4.3 Long Term Cryptocurrency & Cryptoasset Storage
Long Term Cryptocurrency & Cryptoasset Storage
What you will understand after this chapter
- Use a Hardware Wallet: The primary, safest storage method is a hardware wallet (cold storage).
- Never Digitise Keys: Seed phrases must be stored physically and offline (never in the cloud or on a connected device).
- Create Redundancy: Store multiple backups of your seed phrase in separate, secure physical locations.
- Test Recovery Regularly: Periodically test the recovery process from your backup to ensure it works when needed.
Long-term storage is the cornerstone of a resilient crypto strategy. The goal is to keep the majority of your holdings safe from theft, loss, and unforeseen complications while preserving access for when future opportunities arise. This chapter covers the most reliable storage methods, robust backup routines, and practical routines that keep your assets secure over years.
Understanding Long-Term Storage
Why long-term storage matters:
Security: The bigger the stake, the more you need protection against threats like hacking, device failure, or lost access.
Accessibility: Security should not come at the cost of being unable to access funds when needed.- Peace of mind: A clear plan and backups reduce anxiety and simplify future decisions.
Two guiding principles:
If ownership is valuable, protect private keys with physical, offline storage.- Regularly verify that backups are intact and recoverable without exposing keys to online environments.
Key Storage Tiers
1. Primary Long-Term Storage (Very Safe)- Hardware wallets: These are purpose-built devices that store private keys offline and sign transactions without exposing keys to the internet.
Paper backups in secure locations: A printed or handwritten seed phrase kept offline, ideally fire- and water-resistant and stored in a safe.
2. Secondary Storage (Moderate Convenience)
Encrypted backups on offline media: USB drives or optical disks encrypted with strong passphrases, kept in a different physical location from primary backups.
Additional hardware or passphrase-protected devices used occasionally for access without exposing large balances.
3. Active Storage (Daily Access)
Hot wallets for daily transactions, small amounts, or spending needs. These are connected to the internet and carry higher risk, so keep only a small portion here.
Backup Principles
Redundancy: Keep multiple copies in separate physical locations to mitigate risks like theft, fire, or natural disasters.
Separation of duties: If possible, split access across two or more people or devices, reducing the risk of single-point failure.
Offline-first approach: Backups should be created and stored offline to minimise exposure to online threats.
Regular verification: Periodically test recoveries using a backup to ensure you can restore access when needed.
Seed Phrase Handling
Offline storage: Seed phrases should never be stored in digital form or on cloud services. They must be physically preserved.
Redundancy strategy: Create at least two independent backups of the seed phrase in separate secure locations.
Phrasing and organisation: If using Shamir’s Secret Sharing or a similar method, ensure you understand the split and recovery process.
Keep the shares physically secure and only share with trusted parties as intended.
Hardware Wallet Best Practices
Purchase from official channels: Buy directly from the manufacturer or authorised resellers to avoid tampered devices.- Verify firmware updates: Regularly check for and apply official firmware updates from trusted sources.- Separate devices for different assets: Consider dedicating a hardware wallet for long-term assets and another for more active funds to minimize risk.- Passphrase protection: If your hardware wallet supports a passphrase feature (a hidden passphrase), use it to create an additional layer of security beyond the seed phrase.
Backup Locations and Security
Geographic diversification: Store backups in separate, geographically distant locations (for example, two different safe deposit boxes or trusted safes in different cities).
Physical protection: Use fireproof and waterproof containers; consider tamper-evident seals for added assurance.
Access control: Limit the number of people with knowledge of backup locations and ensure they understand the recovery process.
Recovery Testing
Schedule regular recovery tests: Periodically simulate wallet recovery from backups to ensure you can regain access without relying on memory or a single device.
Use small test amounts: When testing recovery, use tiny amounts to confirm the process without risking significant funds.
Document procedures: Keep a step-by-step recovery guide that can be followed by a trusted person in an emergency.
Organising a Comprehensive Plan
Inventory all assets: List each cryptocurrency and the corresponding storage method (hardware wallet, seed backup, etc.).
Map backups to locations: Clearly document where each backup is stored and who has access.
Create a maintenance calendar: Schedule firmware updates, backup refreshes, and recovery drills.
Define escalation and access rules: If a family member or trusted associate is part of the plan, document their responsibilities and permissions.
Staying Informed and Adapting
Security evolves: New attack vectors, device vulnerabilities, and threat models emerge over time. Update protocols: When significant security updates or new best practices arise, adapt your storage and backup plan accordingly.
Training and documentation: Keep a living document of security practices, and periodically train any trusted parties on recovery procedures.
Common Pitfalls to Avoid
- Relying on a single backup: If it’s lost or damaged, access is gone. Always maintain multiple backups.- Storing seed phrases digitally: Do not store phrases in cloud storage, notes apps, or devices connected to the internet.- Neglecting to test recovery: Without periodic testing, a backup might fail exactly when needed.- Inadequate diversification: Relying on backups in one locale exposes you to regional risks. Diversify storage locations.
Practical Flow for a Typical Crypto Owner
1. Acquire a hardware wallet and set it up with a strong, unique passphrase.
2. Create seed backups on paper and securely store them in two separate locations.
3. If comfortable with more advanced methods, create additional encrypted backups stored offline in a third location.
4. Move a significant portion of holdings from exchanges or hot wallets to the hardware wallet.
5. Schedule a quarterly or semi-annual security review to check backups, firmware, and recovery readiness.
Emergency Plan
In the event of loss of access, rely on the backup seeds to restore access on a new device.
If a trusted person is involved, ensure they have clear, written instructions and an agreed-upon process to follow.
Keep an updated contact list for support from manufacturers or wallet providers in case of issues.
Legal and Compliance Considerations
Ensure that backup and recovery methods comply with local legal requirements, especially when sharing access or storing backups with third parties.- If any legal restrictions exist on storing data across borders, follow relevant regulations and seek guidance.
Glossary and Quick References
Seed Phrase: A sequence of words that can recreate a wallet.
Hardware Wallet: A physical device that stores private keys offline.
Seed Backup: A physical copy or copies of the seed phrase stored securely.
Multisignature Wallet: A wallet that requires multiple keys to authorise a transaction.
Interesting Facts:
• Many crypto investors store most of their holdings in cold wallets offline for long-term security.
• Some people use fireproof and waterproof containers to securely store their wallet seed phrases.
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