How to Keep Your Cryptocurrency Safe: An Essential Checklist

The rapid rise of cryptocurrency has created new opportunities in the financial sector, from allowing payments with digital assets to streamlining global cross-border transactions. At the same time, however, it has opened the door to a new wave of scams, with bad actors eager to find ways to exploit both the technology and its users.

From malware attacks and exchange breaches to phishing schemes designed to steal users’ private keys and seed phrases, the threats are constantly evolving. The most reliable defense is a layered security strategy — one that offers protection at every step. Here’s a clear roadmap to help you safeguard your crypto assets.

The Golden Rule of Crypto Security: “Not Your Keys, Not Your Coins”

The phrase “Not your keys, not your coins” refers to the potential risks of keeping your crypto in a wallet hosted by the exchange or platform where you bought the crypto. Known as a custodial wallet, this requires you to trust a third party to safeguard your assets and provide access whenever you need it.

While keeping your crypto in a custodial wallet can be helpful if you’re new to crypto or ever need to reset password (and established exchanges may be implementing stringent security protocols), experienced crypto users often prefer to use their own personal crypto wallets.

Understanding Your Private Keys and Seed Phrase

Crypto wallets don’t actually store your coins. Instead, they store your private keys, secret codes that grant you control over your funds on the blockchain. A private key is a long, complex code that authorizes transactions on the blockchain. It’s also used to generate your public key and subsequently your public wallet address, which others use to send funds to you.

A seed phrase (also called a recovery phrase) is different. It’s a list of randomly generated words that can create all the private keys in your wallet. If you lose your private keys, you can restore them using your seed phrase. But if you lose your private keys and your seed phrase, there’s no way to recover your wallet — and your crypto will be permanently inaccessible.

The Risks of Leaving Large Amounts on an Exchange

Keeping your crypto in a wallet hosted by an exchange or other platform offers a simple storage solution, along with other benefits, such as a user-friendly interface and the ability to access funds quickly and easily in order to buy and sell crypto. However, storing your keys on a crypto platform like an exchange may also expose you to risks beyond your control, including hacks, insider fraud, or exchange insolvency. Unlike bank deposits, cryptocurrencies and crypto wallets aren’t protected by Federal Deposit Insurance Corporation (FDIC) insurance.

It’s generally fine to leave smaller amounts on an exchange for everyday transactions. For large holdings, however, it can be a good idea to transfer your crypto to a personal wallet, such as a hardware or noncustodial software wallet.

Choosing Your Security Level: Hot Wallets vs Cold Wallets

Once you move your crypto off an exchange, you have two main types of wallets to choose from: hot (software) and cold (hardware). Each has strengths and tradeoffs.

Hot Wallets (Software)

A hot wallet is typically software that runs on your phone or computer. Popular examples include MetaMask, Trust Wallet, and Exodus. Software-based wallets are typically noncustodial, giving you full control of your private keys.

Because hot wallets are always online, they’re convenient for sending, receiving, or interacting with crypto at any time. However, being online also increases vulnerability to malware, phishing scams, or device breaches. Hot wallets are generally best suited for everyday use, rather than storing large amounts of crypto.

Cold Wallets (Hardware)

Cold wallets —- such as Trezor, Ledger, and KeepKey — store your private keys offline, which reduces exposure to digital threats. Even when you plug the device into a computer to authorize a transaction, your private keys typically do not leave the hardware device.

Hardware wallets typically come with an upfront cost and a bit of a learning curve, but they are considered the gold standard in crypto storage. They function like a secure vault, keeping your assets protected even if your computer or online accounts are compromised.

That said, hardware wallets aren’t immune to risk. Losing the device — or mishandling your seed phrase — can still result in loss of access to your crypto.

Which One Is Right for You?

Your ideal setup depends on how you use your cryptocurrency. If you make frequent transactions, a hot wallet provides convenience. If you hold an amount that would be financially devastating to lose, a cold wallet may be a smarter choice.

Many crypto users choose a hybrid system — a hot wallet for everyday activity and a cold wallet for holdings they don’t need right away.

Your Essential Crypto Security Checklist

Once your wallet (or wallets) are set up, strong daily habits become your best defense. The following rules apply whether you hold a few dollars’ worth of crypto or a substantial portfolio.

Rule #1: Secure Your Seed Phrase Above All Else

Protecting your seed phase is paramount to crypto security. It acts as the master key to your entire cryptocurrency wallet and all associated digital assets. Anyone who gains access to it can take complete control of your funds, while losing it can result in permanent loss of access to your crypto.

Some best practices to follow:

•   Make at least two copies of your seed phrase and store them securely in separate, secure places.

•   Consider using both paper and a more durable format, like engraving the phrase onto a metal plate.

•   Store your copies in a safe, secure location, such as a waterproof and fireproof safe at home or a safety deposit box at your bank.

•   Never share your seed phrase with anyone; legitimate companies will never ask for it.

•   Avoid digital storage like photos, cloud drives, email, or phone notes.

Rule #2: Use a Password Manager for Strong, Unique Passwords

It is important that your crypto accounts have strong, unique passwords. A password manager helps you achieve this by generating and securely storing complex passwords, so you don’t have to memorize them. Typically, these tools will also automatically fill in your passwords whenever you sign into one of your accounts.

Dedicated password managers (like 1Password, Bitwarden, or Proton Pass) often offer more robust security features than free, browser-based tools.

Whatever tool you use, it’s important to consider general tips for password safety, such as:

•   Use at least 12 characters.

•   Incorporate letters, numbers, and special symbols.

•   Avoid obvious or commonly-known information about you, such as your date of birth or names of family members.

•   Use a different password for every crypto-related account.

•   Update your passwords regularly.

•   Protect your password manager with a strong master password or biometric login.

Rule #3: Enable the Strongest Two-Factor Authentication (2FA) Available

Two-factor authentication (2FA) adds a critical layer of security by requiring a second form of verification — such as a one-time code sent to your phone via SMS or a code generated by an app — to confirm your identity. This helps ensure that only you can access your account, even if a password is compromised.

Different 2FA methods offer different levels of security. Here’s a look at levels of 2FA strength:

•   Weakest: SMS codes (susceptible to interception and SIM swapping)

•   Stronger: Authenticator apps

•   Strongest: Hardware security keys

It’s a good idea to enable the strongest 2FA available for all of your accounts, including exchanges or other platforms, email accounts, password managers, and any wallet that supports 2FA.

Rule #4: Beware of Phishing Scams, Fake Links, and “Support” DMs

Surprising but true: Phishing is one of the most common ways crypto users get hacked — not through technical breaches but through deception. Scammers often impersonate exchanges, wallet services, or support teams to trick users into clicking malicious links or handing over sensitive information. Fraudsters may also create fake websites and apps that closely resemble real ones.

Help increase safety by considering these crypto security practices:

•   Never share sensitive information via unsolicited messages: Legitimate organizations will not ask for your password, private keys, or seed phrase via email, text, or an unsolicited phone call.

•   Verify the source directly: If a message from a company or person you know seems unusual, contact them through a separate, trusted channel (like a known phone number or by typing their official website address directly into your browser). Do not use the contact information or links provided in the suspicious message.

•   Be skeptical of unsolicited offers: Be wary of texts, DMs, or emails promising guaranteed or unusually high returns, free giveaways, or requiring urgent action. These are major red flags designed to pressure you into making a mistake.

Recommended: How to Report Crypto Scams and Recover Funds in 2025

Rule #5: Always Send a Small Test Transaction First

User error can also lead to crypto loss. Since crypto transactions are generally irreversible, typing one wrong letter in an address or choosing the wrong network can result in permanent loss of funds.

If you’re transferring a large amount or sending crypto to a new wallet address, it may be wise to consider starting with a small test transaction. While it may involve paying an additional transfer fee, the cost of a small test transaction is minimal compared to the potential loss of a large sum. If you’re new to crypto transfers or using a new platform, a test run also helps you build confidence and better understand the process.

Once the small transaction arrives safely, you may feel more confident about sending the full amount.

The Takeaway

One of the most important aspects of using cryptocurrency is knowing how to store it securely. While exchange-hosted and software wallets can work well for everyday use, many crypto users consider a cold (hardware) wallet to be the gold standard in crypto protection.

When you combine secure storage with strong personal security habits — safeguarding your seed phrase, using strong passwords, employing robust 2FA, and practicing caution online — you may reduce your chances of loss or theft. With the right approach, you can help manage your assets with confidence.

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FAQ

What is the safest way to hold cryptocurrency?

Generally, one way users tend to hold cryptocurrency longer-term is to use a cold (hardware) wallet, which stores your private keys completely offline. By keeping private keys disconnected from the internet, a cold wallet may offer a high level of protection against hacking, malware, and other online threats. For enhanced security, also be sure to maintain a secure backup of your seed phrase and use strong safety measures like two-factor authentication (2FA) for any online accounts.

Has a crypto exchange ever been hacked?

Yes, a number of crypto exchanges have been targeted by hackers. Some of the largest and most notable hacks include the 2025 ByBit hack ($1.4 billion), the 2024 DMM Bitcoin hack ($308 million), and the 2018 Coincheck hack ($534 million). Exchanges are attractive targets because they store large amounts of user funds in centralized systems. While reputable exchanges currently use robust security measures, no exchange is immune to risk. This is why many users prefer self-custody for long-term storage rather than relying solely on exchanges.

How does self-custody differ from custodial storage?

Self-custody means you, the owner, are solely responsible for holding and managing your private keys, which directly control access to your cryptocurrency. Noncustodial wallets (like hardware wallets and many software wallets) facilitate self-custody.

Custodial storage means a third party, such as a crypto exchange, holds your private keys on your behalf. This offers convenience, as the third party handles the security and recovery process. However, it requires you to trust the custodian to protect your assets from hacks, internal fraud, or insolvency. In a custodial arrangement, you do not have full control over your funds.

What is a multi-signature wallet and how does it improve security?

A multi-signature (multi-sig) wallet requires multiple private keys — or signatures — instead of just one, to authorize a transaction. Any party in a multi-sig wallet can initiate a transaction using their private key. However, the transaction remains pending until the other parties sign it. This setup makes it difficult for hackers to steal funds from a wallet, since they must have the different keys to complete any action. A multi-sig wallet can be a good choice when several individuals own crypto together.

Can cold wallets be hacked or lost?

Yes, cold wallets can be hacked or lost, but they are typically considered safer than “hot” online wallets. While cold wallets are designed to keep private keys offline, they can be compromised through physical tampering and user error like falling for phishing scams. If a physical wallet is lost or stolen, however, the funds may not necessarily be lost forever; it’s possible they can be recovered with the private key or seed (recovery) phrase.

What are the safest ways to store your seed phrase?

Generally, the safest ways to store a seed phrase typically involve keeping it completely offline and physically secure. It’s a good idea to make at least two copies and store them in separate, safe places, like a fireproof safe and/or a bank deposit box. For increased durability, consider engraving the phrase onto a metal plate instead of relying solely on paper. Never store your seed phrase digitally in a photo, note app, or email.

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