While the question of safekeeping does not even arise with securities, with the exception of the question of using Exness, the situation is somewhat different with cryptocurrencies. Here, investors can choose whether to have their coins stored or whether to take care of the security themselves. The fact is that cryptos are more vulnerable to possible loss than shares. Each form of storage has its advantages and disadvantages.
The different custody options
Two variations are distinguished in connection with the management of cryptocurrencies:
- Cold wallets outside the internet
- Hot wallets on the web
Hot storage can be the safekeeping in an account at an exchange, for example Bitpanda, or the safekeeping in an online wallet, a virtual wallet. Coins can be sent or received using a wallet.
However, it is not the coins themselves that are kept in the wallet, but the online addresses for them, as well as the passwords, i.e. the public and private keys that are necessary for a transaction.
Cold wallets refer to the storage of coins offline, for example on an external data carrier or a special crypto vault such as Ledger Nano or Trezor One.
The advantage of hot wallets is that they are more convenient to use. They work like an email account or an online deposit. The disadvantage is the risk that cyber criminals can hack the account.
Cold wallets are a little more cumbersome to use, but they are more secure. They are located outside the web and can even be stored in a safe as a USB drive. Some crypto exchanges offer their customers both options. The cold wallet for storing larger amounts, the hot wallet for buying and selling cryptocoins or for paying bills at partners who accept cryptocurrencies.
General risks of losing access data
Coins can go missing either through theft or "unfortunate influences". In the case of theft, this can happen either online through a hack or offline. In 2020, the Slovakian exchange Eterbase was the victim of a hack. The damage amounted to 5.2 million US dollars. Offline, the case occurs when the investor has saved his access data to the coins on a data carrier and this is stolen. However, data carrier theft presupposes that the thief was also able to steal the access code to the data carrier. A third option could be government intervention, the freezing of the account by an authority.
The classic loss can be based on the owner forgetting his password. This situation cost an American the equivalent of around 220 million US dollars in January 2021.
Another case can be that the password was written down on a piece of paper and this was destroyed by a fire. The crypto exchange Kraken recommends its investors to scratch access codes into a metal plate, as this is resistant to jokes and water.
Those who only keep their data on the computer and do not make a backup copy also risk losing it in the event of a hard drive crash.
