Main Ways of Storing Crypto
When it comes to storing your cryptocurrency, you have three main options:
Storing your cryptocurrency on an exchange is like keeping your money in a bank. The bank (exchange) has control over your funds. It's handy for quick access and trading, but there are risks. Since the exchange controls the private key, not you, they have ultimate control over your digital currency. If the exchange faces issues or decides to freeze your assets, you might not be able to access your funds and you could even lose them completely.
Using an online hot wallet is like carrying a credit card. It's convenient for everyday transactions and easy to access since it's connected to the internet. However, just like a credit card, there's a risk. Your private key, which is like your credit card information, gets exposed to the internet, making it vulnerable to hacking and theft.
- Trust Wallet
- Blockchain.com Wallet
A hardware wallet is like a safe in your house. It's the most secure option because it keeps your private key completely offline. It's a bit like having cash or valuables securely locked away. The key never touches the internet, so it's safe from online hackers. However, just like a safe, you need to keep track of it. If you lose it or forget how to access it (like losing a safe's key), you could lose access to your crypto.
- Ledger Nano
- Trezor Model T
How is Your Private Key Treated in Each Storage Method?
On an Exchange
Here, you don't actually own your private key; the exchange does. It's similar to depositing money in a bank – technically, the bank holds your money, and you trust them to keep it safe. However, if the exchange decides to freeze your account or becomes compromised, your assets are at risk.
In an Online 'Hot' Wallet
Your private key is created when you set up your wallet and is exposed to the internet. It's much like inputting your credit card details on an online store. There's an element of trust that your information won't be stolen or hacked, but the risk is always there.
In a Hardware Wallet
The private key is generated offline and never leaves the device. This is comparable to having physical cash or gold in a safe at your home. The only way someone could access it is through physical theft, making it the most secure form of cryptocurrency storage.