Dusseldorf In addition to stocks, more and more investors are also relying on crypto assets in their portfolios. But if you only buy them there, you don’t really own the coins. Similar to how jewelry and gold are kept in a safe, there is also physical protection for crypto currencies. Consumers and investors can use a so-called crypto wallet for this.
Basically, if a customer buys a coin via a crypto exchange, the exchange stores this coin for the customer. However, there have been some crypto platforms that have gone bankrupt or been hacked. Customers have lost millions there. Three examples are Mt.Gox, Bitgrail, and Cryptsy.
In the crypto world there is the saying “Not your keys, not your coins”. That means: only those who have the key to their coins have full control over the cryptocurrency. It is therefore advisable to protect the coins from hacking and theft. Consumers and investors can use a so-called crypto wallet for this. In this overview, we show how this works and what alternatives are available.
Keeping Bitcoin, Ethereum, Cardano & Co. safe – this is how you protect your cryptocurrencies
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1. Store cryptocurrencies online:
The hot wallet. One option to secure digital currencies such as Bitcoin, Ethereum, Cardano and Co. are so-called hot wallets. These can be depots at Coinbase, Kraken or comparable crypto platforms. They are “hot” because they are always connected to the Internet.
Advantage: They offer users a high level of convenience, as they can trade the coins quickly. Especially those who want to trade regularly can react quickly to current price developments.
Disadvantage: Hot wallets are not the most secure form of storing cryptocurrencies because they are constantly connected to the internet – and could therefore be hacked more quickly.
To secure the coins held, many crypto exchanges offer additional security options. For example, so-called “vaults” can be set up for individual crypto currencies on the crypto trading paper form Coinbase. This adds another level of security for users. To set up such a safe, users need a second e-mail address in order to legitimize transactions.
Once such a safe has been created and cryptocurrency has been deposited, coins for transactions must first be withdrawn from the safe before they can be traded. The withdrawal of the coins from the vault is only released if the owners of the two registered email addresses confirm the transaction within 48 hours.
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Other providers also offer comparable security tools. Nevertheless, investors should note that such a safe is only possible with a permanent internet connection and is therefore not free from dangers. At the same time, the exchanges themselves already offer a very high level of security. The Coinbase website uses, for example, AES-256 encryption, a particularly high encryption standard, to protect users’ banking information. In addition, Coinbase saves 98 percent of all digital values on offline storage.
The Kraken crypto platform also offers additional security options. The majority of the digital assets are stored on a cold wallet. That means the coins are stored offline. In addition, users can set up an additional security option with a so-called master key: Investors must enter this – in addition to their login – on the platform in order to gain access to their coins.
2. Store cryptocurrencies offline:
The hardware wallet: Cryptocurrencies such as Bitcoin, Ethereum or Cardano can also be stored offline in so-called hardware wallets or cold wallets. These are comparable to an external hard drive. In principle, the wallets have no connection to the Internet, except in the moments when users connect them briefly for the transfer.
Advantage: Storing cryptocurrencies offline offers more protection than a hot wallet. In addition, the coins belong to the user themselves, as they are not held via a crypto exchange.
There are different providers of cold wallets that either look like external hard drives or USB sticks. The coins held online can be transferred to these backup media.
More: Transactions of more than a billion dollars per day: US crypto exchange Kraken comes to Europe