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Ways to Store Your Cryptocurrencies Like Bitcoin or Ether
Before discussing how to keep your cryptocurrencies, it is important to understand that the idea of a blockchain is to have a distributed system of transparent ledgers. This means, all these ledgers (databases) that are spread across the network, “agree” or recognize that your cryptocurrency address has X amount of Bitcoin, or Ether (or whatever currencies you have).
What you are actually keeping is not the physical currency itself, but instead the private key to access those cryptocurrencies.
So essentially your cryptocurrency wallet is a platform or client that has both your address and your private key.
The Categories of How to Keep Your Cryptocurrencies
Firstly, let’s look at the categories of how to keep your cryptocurrencies:
Online VS offline:
- Online: This can include keeping the currencies on an exchange, or on your computer or mobile that are connected to the internet.
- Offline: For safety reasons, some people choose to keep their cryptocurrencies on a paper wallet, on a computer that is not connected to any network, or a hardware wallet where the private key is in the hardware and never touches the internet.
Keep them yourself VS Other party is keeping them for you:
- Keep them yourself means simply that you are holding the actual private key to access your wallet.
- Other party is keeping them for you: For example, if you keep your cryptocurrencies on an exchange, or on a hosted / online wallet.
Ways to Keep Your Cryptocurrencies
Now that we understand the categories of keeping your cryptocurrencies above, we can now start to look at the actual options of keeping them:
1. On an exchange
- Many people buy their cryptocurrencies from online exchanges, for example Coinbase. When you do have your cryptocurrencies on these online exchanges, you don’t actually control the private key to your address, but instead they do.
- Essentially with this method, you are trusting these exchanges to keep your cryptocurrencies; and they tell you on their platform how much Bitcoin, Ether or any other currencies you have with them.
- It is one of the easiest ways to keep your cryptocurrencies. However, the risk includes hackers hacking into their system and steal everyone’s cryptocurrencies.
2. On a hosted or online wallet
- Apart from being an exchange, Coinbase is also an example of an online wallet. You can buy your Bitcoins from them, and they will keep them for you.
- With Coinbase, you do not keep your private key. Similar with the exchanges, you trust Coinbase to keep your cryptocurrencies for you.
- This method has the same risk with keeping your currencies on an exchange.
3. On a software wallet (e.g. on your machine)
- There are some software wallets that you can download onto your machine, like Armory for Bitcoin and Ethereum Wallet for Ether.
- With software like these, you get to keep your own private keys.
- We can’t actually say that this method does not have risk. For example, you can always lose your machine or forgot your password. Or if someone steals your private keys. However, you will have more control of your cryptocurrency funds with this method.
4. On a hardware
- Using a hardware wallet is arguably the safest way to keep your cryptocurrencies.
- The 2 most popular hardware wallets in the cryptocurrency community are Ledger (products including Ledger Blue or Ledger Nano S), and Trezor.
- With a hardware wallet, you will always need the hardware to access your cryptocurrency fund. And better yet, the hardware usually needs you to physically “sign” or approve the transactions, to avoid a hacker hacking into your computer - since they cannot physically press the approval button on your hardware.
- If you lose your hardware, you can always restore your cryptocurrency fund by providing a combination of your recovery phrases. It is very important to keep these recovery phrases in a safe place.
5. Printed on a paper wallet
- You can also choose to physically print your address and private key onto a paper and keep this paper in your safety deposit box.