The best and safest ways to store cryptocurrencies – Forbes Advisor Australia

Cryptocurrency exchange

Cryptocurrency exchanges are essentially digital marketplaces that allow you to use real money ($AUD) to buy cryptocurrency such as Bitcoin and Ethereum, swap one type of cryptocurrency for another, and convert your cryptocurrency back into cash.

Popular exchanges like Binance, Coinbase, CoinSpot, and eToro are run like any other online platform (that is, they don’t leverage the blockchain and are considered “centralized”). This is also why they are popular: they are easy to use and affordable. There are decentralized exchanges that support direct peer-to-peer transactions, but they are often more complex to use.

Your account on a centralized exchange can be described as a wallet. However, storing your cryptocurrencies on exchanges usually means that the company retains control (or “custody”) of the assets and users cannot access private keys. This is what is known as a custody wallet or sometimes a hosted wallet. You have to trust the company handling the exchange to take care of your assets and run a tight ship.

Unfortunately, while many exchanges are ethical and vigilant, it only takes one bad exchange to wreak havoc on the entire industry. As was the case with Sam Bankman-Fried’s FTX, which has since filed for Chapter 11 bankruptcy: Thousands of investors entrusted their cryptocurrency holdings to his firm, which later turned out to back his hedge fund Alameda Research. Bankman-Fried is now facing criminal fraud charges.

Hot cryptocurrency wallet

Hot wallets are software-based online crypto wallets. Your account on a cryptocurrency exchange can be classified as a hot wallet because it is connected to the internet.

Specifically, uncustodial or self-custody hot wallets are internet-connected wallets where you control the private key and seed phrase for your crypto assets. Private keys are stored within the app/software itself.

Being able to access a non-custodial wallet via a web browser or app is convenient, but like everything online, it leaves these wallets vulnerable to cybersecurity threats, hacks, scams, and fraud.

Cold rooms

Offline wallets are called cold wallets. Nowadays that generally means a physical device, which can range from a USB drive up to specially designed hardware with custom accessibility and security features. Cold storage can also include paper documentation, but it is an approach that is out of favor due to the fragility of paper.

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