Keeping Your Crypto Safe Through The Bear Market

Coinbase laid off 1,100 employees today. Celsius was the first large US crypto company to fall, who is next?

Mnemonic Phrase

Think of your mnemonic phrase as your entire crypto net worth where the only way to lose it, is to lose it. Similar to having $20k cash, physically right near you, with no insurance. The benefit of this is that no single company / entity can steal your money unless they physically get ahold of those words. Unlike the Celsius situation, I did not own the keys (mnemonic phrase) to the wallet that my USDC was in.

Storing Your Mnemonic Phrase

Make sure to write / print your phrase out on physical paper the moment you are shown it. Once you have done this, setup then destroy the wallet. Uninstall, reinstall, and restore your wallet from the words that you have written in-front of you. This guarantees you did not make a mistake writing down the phrase.

Now you have to think of a way to protect this piece of paper physically. Where do you keep your passport, social security card, or birth certificate? Something along those lines. A safe would be a good idea here. Once you get to a wallet value of a substantial amount, think of a bank safety deposit box. $5 a month is well worth storing tens, hundreds of thousands of dollars safely.

If you want more convenience, storing digitally is an option. This improves the ability to access, with the downside of potentially getting stolen. This is useful for hot wallet mnemonics that you use in things such as browsers and extensions. I like a password manager like Bitwarden to save secrets, it’s open source and free. You can also encrypt .txt files and store locally or in the cloud. I would highly suggest your Bitcoin wallet mnemonic phrase to NEVER be stored digitally, it has no business being exposed to the internet.

Cold vs. Hot Wallet

Why chose a a physical (cold) wallet, such as a Ledger, over a hot wallet such as MetaMask? A cold wallet gives you the benefit of physically having to approve a transaction with the device plugged into your computer. Funds cannot be transferred without your approval physically, instead of just having to click a button (like with hot wallets). This is typically where assets that you are not moving often (if ever) should be stored, such as Bitcoin.

The Ledger is still powered by the mnemonic phrase, just adds another layer of security between the internet and your wallet. The single Ledger device can be the mnemonic phrase, private key, that powers every single asset’s wallet (ADA, ETH, BTC, SOL, AVAX, etc). If you lose your Ledger device, don’t worry. You could throw your Ledger into a lake, buy a new Ledger (or another brand / wallet), and restore all of your crypto wallets from the mnemonic phrase written down previously.