The value of most crypto assets has been on a despairing slide for a good chunk of 2022. Bitcoin, the apex cryptocurrency, is down by almost 60% from its all-time high. Other altcoins have followed suit, with most shedding over 90% of their all-time high values.
At this point, investors need to safeguard their assets. With the increasing cybersecurity concerns about the breaches crypto exchanges encounter, the question of how to store your crypto safely cannot be overemphasized.
Like physical money, numerous criminals are after your crypto and keep improving at devising new ways to get to you. One of the common ways hackers siphon the funds of crypto investors is through exchange hacks.
But before we examine what that means, let us look at ways to store your digital assets.
How to Store Crypto
You need a wallet address if you've purchased Bitcoin or any cryptocurrency before. Like the wallet you keep in your back pockets, a crypto wallet is used to keep your crypto safe — it can be cloud-based or hardware. Cloud-based wallets are the most popular; they can be installed on your mobile phone or desktop.
Each wallet, whether web-based or hardware, comes with a private key. This secret cryptographic key resembles a password that helps the user access their funds without third-party access. If you lose your private keys, your wallet might be breached, and your assets whisked away.
There are two most popular categories of wallets used to store cryptocurrencies:
- Hot Wallets: These are mainly web-based wallets that can be accessed with your phone or desktop. They are easy to use and enable fast transactions. However, they are considered to be less secure than cold wallets.
You can get a hot wallet using a decentralized source or crypto exchange.
- Cold Wallets: These are the opposite of hot wallets. They are referred to as offline wallets or hardware wallets. They come in diverse forms, like paper ledger wallets.
They are perceived as the best place to store crypto since their usage is not susceptible to online hacks.
Since cold/hardware wallets require acquiring money, many investors stick with hot/online wallets. However, we recommend you use a decentralized wallet instead of an exchange wallet if you want to know how to store your digital assets.
For many reasons, exchange-based crypto wallets are not the ideal option for you. Although exchanges have their perks like convenience, faster transactions, and cheaper fees, the question of user security is not expressly implemented. Recently, we have seen numerous hacks on top crypto exchanges resulting in the loss of millions of dollars.
If you want to use a hot wallet to store your crypto assets long-term, we recommend you avoid centralised crypto exchange wallets. Here's why:
Hacks and Breaches
Hacking attacks on crypto exchanges are becoming increasingly elaborate. With new techniques sprouting up consistently, hackers will feast on unsuspecting investors who may or may not make security-related errors.
According to a study, exchanges lose about $2.7 million daily to hackers. With the increasing popularity of blockchain technology and the influx of new exchanges, that number is certain to increase. Also, despite stringent KYC and 2-factor authentication integrations, hackers sometimes find ways to dole out phishing attacks on users through malicious websites or emails.
Blocked Transactions or Freezes Funds
Unlike decentralized exchanges, where you can send or receive assets whenever you want, centralised exchanges might place restrictions on transactions. Most times, if you default the rules, your account might be suspended and your funds withheld.
In some cases, when an exchange goes bankrupt, your assets might be frozen without warning. Coinbase is notorious for halting withdrawals without sufficient notice to users.
Limited Availability for Cryptocurrencies
Exchanges don't support all the cryptocurrencies available. For new crypto to be adopted on major exchanges like Binance, Coinbase, Kucoin, and Huobi, they're strenuous processes that must be observed.
This means you might be unable to hold your favorite new cryptocurrencies on the exchange until adoption. However, decentralized wallets can hold many new cryptocurrencies without limits.
Shared Private Keys
Every crypto wallet possesses two keys, a private and a public key. The public key is a cryptographic code used to facilitate transactions when you share them with someone who intends to send you some crypto. On the other hand, the private key is a cryptographic code that acts as a password for your wallet and shouldn't be shared.
However, aside from you, the exchange also has your private keys. This enables them to let you back in to access your funds if you lose your key. While this practice is alright, it also means if a third party manages to access the database that contains your private key, you will likely lose your funds.
'Not your keys, not your coins' is a simple saying that investors chant to remind you that shared access to your wallet can be disastrous. Nonetheless, there is no haven for cryptocurrencies. You'd likely suffer a breach if you misplace your private keys or carelessly use even your cold wallets.
However, on the scale of preference, you shouldn't leave your crypto assets on an exchange for long. If you can afford it, get a trusted cold wallet and import your tokens to it.