It is no secret that investing in cryptocurrency involves risks, the market is volatile, and there are many hacks and scams.
Judy MacDonald says - in a report published by Forbes Advisor - that the analysis issued by the company "Chainalysis" found that $ 1.9 billion worth of cryptocurrency was stolen in hacking and phishing operations, which led to losses of $ 1.6 billion.
The author states that investors who have a better understanding of how to hold cryptocurrencies safely are distinguished from others, as you must understand the differences between portfolios, what it means to manage your cryptocurrency assets, and best storage practices.
Why do cryptocurrencies need storage?
The report explained that cryptocurrencies are digital tokens designed to be exchanged through encrypted transactions over networks of decentralized computers known as "blockchains".
While cryptocurrency tokens reside on a blockchain, cryptocurrency wallets are the mechanism that gives access to digital assets, so that you can send and receive tokens between two different accounts.
He pointed out that transfers between wallets are made by sharing a unique account number for each type of cryptocurrency you own - known as the public key or wallet address - where each "account" also contains a private key, while protecting this information, across the wallet, An essential aspect of storing cryptocurrencies.
The writer stated that a great deal of cryptocurrency theft arises from hackers obtaining your private keys, by hacking wallets.
And in the world of blockchain transactions, where the nature is decentralized, there is no third-party institution that protects your tokens or guarantees your investment (such as a bank or government).
Types of cryptocurrency storage
In its report, Forbes Advisor noted that cryptocurrency exchanges are essentially digital marketplaces that allow you to use real money like US dollars, to buy cryptocurrency like Bitcoin and Ethereum, trade one type of cryptocurrency for another, and convert the cryptocurrency back into cash.
According to the author, an account on a centralized exchange can be described as a wallet, but storing your cryptocurrencies on exchanges usually means that the company retains control (or guardianship) of the assets and users cannot access the private keys, which is what is known as a “custody wallet” ( custodial wallet) so you have to trust the company that runs the exchange to take care of your assets.
What is the best way to store cryptocurrency?
Just as diversifying your investments can reduce risk, it can be a good idea to spread your assets across multiple storage portfolios.
Arguably the most secure way to store cryptocurrency is an electronic wallet, and it is important to secure the device properly, such as creating a strong passphrase, keeping the device firmware up to date, and avoiding sharing private passthrough keys with others, or storing them on the internet or computer.
Investors who have a better understanding of how to keep cryptocurrencies safe are better at managing their assets (Shutterstock)
In a report published by the French Numerama website, writer Bogdan Bodnar presented some quick solutions that can be adopted to secure your cryptocurrency.
Hot Crypto Wallet
The writer defines hot wallets as online software-based cryptocurrency wallets, where your account on a cryptocurrency exchange can be classified as a hot wallet because it is connected to the Internet, and it is unguarded, where you control the private key and initial phrase of your cryptocurrency assets, where The keys to your wallet are stored within the app itself.
Cold Storage
And the writer indicated that offline wallets are called cold, which means a physical device, whether it is a flash drive (usb) or specially designed hardware with security features.
Investment value and amount of protection
Holding large amounts of cryptocurrency and investing more money will certainly lead the investor to increase protection measures.
When you become more familiar with wallets or start investing larger amounts, it's a good time to consider safer storage options such as e-wallets, which are a type of cold storage, says expert Samira Tolo, CTO and co-founder of Elbaite.
She advises investors who make a lot of short-term deals to use a hot portfolio, while a cold one is a wise choice for traders who own large amounts of cryptocurrencies as a long-term investment.