Storing And Securing Your Cryptocurrency

So you’ve decided to diversify your investment portfolio by venturing into cryptocurrencies but have absolutely no idea how to safely store your digital assets.

In this article, Amber Oak Capital has come up with a guide to help you learn about methods to safely and securely store your digital assets by answering some of the most commonly asked questions. However, do note that any information in this blog is purely for informational purposes and should not be taken as financial advice.

The three tiers of cryptocurrency investors

Cryptocurrencies can generally be purchased by an investor, either by themselves personally, or via a broker directly linked to a cryptocurrency market. Because each investor is unique in their own investment strategy dependent on their long term goal, they commonly fall into three main tiers:

  • Tier 1: Buyers who are new to cryptocurrency trading and usually trade and transact in small amounts, say about $100. 
  • Tier 2: Buyers who have been trading for a while now in the cryptocurrency markets and transact in large amounts, say between $10,000 to $20,000.
  • Tier 3: Seasoned cryptocurrency investors who trade in volumes, upwards of $20,000 to $100,000, or maybe even more.

What is a Cryptocurrency Wallet? 

A cryptocurrency wallet or a digital wallet is a computer program which allows you to safely store, send and receive your assets. 

Essentially, cryptocurrency wallets are classified into two categories:

  1. Hot Storage: Where your wallet is only software based, online and convenient to access. These wallets are commonly created and found within the cryptocurrency exchange platform or the cryptocurrency brokerage. The risk with these wallets however, is that since they are constantly connected to the internet, they are prone to cyber attacks such as hacking.
  1. Cold Storage: Where your wallet is both software and hardware based and privately held by you, either in the form of a USB or a hard disk storage drive. While the risk of cyber attacks to these wallets are removed, convenience in operating and accessing these wallets, especially for trading purposes, is a bit of an issue, but that does not make them immune to physical theft, which means the loss of your entire cryptocurrency funds.

How does a Cryptocurrency Wallet Work?

A cryptocurrency wallet functions very similarly to your own personal bank account. As mentioned earlier, your wallet is where you would store your digital currency, but at the same time it is also the mechanism which allows you to send and receive cryptocurrency assets. 

To make it easy for you, the team at Amber Oak Capital have decided to use the comparison of a personal bank account to a cryptocurrency wallet to help you to understand how a wallet works in the below table:

Seed PhraseA wallet starts by creating a seed phrase, which is a set of random 12-24 words. Like your unique customer number and 3 digit Pin, anyone who has knowledge of this can access your wallet and drain your funds. Hence you should always ensure that you either write or print this down somewhere and store it securely for use later on. Never ever store your seed phrase in your personal laptop or computer as even something simple as a cyber attack or a hardware malfunction can cause you to lose all your cryptocurrency assets!
Keys: Once your wallet is set up via the seed phrase, it will automatically generate a uniquely paired private key and public key to send and receive your cryptocurrency asset.
Private KeyThis is a large random unique set of alphanumeric numbers generated by your wallet. Similar to your bank account password, this key is your wallet’s password which allows you to send cryptocurrency while keeping track of your private keys.
Public KeyAgain, a large random unique set of alphanumeric numbers generated by your wallet and paired with your private key. This key essentially acts as your bank BSB and account number to receive your cryptocurrency assets. 
AddressYour wallet address is essentially your public key shortened to receive your cryptocurrency assets and functions very similar to your mobile PayID number to receive money.

Depending on your tier, preferred wallet and storage method, you may also want to consider what type of wallet you may want to go for when you decide to trade and store your cryptocurrency assets.

What is the difference between “preferred wallet” and “type of wallet”?

By preferred wallet, we are referring to the different kinds of cryptocurrency wallets you would like to use when storing your cryptocurrency assets safely and securely. That is, whether they are Hot Storage or Cold Storage with regard to your tier.

How do different wallets guarantee the safety and security of my cryptocurrency assets?

For easy understandability, we have compiled this information in a simple table below:

Wallet PreferenceSafety and SecurityWallet TypeInvestor Tier SuitabilityExamples
Web Wallet:  An online wallet that is highly user friendly asd hence popular with a lot of  beginner investors and traders.Very low since the wallet’s private keys rely on the provider’s software security features to protect it and is thus prone to cyber attacks.Hot StorageTier 1 provided they are using well established exchanges and brokerages.Coinbase, Binance, Exodus
Mobile Wallet: A wallet that is stored in the investor’s mobile device and utilized for convenient daily on the go trading and transactions.Moderate since only the mobile user can access this wallet, but not foolproof against cyber attacks and device theft.Hot Storage and Cold StorageTier 1 & 2 since these investors tend to trade in relatively large volumes of $10,000 to $20,000.eToro, MyCelium, Bitcoin Wallet
Desktop Wallet: A cryptocurrency wallet stored in the  investor’s personal desktop or laptop. Medium since the wallet is only accessible by the desktop user but not protected against cyber attacks and device theft.Hot Storage and Cold StorageTier 2 as the transaction and trading volumes of the investor is anywhere from $10,000 to $20,000.Ledger Nano S, Trezor Model T, Ellipal Titan

Hardware Wallet: A physical device such as a USB or hard drive, storing the investor’s private keys.High since the wallet is protected by a unique investor known only password, but not guarded against device theftCold StorageTier 3 as volumes and assets of $20,000 to $50,000 are traded and stored.Ledger Nano S, Trezor Model T, Ellipal Titan
Paper Wallet: A wallet where the keys of the investor are stored on a piece of paper in the form of QR codes.Extremely High since the keys are not hosted by any hardware or software though convenience may be a bit of an issue.Cold StorageTier 3 due to trading and transactional of volumes of $50,000 and possibly above $100,000.None, since it is based on printing from the investor’s personal printer.

Valuable tips you should know before investing

Whether you are a beginner or a seasoned investor, Amber Oak Capital highly recommends the following tips be kept in mind when investing in any form of digital assets:

  1. Use a mix of online and offline storage methods for your cryptocurrency assets to guard your funds and assets against both cyber attacks and physical device attacks. 
  2. Use multiple unique passwords to secure your cryptocurrency account. A trusted password manager can also be useful in helping keep track of your unique passwords.
  3. Use reputed cryptocurrency wallets, exchanges and brokers when trading. 
  4. Beware of scam and phishing emails posing as legitimate exchanges and or brokers asking for your personal information and offering you “too good to be true” rewards and services. Always verify such emails by looking for essential things such as their contact details, locations, etc.
  5. Be “cyber resilient” by understanding how your wallet might be used when trading and for transactional purposes by ensuring that systems and networks are not compromised when using them for this purpose.
  6. Protect and keep track of your wallets by understanding and utilising methods such as secret key protection , recovery seed protection and crypto-miner malware protection.
  7. Never share your seed phrase and private keys with anyone and ensure that they are always stored securely somewhere in a location and place uniquely known only to you.
  8. Skip using wallets hosted by providers as the keys stored in such sites are out of your control and prone to cyber attacks. Remember the saying; not your keys, not your cryptocurrency.

Remember that cryptocurrencies are extremely high risk assets operating in a volatile market and that you research very carefully before investing.

On that note, the team at Amber Oak Capital hopes you’ve enjoyed reading our article. Feel free to contact us here for any other queries regarding our cryptocurrency brokerage services!

Disclaimer: The information on this website is purely for information. Amber Oak Capital is not a financial adviser, and nothing stated here is to be taken as financial advice. You should seek independent legal, financial, taxation or other advice relevant to your financial situation before making any investment decisions.