Kraken Intelligence's Crypto Wallet Security 101_ How to Store Your Coins.pdf

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Wallet Security 101
How to Store Your Coins
May 2021
Table of Contents
1.
2.
3.
Introduction
Where to Store Cryptoassets?
Key Takeaways
Disclosures
This report has been prepared solely for informative purposes and should not be the basis for making investment decisions or be construed
as a recommendation to engage in investment transactions or be taken to suggest an investment strategy with respect to any financial
instrument or the issuers thereof. This report has not been prepared in accordance with the legal requirements designed to promote the
independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Reports issued by Payward, Inc. (“Kraken”) or its affiliates are not related to the provision of advisory services regarding investment, tax,
legal, financial, accounting, consulting or any other related services and are not recommendations to buy, sell, or hold any asset. The
information contained in this report is based on sources considered to be reliable, but not guaranteed to be accurate or complete. Any
opinions or estimates expressed herein reflect a judgment made as of this date, and are subject to change without notice. Kraken will not be
liable whatsoever for any direct or consequential loss arising from the use of this publication/communication or its contents. Kraken and its
affiliates hold positions in digital assets and may now or in the future hold a position in the subject of this research.
1.
Introduction
So you recently bought some crypto and you’re ecstatic about it. However, you’re new to
the space and remain uneasy after hearing horror stories of people losing fortunes just
by making mistakes as silly as losing the password to their crypto wallet. Moreover, you
can’t seem to find any reliable resource that simply explains how to securely store your
newly-purchased coins. The truth of the matter is that the crypto space has changed
significantly in the past several years and nowadays you don’t need to go down the same
rabbit hole others had to venture when previously attempting to store their cryptoassets.
As such, the leading experts from both Kraken Intelligence and Kraken Security Labs
have teamed up to provide you with simple, honest advice on how you might want to store
your crypto. Do note that what might work for you may not work for someone else. As
such, it’s important that you carefully consider the pros and cons of how you ultimately
decide to purchase, store and transact with your crypto. After all, if you lose your crypto
it is gone forever!
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2.
Where to Store Cryptoassets?
Because cryptoassets are more decentralized than traditional assets, holders must take
precautionary measures to protect against the risk of either loss or theft. Remember, once
your crypto is lost, it is gone forever. Common examples of how crypto has either been
lost or stolen include the following:
Loss
•
•
•
Human error
(e.g., you send your funds to the wrong wallet, you forget your password)
Natural disaster
(e.g., your house burns down with your crypto wallet(s) stored inside it)
Hardware malfunction/loss
(e.g., your computer hard drive holding your private keys is corrupted)
Theft
•
•
•
Remote theft
(e.g., you fall victim to scams, an exchange hack, or a personal hack)
Physical robbery
(e.g., your backpack or purse is stolen with your private keys in it)
Government seizure
(e.g., law enforcement demands an exchange to freeze your account)
Wallets
Cryptoassets are stored in wallets, which are computer programs that allow crypto to be
sent or received. Depending on whether the wallet is connected to the internet, crypto
wallets are bucketed into two categories: “hot” (online) or “cold” (offline).
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Hot Storage (Online)
Hot storage wallets exist on an internet-connected desktop, laptop, mobile phone or
web browser. These wallets are popular because they can be easily created and used
instantly. Hot wallets sacrifice some safety for convenience since the wallet is connected
to the internet and is therefore readily available for use. Like anything connected to the
internet, this also makes the wallet vulnerable to cyberattacks.
Cold Storage (Offline)
Cold storage wallets exist on devices or physical media that are not connected to the
internet. Examples include paper/metal with crypto key material written/engraved on
it and hardware wallets that look like USB flash drives. Cold wallets are safer than hot
wallets because private keys are generated and stored offline where they can’t be accessed
by cybercriminals – although they can still be stolen in a physical attack or robbery.
However, cold wallets usually aren’t as readily available for spending as hot wallets.
Exchanges, like Kraken, use both hot and cold wallets. Some funds are always available
for immediate use (in hot wallets) to facilitate day-to-day transactions, while the majority
are stored offline for safekeeping (cold wallets). You will want to use a reputable exchange
that utilizes both hot and cold storage so you can be sure that your assets are properly
secured.
There is no perfect solution for storing crypto as there are a series of tradeoffs that may
change for each individual at different fund amounts. However, that shouldn’t scare you
off. In storing your crypto, you should take your own personal financial situation and
risk tolerance into account. Kraken Intelligence and Kraken Security Labs suggest that,
depending on the purpose behind owning your crypto, you consider one of the following
strategies:
May 2021
For more Kraken content:
Intelligence •
kraken.com/subscribe/intelligence
Security Labs •
kraken.com/features/security/kraken-security-labs
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