With its ability to host DeFi tokens and dApps, Ethereum has built an entirely new ecosystem for decentralized interaction. For illustration, the number of active Ethereum users levitates around 500,000 per day.
So, you should be aware that in such a massive industry, we’ve never felt any shortage of good storage solutions for our ETH holdings. There are myriad hardware and software wallets with different designs, access points, and, most importantly, different levels of security.
The main concern is that cryptocurrencies exist in a virtual-only environment, which is prone to hacker attacks, scams, and malware. While security standards are continuously changing in a positive direction, the online space is never to be 100% trusted.
Fortunately, there are ways of keeping your Ethereum offline. The catch is that we don’t own the coins as physical objects or digital files. In the cryptocurrency world, the storage factor is perceived through private keys.
So let’s take one step at a time and go through everything you need to know about the safe storage of your Ethereum.
How Does Ethereum Work?
First and foremost, the term Ethereum doesn’t stand for cryptocurrency. It represents a decentralized network whose flow is based on smart contracts. They’re automated programs that don’t need a centralized establishment to control their execution.
Instead, smart contracts run only when certain conditions are met on behalf of two or more involved parties. This makes Ethereum an impossible target for censorship or any other form of human manipulation. As such, smart contracts can serve as a basis for building decentralized apps (dApps) and other tokens.
At this point, you may ask how we buy and sell Ethereum on cryptocurrency exchanges.
What you buy is Ether (ETH), the native currency of the Ethereum blockchain. Don’t get confused — the coin itself is frequently referred to as Ethereum. No matter what Ethereum product you use — NFTs, automated market makers (AMMs), dApps, etc., each transaction on the network costs a certain amount of what we call gas. Users who ensure a secure transaction process are called validators, and they get paid in newly-minted ETH coins.
Because of its high utility, Ether has gained a great market value, and since its inception in 2015, Ethereum has been ranked the second most valuable crypto, right after Bitcoin (BTC). Today, you can actively buy, sell, trade, stake, and hold ETH on all popular crypto exchanges available in Canada.
How to Store Ethereum
Now, let’s focus on the storage of this valuable asset. Just like all other cryptos, Ethereum is kept in so-called digital wallets. As I implied in the beginning, your Ethereum doesn’t appear in the form of a coin-like object or file. Cryptocurrencies never leave the blockchain and the portion of crypto you own can be proved only by private keys.
To explain, the crypto wallet generates a unique key set consisting of a public and private key. These are long non-meaningful strings that function on the common username-password analogy except for the fact that you can’t choose them.
The public key is compressed for more practical use and serves as an address for other users to find you, while the private key stays exclusively with you. If someone gains access to your private keys, they can send, sell, and cash out your ethers.
Types of Ethereum Wallets
The need for a good wallet piece has never been greater. Luckily, the crypto-wallet industry has grown to the extent that there is a suitable wallet for all individual tastes. Despite the diversity, crypto wallets are generally divided into two main groups: hot and cold wallets. And, before I start the cold-vs-hot-wallets discussion, I’d like to point out one more thing.
Modern cryptocurrency wallets tend to provide multi-cryptocurrency storage. The number of supported cryptos is a fiercely competing point so you may find storage solutions that can accommodate thousands of types of crypto. However, some crypto wallet items are tailored for the needs of a particular target group.
For example, Ethereum itself is welcome on any crypto wallet that isn’t designed for Bitcoin-only purposes. But if you’re heading towards the DeFi section and need to store some ETH reserves to pay the transaction fee, you should look for crypto wallets that specialize in this sphere, as they usually come with a gate to the DeFi sector as part of the wallet package.
Now let’s discuss the two different storage methods for your private keys.
Hot Wallets
Hot storage means that your Ethereum wallet needs an internet connection to access your coins, show your total balance, and allow you to send and receive ETH.
In more specific terms, hot crypto wallets are divided into web wallets and wallet apps. As their name suggests, web platforms and apps have different points of access. Web wallets work as all other commonly-used interactive platforms, while apps need to be downloaded either on your iOS/Android mobile device or desktop, or sometimes both. However, when it comes to these sub-types of web, mobile, and desktop wallets, there can be a more striking difference in terms of private key storage.
Namely, the majority of web wallets are custodial wallets that store your private keys on the platforms’ servers. This means that your keys aren’t with you, and hence, you don’t really own the coins. On the other hand, wallet apps allow you to keep the keys on the device where you’ve downloaded the app.
In terms of security, this isn’t a favorable scenario since both platforms and internet-connected devices are exposed to malware and hacker attacks. However, the ease of access and the sleek navigation make hot wallets a widely-used storage solution in the Ethereum community.
The most popular hot Ethereum wallets are Metamask, Exodus, Coinbase Wallet, Electrum, and Atomic Wallet.
Cold Wallets
The opportunity for offline storage lies in cold wallets. The main representatives of this category are hardware wallets — real devices with a USB-like appearance. When you send your ETH coins to a hardware wallet, they stay safely within the wallet device. For all further activities (sending, receiving, monitoring), you will still need support from a software or web wallet. Still, your private keys will have no contact with the device or the web browser you’re using to access the wallet program. Even if your web-wallet account gets hacked or your computer or mobile phone gets stolen, the “usurper” will not be able to trace your private keys.
For this reason, we say that hardware wallets are the most secure storage solution for your Ethereum. I must admit hardware wallets aren’t the most practical option, as they need to be set up first and then linked to the respective software program. Another disadvantage is their price. Depending on the model and the brand, the market price of hardware wallets can range from $50 to $500, compared to hot storage options, which come with zero costs. Still, for the role they play, hardware wallets are worth every penny, especially if you hold large amounts of Ether.
Best Hardware Wallets for Your Ethereum
Unlike the hundreds of software and web wallets, the number of hardware-wallet brands is rather limited on the market. They all do the same job, and they’re all Ethereum-friendly. Still, the final choice is a matter of personal preference.
Hardware crypto wallets can differ in their appearance, compatible software wallets and crypto exchanges, supported digital assets, and extra functionalities (Bluetooth, touchscreen, etc.). So, let’s comb through the features of the best hardware wallet deals available on the market.
Trezor One
Trezor is the earliest crypto hardware wallet. It was released by SatoshiLabs in 2014, with a focus on simplicity and interface. When it comes to security, Trezor is a pretty advanced instrument, giving you a PIN code option that never leaves the devices. The Trezor PIN system creates a new, random code every time you connect it to your computer, so even if you link it with an infected computer, you won’t bare the risk of jeopardizing your Ethereum wallet.
Trezor supports over 1,000 different coins, including Ethereum and the full range of ERC-20 tokens. However, some of the dominant coins like XRP, Tezos (XTZ), Monero (XMR), and Cardano (ADA) are missing from the list of available coins.
Apart from the basic Trezor One model, there is a more elegant version called the Trezor Model T, which comes with a larger screen, touchscreen navigation, enhanced security, and a greater number of supported coins.
Ledger Nano S
The original Ledger Nano model is perhaps the most popular hardware crypto wallet on a global scale and the most affordable option for cold storage. In terms of security, it complies with all applicable standards and offers impeccably safe storage of your Ethereum offline.
However, the hard drive of this Ledger version is considerably limited — you can handle 2-5 cryptocurrencies at a time, out of the 1,600-coin list. When it comes to Ethereum, you can either use the wallet native software Ledger Live or a third-party software wallet. For ERC-20 tokens though, you won’t be able to rely on the Ledger software but only on external ERC-20-tailored solutions like MetaMask.
The upgraded Ledger Nano X model comes with a larger hard drive and Bluetooth connection, but it’s considerably more expensive than the S version.
What About Paper Wallets?
Yes, paper wallets are an offline solution in the real sense of the word. However, they’re now barely mentioned in crypto wallet guides and articles because the paper is considered an obsolete method for Ethereum storage.
In many aspects, paper Ethereum wallets resemble a printed ETH coin and I’ll show you why. To create a paper wallet you need to visit one of the Ethereum paper wallet generators online. You’ll easily find one as there are not many choices in the paper-wallet section.
I’ve used WalletGenerator, but you can also turn to the popular web wallet MyEtherWallet (MEW), which enables this option. The generator will create your public and private keys on the spot, and once you print the wallet out, you’ll also notice the QR code that allows you to scan the key pair when sending some ethers from your wallet.
So, in this case, the proof that you own Ether is lying in your pocket. From a security perspective, this can be the safest yet riskiest storage method. Safe because nobody can trace the digital path to your coins, but at the same time, a piece of paper can easily get lost, stolen, or damaged.
In terms of functionality, paper wallets can be easily loaded. Just buy some ethers from a crypto exchange (Bitbuy or Binance) and export the funds to the printed Ethereum address. For all other functions (portfolio management, transfers to another address, instant fiat purchases with credit card/debit card), you’ll need an additional integration with a third-party wallet.
Finally, note that apart from BTC and ETH, paper wallets are available only for first-gen altcoins, such as Litecoin (LTC) and Bitcoin Cash (BCH).
A Few Words Before You Go…
Since Ether is the official payment method in the entire DeFi world, I can say that it’s unlikely for Ethereum to face any utility issues in the time to come. For you as an ETH holder, this signals bright prospects, especially now that the general public feels more comfortable with decentralized finance.
The more valuable Ethereum gets, the more appealing it becomes for hackers. Remember that your storage strategy is equally important as your trading strategy.
Investing in an offline wallet may seem unnecessary at first sight, but it’s an essential ingredient for a long-term crypto career. The fact that your main ETH capital rests safely outside all virtual risks will save your energy for the upcoming trading battles.