Overcoming the fear of storing crypto on a cold wallet

Education

Jul 19

One of the most common questions a new crypto investor will have is, “where and how do I store my crypto?” Despite the obvious benefits of storing crypto on a cold (or hardware) wallet, many still choose to leave it on an exchange, and find cold wallets to be intimidating.

There are horror stories out there of someone losing their recovery key, or destroying their wallet in a house fire, or accidentally sending their crypto to the wrong address during a withdrawal and losing it all. However, these risks can easily be managed and mitigated, and these risks are far outweighed by the benefits.

The purpose of this article is to share three thoughts to help you overcome the fear of storing your crypto in a cold wallet, and encourage you to make the change today!

1. Recognize the risks of storing on an exchange

There are risks when you store your crypto on an exchange. In my blog post titled “Should I store my crypto on an exchange?” I highlight some of these risks in greater depth. The risks vary based on the exchange and the types of security measures and protections they have in place, but in the unlikely event that the risks become reality, you could lose some or all of your crypto. These risks include the following:

The exchange could get hacked, and user private information could be compromised, or, in a worst-case scenario, crypto assets including yours could be stolen.
The exchange could shut down. This could be due to a regulatory crackdown, insolvency, or due to malicious behaviour on the side of the exchange. At the very least, this could make it difficult to withdraw or access your crypto assets.
Based on the model of some exchanges, there is always the risk that you do not truly own your private keys, and thus, your crypto.
Your account could be compromised, and hackers could clear out your account.

These are some of the risks of keeping your crypto on exchanges. The likelihood of these risks coming to fruition may be low, but they exist nonetheless, and it’s important to be fully aware of them.

2. Recognize the security benefits of cold wallets

From a security point of view, storing your crypto on a cold wallet is far safer than storing it on an exchange. If you store your crypto on a Ledger or Trezor device, for example, potential hackers or scammers would need to have your physical device to be able to access your private keys, and your crypto. Also, if you have your crypto on a cold wallet, you know, without a doubt, that you truly own it.

If a hacker wanted access to the crypto that was stored on your device, not only would they have to physically have the device, but they would also need to know your pin, which can be up to 8 characters long, to gain access. Most cold wallets are highly tamper-resistant, making it extremely difficult, if not impossible, for hackers to gain access without your pin, or recovery phrase. That being said, this is a friendly reminder to never, under any circumstances, share your private key, pin, or recovery phrase with anyone.

Alternatively, a hacker would need to gain access to your recovery phrase. Your recovery phrase is 12 to 24 randomly generated words that are provided to you when you first activate your new device.

3. Cold Wallets are easier than ever to use

Cold wallets are becoming easier to use than ever. Wallets by Ledger and Trezor, my two favourite wallet companies, for example, both come with easy step-by-step guides for getting set-up and transferring your crypto over. Both of these wallets are also run by companies with great reputations and solid customer service, so if you encounter any issues, they will be happy to help you out. Most importantly, both of these wallets have great security features, and long track records of safely storing their clients’ crypto.

If you are interested in purchasing a cold wallet, such as the Ledger Nano S or Trezor One, both of which I highly recommend, please use the link below to be referred to the Ledger and Trezor websites. If you purchase a device through these links, we also receive a small commission, so you will be supporting the operations of Crypto Altruism, for which we would be eternally grateful!