Holding Bitcoin? Here's How to Keep Your Crypto Safe

Cryptocurrency like bitcoin and ether are lines of code on a server. Since crypto is fully digital and there are no physical assets, protecting it requires some technical know-how. 

Where you store your digital currency and how it could be susceptible to hacks are important to understand. 

We'll walk you through the different types of crypto wallets and a few helpful security fundamentals. Here's what you need to know to keep your cryptocurrency safe. 

Many newcomers buy cryptocurrency from an exchange, such as Coinbase or Kraken, and leave their holdings in those sites' "custodial" wallets. 

But like any other online entity, exchanges are vulnerable to hacking -- and as the crossroads for many billions of dollars of transactions every day, they make for particularly attractive targets. 

The cautionary tales of Mt. Gox, which "lost" 750,000 of its customers' bitcoins in 2014; NiceHash, which was robbed of $60 million in December 2017; and a close call at Binance in 2018 show the risks associated with leaving your coins in an exchange's online wallet.

Conventional wisdom dictates that if you've got more virtual currency than you'd be comfortable carrying around on your person, or you intend to hold it as a long-term investment, you should keep it in "cold storage." 

This could be a computer that's disconnected from the internet or a specialized USB drive called a hardware wallet.

Dedicating a computer to store your cryptocurrency or shelling out for a hardware wallet isn't an option for everyone, however. Well known devices such as the Trezor and Ledger cost between $120 and $220 and, by design, add complexity and a few extra steps to every transaction.

Software wallets, by contrast, are usually free and easily accessed though, ultimately, less secure.

A cryptocurrency wallet's primary function is to store the public and private keys you need to conduct a transaction on the blockchain. Many also offer features such as integrated currency swapping. 

Software wallets can be roughly divided into three kinds: desktop, online and mobile. 

These categories overlap, as many software wallets can function across devices. Each type offers a different combination of convenience and security. 

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