Crypto Wallet Security 101 [Cold Storage Guide]

Introduction

You recently bought the dip, and you are excited about your new crypto journey. However, you are still a bit uneasy and unclear about the safety of your own crypto. Hearing horror stories about people losing fortunes on the internet has not helped you, either. Unlike traditional assets, crypto is decentralized, and so it is important to take precautionary measures with your existing or recently purchased crypto. The two most common ways that crypto disappears is through loss or theft.

Loss can be attributed to human error, by forgetting your passwords or by sending your crypto to the wrong address. It can also be attributed to your device malfunction, so it is crucial to choose a quality hardware device to store your crypto, but more on that later in this guide. Theft occurs if you get hacked, defrauded, or fall victim to a scam.  

Types of Wallets

Digital assets like cryptocurrencies are stored in wallets, which are computer programs that allow you to store, send or receive cryptocurrency. A cryptocurrency wallet can be a device (like a physical medium) or program that stores your public and/or private keys for cryptocurrency transactions. Crypto wallets fall into two categories: Hot Wallets and Cold Wallets.

Image Source: Ledger.com

Hot wallets, or hot storage (online) is a cryptocurrency wallet connected to the internet. They exist by connecting to computer devices and a cryptocurrency network. Hot wallets are linked using the public and private keys that help facilitate transactions. But like anything connected to the internet, hot wallets can be vulnerable to cyber-attacks.  

Cold wallets, or cold storage (offline) exist on a device or a physical medium that is not connected to the internet. Think of a USB flash drive. Cold wallets are more secure and safer than hot wallets because they are stored offline and can hardly be accessed by cybercriminals.  

Exchanges like Bitbuy store most of its funds in cold wallets, offline. Bitbuy meets and exceeds its own mandate requiring 95% of customer funds to be held in a cold wallet. The percentages of customer funds held in cold wallet for Bitcoin, Litecoin, and Ethereum are above 98%. The slight variance in percentage between the virtual assets is minimal, with an average cold wallet storage of 98.12%. You can read our 2021 Proof of Reserves report here.

What wallet should I use for self-custody?

For a cold wallet, we recommend a Ledger Nano S. Ledger is a trusted name in the space and produced the original hardware wallet. Ledger nano S is a beginner-friendly, entry level wallet used by businesses and individuals alike. To purchase a Ledger Nano S please follow this link here. It is important to note that the Ledger is a separate software application from Bitbuy that can be used to store your crypto assets in cold storage.

Image Source: Ledger.com

Once your Ledger device is set up, you will have access to Ledger Live, the software that pairs with your hardware wallet.

  1. Click the receive button on the left panel or at the top of an account page from within Ledger live.
  2. Type or use the drop-down list to choose the account to receive crypto assets in and click on Continue.
  3. Connect and unlock your Ledger Nano S, open the app as instructed and click on Continue.
  4. Read the on-screen instructions and click on continue to generate and receive the address on your device.
  5. Verify that the address shown on your screen is the same as the address shown in Ledger Live. Press the right button to verify the entire address. If the addresses are the same, press both buttons to approve the address.
  6. Click Copy in Ledger Live to copy the address so that it is ready to be pasted into your Bitbuy account withdrawal. Carefully check that the address does not change after you copy and paste it and double check that the address is for the coin you desire (Bitcoin, Ethereum, Litecoin etc.).

How to withdraw your cryptocurrency from Bitbuy and send it to your ledger?

  1. Log in to Bitbuy, and go to the ‘Accounts’ section of your account.
  2. From the ‘Accounts’ page, click “Withdraw” beside the coin are you looking to withdraw.  
  3. Enter the amount and the public wallet address given to you by your Ledger Nano S from step 4 (above).

Image Source: Ledger.com

It is important to note:  

  • Copy and paste the wallet address if possible.  
  • Cryptocurrency withdrawals can be held for up to 3 business days for security purposes.
  • Always double check pasted wallet addresses to ensure that the intended wallet address was copied.
  • Make sure there are no additional characters or spaces included before or after the wallet address.
  • Only send digital currency to a like-kind wallet, i.e., only send BTC (Bitcoin) to a BTC wallet, ETH (Ethereum token) to an ETH wallet

After completing the steps above, you will have safely put your Bitcoin or other cryptocurrency in a cold wallet. If you have any further questions on this process, please reach out to support@bitbuy.ca.