How to Store Crypto – 6 Alternatives to Cryptocurrency Exchanges By DailyCoin

The recent collapse of cryptocurrency exchange FTX was a stark reminder of the vulnerabilities of these platforms. As one of the world’s leading exchanges, the incident shocked the entire cryptocurrency community.

The collapse of FTX has exacerbated fears among people that their investments may not be safe on digital asset exchanges. A significant problem with non-centralized exchanges has been revealed.

The good news is that another way to store crypto investments offers users better security. These range from self-managed wallets like Trust and Trezor to professional and regulated custodians like Orbitos.io.

In this guide, we’ll cover six alternatives for storing cryptocurrencies on centralized exchanges, and their specific pros and cons.

1. Hot Storage: Store your crypto on your desktop or mobile wallet

Hot wallets are the most convenient way to store cryptocurrencies, second only to exchanges. These “hot wallets” are basically just desktop or mobile apps that store the user’s private key on the device.

However, there is one crucial difference with exchanges. This allows users to maintain control of their crypto. You control your private key, so you don’t have to worry about third parties losing your money.

Hot wallets are a great way for users to store their funds and still enjoy convenience. However, it also has its drawbacks. Hot wallets are susceptible to hacks and malware attacks. Once a hacker controls your private key, they can empty your entire wallet.

Many hot wallets come with security measures like two-factor authentication, encrypted keys, and facial recognition, but these are imperfect. Therefore, prioritizing security is imperative.

Popular hot wallets include Trust Wallet, Metamask and Mycelium. They are free to use and available for desktop, iOS, or Android.

Hot wallets are ideal for storing small amounts of cryptocurrency for daily transactions. Investors with more assets should keep these in cold storage (offline hardware wallets).

2. Cold Storage: Using Hardware Wallets

A hardware wallet is a physical device that provides the highest level of security for your crypto assets. Cold wallets, typically in the form of USB flash drives or digital cards, allow users to store their private keys online.

Users need to connect these devices to their computers or mobile phones when moving assets. This “cold” offline storage has significant security benefits. These wallets are not connected to the internet and are virtually unhackable. Hardware wallets are therefore a good solution for long-term storage.

A hardware wallet is also a self-managed solution. In other words, users manage their own wallet private keys.

However, they also have their own drawbacks. First, the physical properties of the device limit usability. Having to plug in your device every time you want to access your funds can be a cumbersome process. Additionally, there is the possibility of theft, loss or damage to the device. If a user loses or misplaces their device, the assets in their wallet will be permanently inaccessible.

Additionally, cold storage wallets are not free. Popular hardware wallets such as Ledger and Trezor are around $100. As such, cold storage is best suited for long-term retention of large amounts of cryptocurrency.

3. Crypto custody solutions: hand over keys to regulated custodians

Cryptocurrency custody is becoming an increasingly popular way to safely store large amounts of cryptocurrency. In fact, for institutions and high net worth individuals, it’s often the preferred way to store crypto.

Custody solutions allow users to store their crypto with trusted third-party providers. Crypto custodians are regulated entities with clear powers over what they can do with their users’ funds.

Unlike cryptocurrency exchanges, custodians do not trade with their money. They do not lend money to third parties. In return, the Custodian receives a small fee for its services from the User. This is important as it protects you from the risk of your custodian going bankrupt.

Still, users deposit their cryptocurrencies with custodians who must hand over their private keys. This is a downside as users can no longer manage their funds independently. However, institutions and high net worth individuals still opt for this option and choose to trust regulated entities.

Conversely, entrusting your cryptocurrency to a custodian eliminates the risk of your private key being lost or stolen. Additionally, the risk of hacking is greatly reduced.

An example of a regulated cryptocurrency custody provider is Orbitos. Orbitos is a Lithuanian company providing custody services for institutional investors. They provide storage solutions for clients who want to store their crypto securely and easily.

Ultimately, cryptocurrency storage is an excellent option for organizations and high net worth individuals looking to safely store large amounts of cryptocurrency.

4. Paper Wallet: Print Private Key and Address

Paper wallets are another option for users who don’t want to pay custodian fees or cold storage wallets. Simply put, a paper wallet is a piece of paper with a private key and address printed on it.

Similar to hardware wallets, paper wallets are one of the safest ways to store your cryptocurrencies. They are cold wallets. Completely offline and no data stored on any device. This makes the user’s private key relatively safe from hackers.

Paper wallets are also easy to use and easy to set up. And they are completely free. All the user has to do is print the key on paper and store it in a safe place.

However, paper wallets have two major drawbacks. First, they are not the most convenient solution for everyday transactions. Users must manually enter their keys and addresses whenever they want to transfer funds.

Another big issue is the risk of losing your paper wallet. If the paper wallet is damaged or destroyed, the user will not be able to enter the wallet. Essentially, this results in their losing their funds forever. Luckily, paper wallets are relatively unobtrusive and are unlikely to attract the attention of would-be thieves.

This makes paper wallets ideal for long-term storage of small amounts of cryptocurrency. Not the best way to keep larger assets as the risk of loss is too high.

5. Decentralized Exchange (DEX): Trading Without Intermediaries

A decentralized exchange (DEX) is a great option for users who want more convenience and flexibility in crypto storage. DEXs work like exchanges, but with one big difference. All transactions are performed on the blockchain.

DEX uses smart contracts so users can keep their funds in custody. These “non-custodial” solutions allow users to use exchanges without relinquishing control of their private keys.

This makes decentralized exchanges a great alternative to centralized exchanges. However, DEX also has some drawbacks. First, they aren’t the most beginner-friendly solutions. Its user interface is usually more complex than centralized exchanges.

Additionally, traders should understand the specific risks involved with DEXs. Since the DEX space is very new, there are risks to the security and integrity of smart contracts. Bugs, hacks and exploits happen almost every week.

Not all DEXs are as decentralized as they claim. In many cases, the founding team maintains control of the governance token. This means you have full control over the protocol. Additionally, some projects have a hidden backdoor that grants administrator privileges to the owner.

Navigating the DEX requires advanced knowledge and understanding of the DeFi space. Therefore, it is a good option for crypto-savvy investors. On the other hand, it may not be the best option for those who don’t know much about the space.

6. Multisig accounts: splitting access between multiple parties

A multisig account is a wallet that requires multiple signatures to access funds. It is a great way for users to protect their crypto from hackers, as multiple users are required to checkout funds. This ensures that at least two of her approve all transactions before executing them.

Multisig wallets are also great for teams and businesses. These wallets can be used to set up shared accounts that require approval from multiple parties before any transaction can take place. This is especially useful for organizations that need to protect their money from internal fraudsters.

However, multisig wallets have some drawbacks. It’s more complicated than a regular wallet and requires more technical knowledge to set up. Additionally, it is not compatible with all types of wallets or exchanges. This makes it difficult to transfer funds into and out of multisig accounts without going through a third party service.

Setting up a multisig account is a great way for users to protect their funds and ensure that only authorized individuals can execute transactions. However, it’s complicated to set up, so it’s not the easiest solution for beginners.

Overview – how to choose the right option

When it comes to storing crypto, there is no single best option for all scenarios. Different storage methods are best suited for different types of users and different purposes.

Hot wallets such as Trust Wallet are the most convenient option for short-term storage of small amounts of cryptocurrency. Crypto-savvy users may also consider storing their crypto on a decentralized exchange.

On the other hand, users who want to hold small amounts of cryptocurrency for a long time should use hardware wallets such as Ledger or Trezor. With minimal crypto, users can also use paper wallets.

Multisig wallets are a great option for users and organizations that use large amounts of crypto. Finally, for institutions and high net worth individuals who need to safely store large amounts of cryptocurrency, a cryptocurrency custodian like Orbitos.io is a great option.

There is no one-size-fits-all solution for crypto storage. The best storage solution for a user depends on the user’s situation. With different types of wallets available, users can find the best option for their needs.

You may also like:

Cryptocurrency Wallets: Everything You Need to Know

What are seed phrases and why shouldn’t they be shared?

Watch the original on DailyCoin