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<p>According to Chainalysis&#39; mid-year report of cryptocurrency crime in 2022, $US 1.9 billion in crypto had been stolen from hacks and scams, resulting in a total of $1.6 billion loss. A remarkable example can be the FTX collapse, which trapped almost 50,000 Australians whose coins were listed on the exchange.</p><p>It is undeniable that there are risks associated with investing in cryptocurrencies like the market being unstable or authorities still catching up. That’s why in order to avoid fraud and scams, investors should be more adept at holding cryptocurrency securely. Understanding the differences between wallets, how to manage your own crypto assets, and the best storage practices would be crucial.</p><h2 id="header-0"><strong>Cryptocurrency storage</strong></h2><p>When you purchase cryptocurrency, you take ownership of the full amount. You&#39;re given two keys: one public and one private. The public key is used to encrypt data and generate your wallet address, while the private key is used to decode data and access your assets. This is the key you&#39;re keeping safe.</p><p>On the blockchain, your crypto ownership is securely recorded, saved, confirmed, and encrypted. Because of the encryption mechanisms utilized, no coin has been stolen thus far by modifying the information on a blockchain. With today&#39;s technology, brute force hacking a blockchain would take generations, if not millennia.</p><p>So, the weak link is between the blockchain and the user because the wallet you use contains your private key, and wallets are typically software on hardware that may be compromised.</p><h2 id="header-1"><strong>Crypto storage types</strong></h2><h3 id="strong-crypto-exchange-strong"><strong>Crypto exchange</strong></h3><p>Cryptocurrency exchanges are basically online marketplaces where you can buy cryptocurrencies like Bitcoin and Ethereum with real money, trade one cryptocurrency for another, and turn your cryptocurrency back into cash.</p><p>The majority of well-known exchanges, including Binance, Coinbase, CoinSpot, and eToro, operate like any other online platform (i.e., they don&#39;t use the blockchain and are regarded as &#34;centralized&#34;) and are managed centrally. They are convenient and user-friendly, which is another reason why they are well-liked. There are decentralized exchanges that allow for direct peer-to-peer transactions, although they are frequently more difficult to do transactions.</p><p>You can think about your account on a centralized exchange as a wallet. However, if you store your cryptocurrency on an exchange, the company often keeps custody of the assets and prevents customers from accessing the private keys. A hosted wallet, also referred to as a custodial wallet, is what this is. You must have faith in the exchange&#39;s operator to protect your assets and maintain order.</p><p>Unfortunately, despite the fact that most exchanges are legitimate and cautious, it only takes one bad transaction to ruin the entire market. Similar to Sam Bankman-Fried&#39;s FTX, which has recently filed for Chapter 11 bankruptcy, hundreds of investors trusted his business with their cryptocurrency holdings, which were later discovered to be supporting his Alameda Research hedge fund. Currently, Bankman-Fried is being prosecuted for fraud.</p><h3 id="strong-hot-wallets-strong"><strong>Hot wallets</strong></h3><p>Hot wallets are digital currency storage devices that run on software. Because it&#39;s connected to the internet, your cryptocurrency exchange account qualifies as a hot wallet.</p><p>Hot wallets that are not in a third party&#39;s custody, also known as non-custodial or self-custodial wallets, are online wallets where you have the private key and seed phrase for your cryptocurrency holdings. Within the program or software itself, the private keys are kept.</p><p>A non-custodial wallet&#39;s accessibility via a web browser or app is practical, but like everything online, it does leave these wallets susceptible to cybersecurity concerns, hacks, frauds, and scams.</p><h3 id="strong-cold-wallets-strong"><strong>Cold wallets</strong></h3><p>The term &#34;cold wallets&#34; refers to offline wallets. Nowadays, that typically refers to a physical item, which can range from a USB drive to specialized hardware with unique security and accessibility characteristics. Paper-based documentation can also be kept in cold storage, however, this method is less popular due to paper&#39;s fragility.</p><h2 id="header-2"><strong>What type is the safest?</strong></h2><p>The safest strategies for keeping your keys safe and protecting your crypto will always be those you control yourself offline, away from the internet.</p><h3 id="strong-commercial-non-custodial-cold-wallets-strong"><strong>Commercial non-custodial cold wallets</strong></h3><p>There are several choices available, like the Trezor Model T and Ledger Nano X. Typically, these connect to your device via USB connection-type disks. These commercial key storage solutions are more secure when utilized with safety in mind than keeping your keys in your connected device&#39;s wallet.</p><p>Many of these wallets save your private key and come with software that runs separately. With this, you may access and use your holdings without having to enter your private key.</p><p>Some of these gadgets might include Bluetooth or other wireless functions. Additionally, if you can disable the connectivity after use, it would be more secure. But, these wallets are vulnerable due to the software and connections utilized on your device or storage media. Because you must connect them to a device with a connection in order to use them.</p><p>Wallets made for business use are often known as hardware wallets. Making sure you are working with a reliable hardware wallet manufacturer is also crucial.</p><h3 id="strong-alternative-non-custodial-cold-wallets-strong"><strong>Alternative non-custodial cold wallets</strong></h3><p>To protect your crypto keys from hackers and thieves, there are a number of strategies you can take. If you encrypt and protect your USB drives, you can use them just as efficiently as a commercial wallet. When not in use, disconnect them, put them somewhere safe, create a backup, and only use them in one device—your keychain—to preserve your keys.</p><p>One of the first methods of key storage involved writing them down on paper and putting them in a safe. Even though the approach is still secure, things like ink bleeding, misplaced or deteriorating paper, and theft are all possible. If you decide to use this strategy, make sure that only reliable individuals have access to the safe and occasionally check the paper.</p><p>In the past, some users created their own QR codes using QR code generators, printed the keys and codes on paper, and then put everything in safes. You can still do this, but by doing so, you&#39;re giving additional apps access to your keys. Additionally, avoid using websites that generate codes or anything else for you; you never know how your information is being saved and utilized on a website, and they are infamous for getting hacked or hijacked.</p><p>To add to your consideration, here is a two-layered risk management strategy that streamlines the management of wallets and private keys:</p><ul><li>Layer 1, hot wallet: Hot wallets are quicker to use when connecting with online services because they are already online. When making withdrawals, deposits, or using dApps (decentralized applications), you would give exchanges this wallet address.</li><li>Layer 2 cold storage: It is best to transfer them to a cold wallet once you have finished interacting with these online protocols, or have some crypto that you want to hold long-term.</li></ul><p>Users and thieves still find cryptocurrency appealing, so it is important to store your crypto keys as securely as possible. Even if cold storage methods are the safest way to store your keys, eventually you will need to connect your storage device or enter your keys and use your assets. The most effective protection against hackers taking your cryptocurrency is to only use an offline device when you need, then store the device in a secure location.</p><p><em>Disclaimer: The information herein is for reference purposes only and should not be considered financial, investment, or trading advice. Please conduct your own research and due diligence before making investment decisions. You understand that you are using the Information provided at your own risk.</em></p>

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