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Secure Ways to Store Cryptocurrency: Hot, Cold, and Paper Wallets Explained

As a newbie getting started with cryptocurrency investments, one of the first things you must consider is how to buy and store cryptocurrency safely. Knowing how and where to store your crypto before pressing the “buy” button is essential so your crypto investment journey doesn’t suffer an early setback.

One thing to note is that you can't store cryptocurrencies in a regular bank account; they have to be stored in a crypto wallet on reputable crypto exchanges/apps or specialized devices. You have to choose a storage option that is both secure and accessible. Any mistakes can have consequences as significant as losing your entire crypto stash. In 2021, Stefan Thomas, a programmer and Bitcoin enthusiast, lost 7,002 Bitcoins (BTC), now worth about $203 million, because he couldn't remember his wallet password.1

To help you avoid a similar disaster, this crypto storage guide will explore the many storage options and the factors to consider before choosing an option that meets your preferred safety, security, and accessibility needs.

Key Takeaways

• Cryptocurrency must be stored in a dedicated crypto wallet, not a regular bank account.
• Cold storage wallets are the most secure option for storing large amounts of cryptocurrency offline.
• Hot wallets are more accessible for frequent transactions but are more susceptible to hacks.
• Paper wallets can store cryptocurrencies offline but are vulnerable to physical theft or damage.
• Research and choose exchanges and wallets carefully to avoid potential scams and security risks.

How to Store Cryptocurrency 

You need a wallet to store cryptocurrency. A crypto wallet is a device or program that keeps your crypto assets, private keys, and various wallet addresses (public keys) all in the same place. 

Steps Required to Store Cryptocurrency  

When you purchase a crypto asset, you’ll need somewhere safe to keep it. Most crypto investors leave their crypto on the exchange where they bought the asset. These exchanges provide free hot wallets with little or no setup required, but you’ll need an account with the exchange to gain access to these wallets.  

How to Store Cryptocurrency on an Exchange 

1. Explore different crypto exchanges that offer a wide range of cryptocurrencies, have an excellent user experience, and are supported in your jurisdiction.
2. Open an account with your chosen exchange, ensuring it meets all the know your customer (KYC) requirements necessary for verification.
3. Complete any additional KYC requirements, such as providing your legal name, address, and government-issued IDs.
4. Deposit your cryptocurrency into the newly set-up wallet by locating the correct wallet address, often found through the deposit transaction page.

How to Securely Store Cryptocurrency in Cold Storage 

1. Purchase a robust cold storage device with features like Bluetooth connectivity for maximum utility.
2. Install the corresponding wallet software on your computer for managing crypto transfers.
3. Record and memorize your recovery (seed) phrase. Ensure it is stored securely, as this phrase is crucial for accessing your crypto if you forget your password.
4. Create a unique wallet address for each new cryptocurrency you wish to store.
5. Transfer your cryptocurrency to the new address, double-checking for accuracy to avoid loss.

Secure Your Cryptocurrency in a Hot Wallet 

1. Choose and install your preferred hot wallet, taking care to select one that is compatible with your device.
2. Complete any required KYC procedures to validate your identity and protect your account.
3. Ensure all cryptocurrency options offered by the wallet are set up and ready for use.
4. Deposit your cryptocurrency, providing your wallet address to other parties for transactions.

Storing Cryptocurrency Safely in a Paper Wallet  

1. Use a malware-free computer—preferably a new one—to ensure the security of your private keys.
2. Access a reputable paper wallet generator online to create your wallet credentials.
3. Select the number of addresses needed and generate them through the site.
4. Print out your paper wallet, ensuring the private key is hidden from view while the address is accessible.
5. Safely store the physical paper wallet in a secure, dry place, taking precautions from moisture and fire.

What You Need to Open a Cryptocurrency Account  

Opening a cryptocurrency account is quick if you have the necessary details. A few wallets even allow you to open multiple user accounts on the same wallet. Remember, you'll need to provide the necessary KYC details; these details help exchanges and wallets keep money laundering and other financial crimes in check. 

Research the Cryptocurrency Account 

Running background checks before you sign up with an exchange/wallet is crucial. These checks save you a lot of headaches and prevent you from falling into the hands of scammers posing as legitimate business owners. The first place to look is the company's website. There are several questions to ask, including:

• Does the website look suspicious? 
• Does the URL correspond with the company's name? 
• Who runs the exchange? 

Although many things are anonymous in the crypto space, owners of wallets/companies rarely are. If you’re satisfied with the company’s website authenticity, head to social media to check out its official social media handles. Also, pay attention to any red flags and listen to what other people are saying about the company. Do a lot of people say it’s inefficient? 

Sign Up  

To use a cryptocurrency wallet/exchange for the first time, you need to sign up with some details and documents to give the exchange some background information on you. Here is the information most exchanges require:

• Name
• Date of birth
• Email address
• Phone number
• Home address
• Social Security number
• Driver’s license or passport

Understand the Basics 

Since cryptocurrency is money, it needs to be kept safe: away from hackers, scammers, and other bad actors. If these people get ahold of your crypto, they can send it to another wallet or sell it for money, leaving you with nothing. In choosing a crypto wallet storage option, consider one with a security system that makes it difficult for anyone to hack your wallet and steal your assets. 

There are different types of secure wallet options you can go with, including crypto exchanges, cold storage wallets, paper wallets, and hot crypto wallets. If you want to access your crypto more quickly, choose either a crypto exchange or hot crypto wallet. If you’d like to focus more on security and storing cryptocurrency offline, cold storage or paper wallets  are ideal options.

Cryptocurrency Exchange  

A crypto exchange is an application that lets you access crypto and carry out crypto-related transactions. Most wallets are free to download , but they mayinvolve a transaction fee for sending or selling cryptocurrency. Coinbase, Binance, and Kraken are all popular examples of cryptocurrency exchanges.

Cold Storage Wallet 

A cold storage wallet is a type of wallet not connected to the internet. With these types of wallets, your crypto is safe from hackers, so these are ideal for storing large amounts of cryptocurrency. Many users go for Trezor and Ledger. 

Hot Crypto Wallet  

Unlike a cold wallet, a hot crypto wallet is connected to the internet. That means you need an internet connection to access your crypto. Although these wallets are more susceptible to hacks, they make accessing your crypto frequently for transactions easier. Numerous hot crypto wallets are available on the market today, but Guarda and Mycelium are good picks based on security.

Paper Wallets 

Although paper wallets are now phasing out, they‘re still practical for storing cryptocurrencies. A typical paper wallet contains your private keys and your address printed on it. Paper wallets are relatively safe, but if the paper gets stolen or goes missing, the thief could easily read your keys and take your crypto, or you lose your crypto forever.

Know the Risks 

No cryptocurrency storage method is 100% safe, even with the various security measures. 

Risks of Storing Cryptocurrency in an Exchange  

Storing your crypto on an exchange is often regarded as the easiest way to keep it, but you can also quickly lose it to hackers. If your exchange gets attacked, you could permanently lose your crypto, even though your passwords and private keys are safe.

Risks of a Cold Storage Wallet 

Typically, cold storage is the safest way to store your crypto away from online hacks and security breaches. But you can also lose your crypto, especially if you lose your device or it gets stolen. Furthermore, water or fire damage can permanently cause your crypto to go down the drain, especially if you did not back up your seed phrase.

Risks of a Hot Crypto Wallet  

Hot crypto wallets pose almost the same risk as storing crypto on exchanges. However, they’re relatively safer. If your device gets hacked or you accidentally install malware, your wallet could be completely drained.

Risks of a Paper Wallet 

Your paper wallet is highly vulnerable to physical damage or wear and tear. These wallets are pretty inexpensive, but they‘re easy prey for attackers. The attacker only needs to get a hold of the paper to rob you. So, even if you have copies of the paper wallet, it doesn't help much since your private keys are on any copy you print out or keep in your device’s storage as a soft copy.

Factors to Consider When Opening a Cryptocurrency Account  

Security:  Review an exchange’s security features before setting up an account. We recommend you go with one that offers two-factor authentication or an additional security measure to the usual password feature. 

Fees: Many exchanges charge a small fee for sending, selling, or buying cryptocurrencies. If you would like to trade cryptocurrency often, your best bet is to go with an exchange with moderately low fees to save you the extra money spent on charges. 

Number and quality of supported cryptocurrencies for options trading: If your goal is to trade a variety of crypto assets, you will need to choose an exchange that offers more than just BTC and Ethereum (ETH).

Storage and custody: Using a custodial storage option like a hot crypto wallet is better if you're not too good with keeping passwords and passphrases. These options keep your crypto for you and can help you recover your password if you forget it. 

Customer service: Although many exchanges have a customer care center or an email to reach them in case of issues, it’s preferable to go for one with a live chat option. Those have faster reply times and can be convenient for wallet-related emergencies.

How Do You Store Large Amounts of Cryptocurrency?

You can store large amounts of cryptocurrencies by any storage method, but storing them in cold wallets is best. Cold wallets are the most secure option and can store any amount of cryptocurrencies for a long time.

Can You Store Cryptocurrency Offline?

You can store cryptocurrency online as well as offline. Offline storage options include cold storage wallets and paper wallets. These days, people rarely use paper wallets. You should get a solid, secure cold wallet to keep your crypto offline.

Are Cryptocurrency Exchanges Safe?

Cryptocurrency exchanges are not entirely safe. An exchange can easily be hacked, and your wallet might be part of the unfortunate ones affected. You should store crypto on exchanges mostly if you make a lot of crypto transactions or trade crypto.

Can You Store Multiple Cryptocurrencies in One Wallet?

Yes, you can store multiple cryptocurrencies in one wallet. Many cryptocurrency wallets and exchanges automatically create separate wallets for as many cryptocurrencies as they support. In a few cases, you’ll have to manually add a new wallet for the new crypto you want to store. The best wallet to store all cryptocurrency would be a cold, portable and secure one.

What Are the Different Types of Cryptocurrency Exchanges?

A centralized exchange is a cryptocurrency trading platform where you buy, sell, and transfer crypto with the help of an intermediary (the exchange). These exchanges help you with crypto transactions for a fee; however, your crypto might be used by the exchange for personal uses, which is what happened with FTX. To access an account with a centralized exchange via the web, you’ll need a password or PIN most times. With apps, you can open your account regularly with little or no security.

Decentralized exchanges (DEXs) are created to eliminate the control and need for a middle entity. Instead, they run on smart contracts and do not hold your crypto for you. With DEXs, the exchange cannot access your crypto and misappropriate it. To use these types of exchanges, you must hold your crypto separately in another wallet and connect it to the decentralized exchange (DEX) when you want to transact. When you’re done, immediately disconnect your wallet from the site for security reasons. Although decentralized exchanges are harder to use, they are more private and can help you transact anonymously, as they don’t require KYC.  

A hybrid exchange combines the features of both centralized and decentralized exchanges by allowing you to carry out high-volume transactions. However, some hybrid exchanges require KYC for huge transactions. With these kinds of exchanges, you can be sure of faster transactions, as users are matched with each other on a decentralized database.

The Bottom Line 

Cryptocurrency can be stored through various storage methods, such as cold storage, hot wallets, and paper wallets, and security measures like two-factor authentication can enhance safety. Hot wallets are connected to the internet, while cold wallets are not. Paper wallets allow for physical storage of your credentials. Hot wallets can be vulnerable to hacks, paper wallets risk physical damage, and cold wallets can be lost or stolen. Before choosing where to store your cryptocurrency, it's important to research exchanges, taking into account factors like reputation, customer service, and fee structures.