One of the most intimidating things about crypto is learning how to secure your coins. With so many different methods, each with their own advantages and drawbacks, it’s understandable that newcomers might fear making a mistake that could result in the loss of their funds. This article will go over some of the most common ways to secure your eCash so you can decide for yourself what works best for you.
Exchange wallet (custodial)
Examples: Binance, Upbit, Indodax, Kucoin, etc.
Advantages: This is the lazy man’s way of storing XEC, but if you don’t trust yourself to keep your coins safe, this might be the best solution for you. By leaving your coins on an exchange, you aren’t responsible for protecting your private keys because you’ve entrusted that responsibility to the exchange. Since custodial solutions resemble how banks work today, it will be the most familiar option for people who are new to crypto.
Drawbacks: As they say, “Not your keys, not your coins.” By entrusting your keys with a third party, you put yourself in danger of losing access to your coins in the event the exchange gets hacked, goes bankrupt, or locks you out of your account. While you may think this won’t happen to you, that’s what the customers of FTX, Celsius, Voyager, and Gemini all probably thought before losing access to their funds, and that’s just in the past year. Other hacks that have led to significant losses for users include Mt. Gox, QuadrigaCX, and Cryptopia, to name a few. Even if you think the risk of losing your funds on an exchange is low, ask yourself is it a risk worth taking?
Pro Tip: If you do decide to leave your coins on an exchange, take full advantage of things like 2-factor authentication and address whitelisting to make it harder for thieves to steal your XEC.
Hot wallets (Non-Custodial)
Examples: Cashtab, AbcPay, Electrum ABC, Arctic, RaiPay
Advantages: Hot wallets are non-custodial software wallets that are connected to the internet. Because they are non-custodial, it means users have full control of their private keys. The advantage of this is that you don’t have to ask anyone’s permission to use your eCash. You can also access your coins from anywhere in the world so long as you know the seed phrase that unlocks your wallet. Because a hot wallet is accessible on your device as an app or a website, they are convenient to use for making daily transactions and can also include additional features such as sending messages, minting eTokens, and more.
Drawbacks: As with all non-custodial wallets, the responsibility of keeping your funds safe rests entirely on you. This means writing down your seed phrase and storing it somewhere safe in case your device is lost or compromised. Beware of fake websites impersonating eCash wallets in an attempt to steal your funds. Because hot wallets are connected to the internet, it’s possible they could leak your seed phrase if you become a victim of a phishing attack or your device is infected with malware. This is why it’s not advised to store significant amounts in a hot wallet.
Pro Tip: If you’re looking for greater security, you can use Electrum ABC to set up a multi-sig wallet that requires more than one private key to transfer funds. This provides an added layer of protection since multiple keys would have to be compromised for your funds to be stolen.
Hardware wallets (Non-custodial)
Examples: Trezor, Ledger, D’Cent, Satochip
Advantages: Hardware wallets are non-custodial wallets that give you total control of your keys without your keys ever touching the internet. If you are looking to store a large amount of XEC yourself, a hardware wallet is likely your best option. These devices contain a tamper-resistant chip designed to store sensitive data like private keys and isolates them from the rest of the system. When making a transaction, the hardware wallet signs the transaction internally and the private keys are never exposed to the internet so that even if your computer were to be compromised, your keys would remain safe. Much like the hot wallets mentioned previously, so long as you have safely stored your seed phrase, you can always access your coins even if you were to damage or lose your hardware wallet.
Drawbacks: One of the main drawbacks of a hardware wallet is the cost. While it costs you nothing to leave your coins on an exchange or to use any of the aforementioned hot wallets, a hardware wallet can cost you $70 or more. Another drawback is your XEC can only be accessed using the physical device, which can be inconvenient for making frequent transactions.
Pro Tip: Currently, Trezor and Ledger do not natively support the eCash network, but the devices can be used in conjunction with Electrum ABC. Just follow the directions in this YouTube video:
Other non-custodial solutions
Examples: Paper wallet, air-gapped computer
Advantages: These methods can offer a similar level of security as hardware wallets if you know what you’re doing. A paper wallet is a cheap alternative since you don’t need to buy a separate device, but if you want to achieve the same level of security as a hardware wallet, it is recommended you generate the paper wallet using a computer and printer that aren’t connected to the internet. A computer that isn’t connected to the internet is also known as an air-gapped computer. To use an air-gapped computer to store your XEC, you can download a paper wallet generator or Electrum ABC and save it to a flash drive and upload it to the offline computer to create new keys.
Drawbacks: While these methods can be used to safely store your XEC, you can’t use them to make a transaction. You would have to eventually connect your offline computer to the internet or “sweep” the keys on your paper wallet to move funds.
Pro Tip: To generate a stake proof for an Avalanche node without ever exposing your private keys to an online computer, you can use an air-gapped computer loaded with Electrum ABC.
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In conclusion, there are many available options to store your eCash. Storing your eCash on an exchange may be convenient but can put you at risk of losing your funds if the exchange is hacked or goes bankrupt. Non-custodial solutions give users ultimate control, but if you misplace your seed or are careless with your device, it can lead to your funds being lost forever.
The bottom line is there is no perfect answer when it comes to safely storing your eCash, but here are some best practices: 1) Always back up your wallet by writing down your 12 or 24 word seed phrase and keep it in a safe place only you or a loved one can access. 2) Keep your wallet software up to date and make sure you’re downloading from the correct site. 3) Only use hot wallets for daily use and store significant holdings on a more secure hardware device.