, which have an estimated value of $2 billion. Personally, I am a proponent of being in full control of my assets; therefore I would rather hold my assets in a wallet I control rather than in an exchange.

There are mainly two types of wallets, hot storage and cold storage. Both types of wallets will provide you with seed phrases. Hot storage wallets are the most popular types of wallets, they are free (or extremely inexpensive) and are available to use on your smartphone, since they are connected to the internet. These are good wallets for daily trading, since they are more accessible.

Cold storage wallets are physical wallets that act as keys to access your assets; using a cold storage wallet is the most secure way to hold assets. The most popular cold storage wallets are hardware wallets, such as the Ledger Nano S or Trezor One. The reason they are so secure is because you need the physical hardware to be able to send assets. These hardware wallets are also locked by a passcode, adding further security.

In essence, you connect your hardware wallet to your computer, send the assets using your computer, and confirm the transaction on the hardware wallet; without the hardware wallet, those assets are not accessible. Therefore, cold storage wallets are better for holding long term assets.

I use both types of wallets, and hold nothing in exchanges. I hold all of my long term assets, such as Ethereum, in my Ledger Nano S (the cold storage wallet). I hold some of my altcoins in hot storage wallets (such as Exodus, Trust, or Atomic). The hot storage wallets I use depend on what they can hold, some wallets can hold certain cryptocurrencies and some wallets cannot. For example, if I wanted to hold Safemoon, I would have to use Trust Wallet because Exodus Wallet does not support Safemoon.

To wrap things up, I recommend holding your assets in wallets you control, and not in exchanges. Remember your recovery seed phrases, never give them to anyone, and never put them in a place where someone can hack into (for example, your iCloud notes). Hardware wallets, such as the Ledger Nano S, are the absolute best place to securely store your crypto.