Best Bitcoins Safest Wallet? Several Independent Wallets

Disclaimer:

This post is not an investment recommendation, I only describe my strategy on how to keep cryptocurrencies.

When I browse Reddit and my public or private groups about cryptocurrencies, I very often see questions like “Best Bitcoins Safest Wallet?”, “Where should I keep my crypto?” etc. Almost always I also see responses like “Don’t be a fool, only hardware wallet!” etc. I very rarely see responses when the author recommends crypto wallets diversification and places when you can keep your funds and doesn’t recommend keeping all the funds in one.

In this short post, I will share the concept of diversifying places when you can keep your crypto in a way that minimizes the possible losses from events beyond your control. For example when one type of your wallet (which is more probable) or several wallets (which is less probable) will be hacked because of our mistakes, or because of the mistakes of those responsible for the places where we store our crypto.

Guaranteed Investment Funds in Crypto World?

In the crypto world, unfortunately, the companies that would refund us when the places where we keep our founds are hacked can be bounded on one hand. For example, in exchanges world, Finance has a special fund for these cases: Liquidation & Insurance Funds

Some exchanges (like Bithumb), that was hacked in the past refunded stolen funds to their owners. Probably in the future when Bithumb will be hacked again, also will refund stolen funds. Rest companies (exchanges, producents of wallets) don’t offer any guarantee or support in situations like this. If you are serious about your crypto assets, you must know that diversification is a good practice if you want to improve the security of your funds. Remember that I talk about the situation when you lose your funds not because of your mistakes, but because of the mistakes of the producers of wallets, or online exchanges like security holes, etc.

Avoid keeping crypto assets in one place

In this paragraph, I won’t discuss which places are safe to keep your crypto, which has a lower possibility of being hacked because this is the only prediction and probably what we think is safe is not actually the safest. I only want to focus on facts and the diversification model. Crypto is still a young and very dynamic industry, which is characterized often by a number of unpredictable events see Black Swan by Nassim Taleb, that’s why it’s very risky to keep all cryptocurrencies in one type of place like one type of hard wallet or online exchange, etc.

Let me repeat cryptocurrencies are a very young and dynamic industry without regulations. Young and dynamic industries like cryptocurrencies very often are exposed to unpredictable events, something like Black Swans who described Nassim Taleb in the book with the same title “Black Swan, therefore, it’s very risky to keep all your assets in one place, even if you think that it’s the safest option on the market.

What seems appropriate today, might not be appropriate tomorrow, especially in a young industry like cryptocurrencies, therefore the diversification of the places when we keep cryptocurrencies is an only good method when we look at the situation objectively and consider all possible risks.

Right now, I want you to focus on the human fear of losses. Probably, if you’ve read this article up to this point, you’re thinking that diversification is nonsensical, and you might be asking yourself “Why should I be thinking about losses?”. It is absolutely, but a plan is just a plan, and life is life. If you don’t think about losses, you probably will keep your crypto in one or two similar places, and if these places will encounter problems in the future with security, hackers, etc, you could lose all your assets, that’s it. If you build a portfolio where you keep your crypto with the diversification aspect in mind, if wallet number 1, 2 3, or had a problem with security in the future, you would be lost only part of your assets not all.

Please think that cryptocurrency will probably increase in the future, and even if you lose part of your assets. You’ll earn money anyway.

Avoid keeping crypto in a few related places

The second popular mistake is keeping all assets in very similar places, or having one type and manufacturer of a hardware wallet, or several accounts on the same exchange, or exchanges that have the same engine and owner.

I often observe that many people think that they follow the diversification rule with their bitcoins, but these people keep all assets on one exchange like Kraken or own one type of wallet like Ledger Nano S. Of course, this strategy is better than having just one account on an exchange, or one device, but if in the future this wallet had a problem with security or some exchange will be hacked, you can lose all your assets although you have several accounts on the exchange or several wallets of the same type.

If you decide that you want to keep crypto in a hardware wallet instead of buying several wallets of the same type this same type wallet, or several different wallets with from the same producer (remember about things like software, technologies, etc.). The better option is to choose several wallets from different producers like Ladger, Trezor, or KeepKey than a bundle like Ledger’s X in the family pack. The same scenario concerns online exchanges etc.

Storage crypto in online exchanges?

In the cryptocurrencies world, many people reborn store crypto in online exchanges citing the fact that it is less secure than an offline wallet. Unfortunately, we do not have statistics on this topic and it is probably a fallacy because on the market there is more online exchange than software and hardware wallets, and a leak asset from the online exchange is a hotter than a leak from the wallet. The second point is that many more people store assets on the online exchange than software, hardware wallets and this is normal that we hear more often about a leak from online exchanges than wallets. Online exchanges as like every solution have their advantages and disadvantages. Storing all assets in one exchange is bad, but if you diversify your assets for example ten completely different exchanges, your risk is very low.

Diversification stored portfolio your cryptocurrencies:

Below I describe several types of places where you can keep your digital assets. Remember that even the smallest diversification significantly lowers an opposed to keeping all assets in one place.

a) online stock market

On the stock market, we can find +thousands of different online exchanges. You can find the biggest exchanges on CoinMarketCap, or CoinGecko. I advise you to diversify your assets on exchanges, by splitting exchanges on:

• geolocation and regional law which is subject to every online exchanges. If cryptocurrencies would be prohibited in the US, part of your assets is still safe on the Asian online exchanges, etc.

• past events, if in the past the online exchange was hacked and is still working like BitHumb and would refund stolen assets more information about the online exchanges hacked, probably in the future these exchanges will be more safe than other exchanges, because they have special backup assets for extreme situations like hackers attacks etc.

The second point is diversification when it comes to the size of the exchange and splitting the online exchange into several big exchanges, several medium ones, and several small and local ones.

b) hardware wallet

On the internet, we can find comparing tools for all top-popular hardware wallets (same comparision). Every producer of the wallets has pros and cons, therefore I do not keep all assets in one brand and model.

Additionally, hardware wallets are characterized by the best level of security than other types of wallets because they are completely separated from the / mobile device and the internet.

c) software wallet

Analogically as with hardware wallets, personally, I’m very skeptical of software wallets on computers and mobile devices, because many people install these wallets on the device that they use every day for their normal activities, which their exposure to risk. List of popular software wallet you can find here.

d) paper wallet

This is a very minimalistic form of wallet which I very like. Unfortunately, on the Internet, we can find a lot of fake paper wallet generators, which will steal our assets. More information about the paper wallet you can find here.

e) other solutions

The market of wallets for cryptocurrencies is very dynamic and every month, we can find a new type of wallet on the Internet. As an alternative for the classical wallet I recommend, for example, a hermetic wallet which is available on Revolut. We can buy crypto-only on Revolt, but we can’t send our crypto to another wallet. This option has many cons but one pros is safety. If the hacker has access to our Revoult account, they can’t make a transfer to another wallet etc.

[Bonus] Diversification for login, number phone etc.

I see many people using different passwords but using the exact same login, email, or phone number for several online exchanges. In this case, if any of online exchange, account for software wallet or hardware wallet is hacked, a hacker can easily identify our using our login, phone, and another common part of our access data.

Please remember that, using different login, mail, phone number for every crypto service if you’re thinking seriously about your assets.

Additionally, a good practice is using wallets on computer / mobile devices which we don’t use for everyday activities or a special version of Linux which we can run like a bootable operation system in RAM. Thanks to this practice we can avoid situations like our assets leaking.