As soon as crypto prices rise, some clueless people want a piece of the pie, start investing and ask getquin (or even worse: me) how cryptos should be stored. But don't worry, the donkey will enlighten you with this poorly researched post with no sources, 90% of which was written in the toilet. I don't currently have the time to write a well-researched article with sources. But this is the best you can get here. So be content with it and don't question my omniscience.
Storage on regulated exchanges
You can buy and store your coins on regulated exchanges such as Scalable Capital, Trade Republic, eToro, ... and store them. These exchanges often come from share trading and also offer crypto (products).
Advantages:
- Often no additional account required
- Semi-secure, depending on how the product is designed
- Suitable for dummies and lazy people
Disadvantages:
- You may not buy real coins but products on coins
- Possible tax disadvantages
- Possible ongoing costs
- In most cases, you cannot withdraw the coins if you decide to use a different form of storage at a later date
- No protection from (new) laws and government intervention
- Dependence on third parties
- They are not "your" coins
- You cannot do anything with the coins except buy and sell them
You should pay attention to this:
- What are you really buying (real coins vs. product on coins)?
- How is the product taxed when sold?
- What running costs do you have?
- Are there any differences in performance / risk compared to real coins?
- How secure / regulated is the exchange?
- How are your deposits insured and protected?
Who is it suitable for?
For people who have heard about this "Bitcoin" from the brother-in-law of the cousin of the missing aunt of the neighbor's son, who somehow want to profit from the price development but don't want to deal with it.
Storage on crypto exchanges
Somewhat braver people register with a crypto exchange such as Bison, Bitpanda, Coinbase, Kraken or Binance, buy real coins and then leave them there.
Advantages:
- Real coins that can also be withdrawn from the exchange
- Coins can be increased on the exchange with staking, lending, ... can be increased
- No technical know-how required
Disadvantages:
- No protection from (new) laws and government intervention
- Dependence on third parties
- They are not "your" coins
- Often not strictly regulated / based abroad and therefore susceptible to fraud, bankruptcies, loss of your coins, ...
- You can only do what the platform offers you with your coins
You should pay attention to this:
- In which country is the crypto exchange based?
- How big is the exchange?
- How secure/regulated is the exchange?
- Have "irregularities" been observed in connection with the exchange in the past?
- How are your deposits insured and protected?
- Can services such as staking order lending be used and what risks are involved?
Who is it suitable for?
People who are not afraid of contact, who want real coins but have not yet decided where they want to go or would like to acquire technical knowledge first. Also suitable for investors with small amounts who may later want to remain flexible with regard to the storage method once they have invested large amounts.
Storage in a software wallet
Anyone can install one or more software wallets on their PC or smartphone free of charge and store their coins "as their own bank". There are software wallets for individual currencies such as Bitcoin or wallets that can manage several different coins (e.g. Metamask)
Advantages:
- Actually your coins
- Completely self-managed and therefore complete freedom as to what happens to them
- Protection from government intervention (possibly illegal)
- Independence from third parties (except the developers of the wallet)
- Staking at PoS possible
- Maximum flexibility, all "features" of your cryptos can be fully utilized
Disadvantages:
- You are your own bank and have to take care of security yourself
- Basic technical understanding required
- Understanding of crypto necessary (how do I set up a software wallet correctly, how do I carry out transactions, what should I enter where and what should I avoid, ...?)
- If your PC / smartphone is insecure (viruses, hackers, access by third parties, social engineering), your coins are in acute danger
- If the software wallet you are using is hacked, your coins are in acute danger
- Dependence on the developers of the software wallet and the quality of the wallet (stable software vs. full of security gaps and bugs)
You should pay attention to this:
- Your smartphone / PC should be free of malware and stay that way
- No one except you should have access to it
- Choose a trustworthy wallet. For example, one that has been on the market for a long time, is frequently used and completely open source. There may also be official wallets that you can use
- The less code, the less attack surface for hackers
- Make sure you have a backup so that your private keys can be restored if your smartphone / PC is destroyed, for example. As a rule, you write your seed phrase on a piece of paper, which you protect like your firstborn and hide like pirate treasure
Who is it suitable for?
If you want to familiarize yourself with the crypto world / experiment with small crypto amounts, you can use software wallets. Also useful for low-income earners who only have small amounts in crypto. As a pro who wants to make full use of crypto, software wallets offer you the greatest flexibility and the most options.
Storage in a paper wallet
A paper wallet is, as the name suggests, a wallet on paper. In contrast to a software wallet, you do not store your public and private keys digitally on a PC or smartphone, but on a piece of paper. The crucial point here is the generation of the wallet.
Advantages:
- Actually your coins
- Completely self-managed and therefore complete freedom as to what happens to them
- Protection from government intervention (possibly illegal)
- Independence from third parties (apart from the developers of the generator for creating the wallet)
- Protected from hackers and malware after generation and if handled correctly
Disadvantages:
- You are your own bank and have to take care of security yourself
- Basic technical understanding required
- Understanding of crypto required (how do I generate my keys securely, how do I store them securely, ...?)
- If your PC / smartphone is insecure when generating the paper wallet (viruses, hackers, access by third parties, social engineering), your coins are permanently in acute danger
- If the paper wallet generator has bugs or is insecure, your coins are permanently in acute danger
- Sending coins and interacting is time-consuming and associated with security risks
- Time-consuming if several different coins are used
You should pay attention to this:
- Your smartphone / PC should be free of malware when generating the paper wallet
- No one other than yourself should have access to the paper
- Be careful when choosing the wallet generator. It is best to use an established client-side open source generator
- Make sure you have a backup so that your private keys can be restored if your paper is destroyed, for example.
- At some point you will want to use / send your coins. Find out what you need to do for the respective cryptocurrency with a paper wallet
Who is it suitable for?
Buy & hold investors who can ensure that their PC/smartphone is free from malware at all times, do not want to spend money on a hardware wallet and are not interested in (frequent) use of the coins.
Storage in a hardware wallet
A hardware wallet is a small piece of hardware (e.g. a type of USB stick) that has been specially manufactured for the secure storage of cryptocurrencies. It usually costs a good 100 euros and is advertised as the ultimate solution for holding crypto securely.
Advantages:
- Actually your coins
- Completely self-managed and therefore complete freedom as to what happens to them
- Protection from government intervention (possibly illegal)
- Independence from third parties (except from the manufacturer of the hardware wallet)
- Often many crypto functions such as staking at PoS possible
- Can be used securely at any time in environments that contain malware and are accessible to third parties (e.g. hackers)
Disadvantages:
- You are your own bank and have to take care of security yourself
- Basic technical understanding required
- Understanding of crypto required (how do I set up a hardware wallet correctly, how do I carry out transactions, what should I enter where and what should I avoid, ...?)
- Dependence on the manufacturer of the hardware wallet and the quality of the wallet (are there security gaps in the wallet? How does the manufacturer behave in the event of government pressure? ...?)
- Expensive for small crypto holdings
- There may be fewer functions available than with a software wallet
You should pay attention to this:
- Nobody except you should have access to the wallet password or seed phrase
- Make sure you have a backup so that your private keys can be restored if your hardware wallet is destroyed, for example. As a rule, you write your seed phrase on a piece of paper, which you protect like your firstborn and hide like pirate treasure
- Find out about the trustworthiness of the manufacturer. For example, which country they are based in, how long they have been on the market, how many customers they have, whether there have been any anomalies in the past, ...
- Ideally, the hardware wallet is completely open source (software and hardware) and always contains a secure element
- The hardware wallet and the manufacturer should be certified by independent and trustworthy companies
- Only buy the wallet directly from the manufacturer. Not on eBay, not on Amazon, not on other sites
- The less code and features, the less attack surface. If you only hold Bitcoin, get a Bitcoin only wallet
- Think carefully about what you really need before buying. If you are hesitating between two manufacturers that you trust equally, opt for the hardware wallet that meets your requirements but offers the lesser (!) range of functions (with maximum security)
Who is it suitable for?
For any long-term investor who can never be certain that their PC/smartphone is free of malware and cannot be accessed by third parties (which is likely to be pretty much everyone).
Other
The following applies to all types of storage: DYOR. Do your own research. Don't believe anyone on the internet, no friends and no donkey, no matter how reputable they may seem. Crypto is a very young asset and being your own bank is not that easy. It's time-consuming and not done with "I'll ask on getquin and do what most people recommend". In-depth knowledge of your own is essential - at least if you want to store your coins yourself. That's why there are no specific recommendations in this article, just tips on what you should look out for when making your decision.
Have I forgotten something or would you like to add something? Great, then let me know in the comments. Maybe I'll add it to the post, delete your comment, block you and tell everyone that it was all my fault 👍
