It can’t be stressed enough that you don’t store your cryptocurrency anywhere. Crypto doesn’t exist physically, or even as a digital facsimile. If you have 3BTC it’s because there’s an entry in the Bitcoin blockchain that says you own 3BTC.
What you actually need to store is the cryptographic keys required to use your crypto. Think about it this way: You park your car in public places, but you lock it and keep your car keys secure so that you retain control of the vehicle.
Crypto keys are just long, random strings of 64 letters and numbers. Given their length and the number of possible combinations, they are practically impossible to guess.
As an example, a crypto key looks like this:
9774890a381bc39a8e9b35a9dda7be7f8fe368bbb7f7862ecfc295f564d2fb70
Whoever holds your keys can do what they want with your assets, so you must keep them safe. To do so, there are two routes: custodial and non-custodial.
Custodial storage means relying on someone else to keep your keys safe. This can be either the exchange where you trade in cryptocurrency, or a third-party wallet provider. This is the most convenient and user-friendly option, with support on-hand if you forget your credentials.
Non-custodial or self-custody storage means keeping your own keys secure. This can be done with either software wallets or hardware wallets.
Software wallets are computer or smartphone applications, while hardware wallets are physical storage devices resembling flash drives that plug into a computer or smartphone.
Each can be secured with various security methods like PIN and biometrics, but they also employ a ‘seed phrase’ failsafe, which is a random string of either 12, 15, 18, 21 or 24 words generated by the wallet. An example of a seed phrase might be:
enrich whale scheme army airport humour wreck very enough eyebrow bring solar
Users who forget their PIN may be able to regain access by using their seed phrase. If you were to lose both PIN and seed phrase, however, you may be locked out from your keys and, in effect, your crypto holdings.
Self-custody is less convenient, and there’s less customer support, but it can be more secure. In the case of a hardware wallet there’s an “air gap” between online criminals and the hardware wallet device.
Hacking a hardware wallet involves finding a technical loophole in the way the device was designed and exploiting it when the device is plugged into a connected device, or else tricking the user into willingly handing over their device and/or security credentials.
Be aware that there’s also a cost associated with self-custody. Hardware wallets can cost anywhere from $30 to $150, but many consider this a small price to pay for peace of mind.