Technically speaking, bitcoin and other cryptocurrencies are digital assets that are never “stored” on any system or device. A cryptocurrency “wallet” simply stores and protects the private key that proves your ownership and allows you to move assets on the blockchain
A cryptocurrency wallet is a software that stores your public and private keys and allows you to transact and hold cryptocurrencies. The public key is like an address you share. Your private key is like a password only you should know. Anyone with your private key can move the bitcoin, so it’s important to keep this secure.
Your wallet address is derived from the public key, but they are not the same. The wallet must be compatible with the cryptocurrency you are attempting to send to it. Sending the wrong kind of cryptocurrency into the wrong type of wallet could result in the permanent loss of your funds.
One way to categorize wallets is by who controls the private keys. With a non-custodial wallet, you have sole control over your private keys. Having a non-custodial wallet is like being your own bank; there is no need to trust a third-party. While this might seem like an easy and secure way to store bitcoin, billions of dollars in crypto were lost this way, and there is no recourse.
If you are not ready to be your own bank, a custodial wallet might be the right solution. In this case, you are trusting a third-party with the private keys to secure your crypto. Most crypto exchanges and brokerages, like Coinberry, are examples of a custodial wallet. Picking a custodian solution that is reputable and secure is crucial. At Coinberry, we have partnered with the Gemini Trust Company LLC™ to keep the majority of customer funds in institutional-grade cold storage.
A hot wallet is online and connected to the internet. This type of wallet allows you to access, purchase, and transact crypto instantly. Because the public and private keys are on the internet, it is vulnerable to malicious hacks and malware on your device. An example is a web wallet hosted on an exchange. You should always add extra layers of security to your account in case your login is compromised. We’ve madndatory for all Coinberry users, but it’s always good practice not to leave a large amount of crypto in hot wallets.
Cold wallets or cold storage means taking your crypto offline, limiting you only to receive crypto. Keeping your wallet address offline makes it less vulnerable to malicious actors. Long-term investors who hold a substantial amount of bitcoin tend to use cold storage. A hardware wallet is a popular cold storage wallet that lets you keep your private keys on a secure and portable device the size of a USB key. You can move crypto from a cold wallet by plugging the wallet into a computer and signing a transaction. Your private keys will be kept offline the entire time.
Now that you have a basic understanding of the different wallets, the next step is to formulate a crypto storage strategy that will most likely involve multiple wallets. We’ve made a step-by-step plan and checklist on securing your cryptocurrency.
There is no one-size-fits-all solution to keeping your bitcoin secure. The key is to find the sweet spot where the security level matches your technical ability and usage needs. Knowing there are always ways to make it harder for someone to get your bitcoin can make it hard to accept any security solution.
So how do you create a security protocol that works for you? Below is a security checklist that will work for most investors.
Canadians know far too well about the perils of using a fraudulent exchange. When buying and selling, look for platforms that are regulated and compliant. In Canada, exchanges or brokerages should be FINTRAC registered and PIPEDA compliant. Do some research on the company’s security protocols and ensure you are satisfied with all the measures they have put in place to keep your crypto secure.
Having a strong password just doesn’t cut it anymore. Data breaches are rampant, and hackers can bypass your password altogether by gaining access to your cellphone through common attacks in the crypto community. For this reason, SMS two-factor authentication is should never be relied on to secure your account.
Here are three things you can do right now to protect your accounts:
• Use a fresh email when signing up for crypto platforms - make sure it has not been and is not public in anyway
• Enable Two-Factor Authentication on all of your accounts using an authenticator App
• Install an anti-malware software like Malwarebytes on all your devices
Even if your exchange and brokerage accounts are secure, it’s always good practice to move most of your crypto holdings into cold storage. You can move crypto assets from Coinberry into cold storage by withdrawing to a cold wallet address. Double-check the address when you are sending large amounts.
While there are many cold storage methods, having a hardware wallet is one of the most popular options. After purchasing your hardware wallet, there are a few components to keep in mind:
Public Address - where you send or receive crypto
Private Keys - protected in the hardware wallet and allows you to send crypto
Seed Phrase - 12 to 24 words that will recover your wallet
PIN - a string of numbers to shield your device from unauthorized physical access
You should only purchase hardware wallets directly from the manufacturer and never trust an eBay seller since they can access your seed phrase. Recently, Ledger, one of the largest hardware wallet providers, was hacked. Although no crypto was compromised, the leaked personal information made their customers more prone to phishing and theft.
The responsibility for safeguarding your cold storage falls entirely on you, so if your wallet and seed phrases are lost or stolen, there is no recourse.
Being your own bank is not easy, so:
• Separate Your Funds - If you have multiple hard wallets, don’t keep them in the same location and separate your seed phrases too
• Secure your seed - Secure the location you are keeping your seed phrase, so it’s protected against theft and natural disasters
• Never write your seed down on a computer or publish it on the internet
• Back up your wallets often
• Keep it hush - Don’t boast about your crypto holdings, not even to family and friends . on all your devices.Here are three things you can do right now to protect your accounts:
With bitcoin’s valuation soaring, it’s more important than ever to set a plan in place so your heirs can benefit. The dilemma with crypto inheritance is that to keep your holdings secure, you should ideally be the only person with complete access. So how do you keep it safe but also allow for inheritance?
• Consult an estate lawyer with crypto experience
• Keep a paper record of your assets and where they are stored, including: exchange logins, wallets and backups, and crypto devices
• Educate your heirs on how to handle and secure everything
• Do a test run every year to make sure everything goes smoothly
Coinberry is Now Backed by Financial Bonding Insurance!
We are now backed by a form of insurance that protects against financial losses due to dishonest acts and unethical behavior from Coinberry employees.