Demystifying Crypto Storage – What Does It All Mean?Staff Writer
In February of 2021, there were over 68 million individuals storing their crypto in wallets. Is cryptocurrency the future? Most would say yes, and this is partially because similar to other currencies, it’s so easy to store. One reason why storing your crypto is fairly simple is that there are several different methods to choose from, each with its respective pros and cons. In most cases, setting up your crypto storage can be done in minutes.
Is cryptocurrency safe? When compared to other types of money, yes, but the safety of your crypto depends on how you store it and how you manage the security of your storage solution. What follows are some of the most popular ways to store your crypto, as well as their benefits and potential drawbacks.
Paper wallets are one of the most straightforward ways to store your crypto. With a paper wallet, you use a piece of paper that has your crypto key printed on it. Is Bitcoin a good investment for those who like to use paper wallets? Some say yes because you get both the benefits of Bitcoin and the simplicity of keeping your private key on a piece of paper.
However, there are significant drawbacks as well. If you keep your piece of paper in your wallet, it may suffer water damage and be illegible or impossible to scan. Further, many printers store info about what they print out, which could expose your private key to anyone who knows how to hack the printer.
An online wallet also referred to as a web wallet, is used to keep your cryptocurrency and its access information on the internet. An online wallet runs in your web browser and is, therefore, secured by your browser’s security tools.
One of the primary benefits of online wallets is their convenience. As long as you’re connected to the internet, you can access your crypto because it’s stored in the cloud. There’s no need to have anything on you, physically, when you manage your crypto or keep track of extra hardware or devices that allow you to see and work with your funds.
On the other hand, online storage also exposes you to a few different risks. If someone were to steal your device and you didn’t have multi-factor authentication enabled, they may be able to access your crypto without much effort, particularly if they have your login information.
Also, cyber thieves tend to target online storage providers, such as crypto exchanges, knowing that if they are successful, they can gain access to hundreds or thousands of users’ wallet address information.
With an omnibus wallet, your crypto is stored by an exchange alongside that of others who also subscribe to the same exchange. For instance, if you were to buy $20,000 of BTC, your BTC would be stored along with that of the exchange’s other customers. To access your funds, you provide login information and can then manage your crypto.
With an omnibus wallet, you get very strong security, supplied by the company. You also can easily access your crypto by providing login credentials. There’s no need to carry an additional device or travel to a physical location.
However, omnibus wallets also come with some risks. If a hacker is able to penetrate the security of the omnibus wallet provider, they could steal your crypto, along with that of other users.
You can use a mobile app to store your crypto, and all you need is a smartphone or other compatible mobile device. With a mobile app, you get a combination of ease of use and security.
Mobile apps work by encrypting your private crypto key and then storing it on the company’s servers. Because your key is encrypted, even if a hacker were to access the company’s server, they wouldn’t be able to easily access your key without having the decryption algorithm. In some cases, your security is shared between your device and the company’s servers, so a hacker would have to penetrate both to try to access your crypto.
Mobile apps also often use biometric measures, such as your fingerprint or a facial scan, adding another level of security.
However, with a mobile app, you have to be very careful not to lose your device, otherwise, you may have to use another one to access your funds. This could make it difficult to move or manage your crypto in a crunch.
In addition, some mobile apps, such as ZenGo, have limits on the amount of crypto you can buy per month, requiring different levels of verification for each buying limit. Going through different verification processes depending on how much you’re buying could be a drawback for some users.
With segregated storage, you store your crypto key, physically, in a vault that is kept separate from those of other people. You would have to physically go to the vault, present access credentials, which could be a physical key or combination and use that to open the vault and get your security key. You would then enter your security key to initiate an online transaction.
Segregated storage is very secure in that your key is kept safe by hardware, staff, and a security system designed to protect valuable assets. However, segregated storage is inconvenient for many because you have to physically travel to the storage location before being able to make a transaction.
Mobile Devices—Cold Storage
Mobile storage devices typically work by interacting with another device you use to manage your crypto, such as a laptop or phone. This happens with a USB connection or an air-gapped connection based on a QR code. Without the mobile device, you cannot access your crypto, making it very difficult for hackers to get to your crypto—even if they manage to steal your device and log on to it. Using this kind of solution is also referred to as cold storage, which differs from hot storage, which involves cloud-based storage, such as with an online wallet.
You can also choose a mobile device that stores information about each transaction, allowing you to go through your history and glean info about what you’ve spent, transferred, received, and earned. Some devices also give you the option of seeing what’s happening during a transaction, including security measures being applied, while you’re managing your crypto.
The biggest downside to mobile devices is if you lose the device, you won’t be able to access your crypto. In addition, if someone were to steal your device and be able to log in to your computer, they may be able to easily access your funds.
Advantages of Owning Cryptocurrency in an IRA
One of the many advantages of purchasing cryptocurrencies through an IRA is the institutional-grade, segregated, multi-asset cold storage for full custody of your digital currencies. With Coin IRA, your IRA assets are also protected by crime insurance that covers internal and external theft on assets held in the care, custody, and control of the custodian’s chosen storage provider. You can gain peace of mind knowing your digital currencies are protected with a combination of advanced security practices and a suite of customized insurance solutions.
To learn more about the benefits of a Cryptocurrency IRA, reach out to a Coin IRA cryptocurrency sales specialist today.