SIMON BROWN: Keep your crypto in a hardware wallet

With the collapse of FTX, crypto is again in the spotlight as clients wonder if they’ll be able to get their crypto coins back. The issues are many and the facts will emerge in time, but it is yet another blow to the crypto landscape.

At issue here is trust. Crypto is not money but, like money, it requires trust in the system otherwise investors and traders will simply find another asset to invest or trade with. Sure, one more bad actor going bust in the space is not the end of crypto, and lack of trust is in many ways a core tenet of the crypto architecture. The logic is that crypto uses decentralised blockchain technology to transact, requiring no trust between parties.

But if you’ve just lost your crypto coins due to a crypto brokerage going bust, your personal trust is likely to be badly shaken.

This brings the issue of the safety of your crypto coins to the fore and the first lesson here is: do not keep your coins on an exchange.

You can back up your crypto coins onto a software wallet that would sit on your computer, but this still carries risk. What if your computer is stolen or hacked? Yes, your wallet would be password-protected and you would have backed up the software wallet into another device, ideally in the cloud.

But for me the best and most secure route is a hardware wallet which you can then use for storing your crypto coins off-exchange. Your only risk is losing that hardware wallet, as these are usually small USB drives you can store in your home. The risk is fire or maybe even theft, but it would be an exceptionally smart burglar who knew to steal your password-protected hardware wallet.

I’ve been using the Ledger Nano S for the past couple of years and there is now a Plus version. The process of moving your coins off exchange and into the wallet is simple enough, with many YouTube videos offering help and guidance. There are, of course, many other wallets and you don’t really need anything fancy, just secure.

If you are trading crypto, which was the main feature of FTX, then you need a different response as your crypto coins need to be on an exchange in order for you to be able to trade them.

Here the answer is simple. Always sweep your profits out of the exchange and into your hardware wallet. At one point I traded bitcoin on what was a very dodgy exchange and every day I would take my profits and move them back into my hardware wallet. It certainly was extra effort, but it meant only the trading bitcoin was ever at risk of that exchange going bust, not my entire holdings.

If you’re staking your coins you have to understand the risk you’re taking and be comfortable with them disappearing one day. I’m not, so my coins remain in their hardware vault.