After your trade has been completed, your newly purchased Bitcoin will be sent into your exchange account. What you should do next with your coins really depends on your company's investment goals and crypto custody strategy. Where should you store your Bitcoin?
There are two main ways by which crypto investors generally store their assets: on their exchange accounts (third-party storage) or on an external software or hardware wallet (self-custody). Both storage methods have their merits and faults. Exchange Account (3rd Party Custody)
Most cryptocurrency exchanges have crypto storage facilities - an account into which any Bitcoin or other crypto asset that you purchase will be deposited. Also referred to as "exchange wallets," these accounts can be accessed by entering a username and password into the exchange's website or mobile application. Some exchanges also feature 2-factor authentication (2FA) capabilities.
Many retail users and some businesses choose to keep at least some funds on their exchange accounts at all times. These coins and tokens are always accessible and easy to trade whenever the need arrives. For businesses, some exchanges offer unique capabilities that facilitate easier accounting of cryptocurrency stored in their accounts. Advantages
- Rapid access to funds: Your cryptocurrency is ready to trade at all times by just entering a username and password.
- Multi-platform: No need to head home to get your crypto key. Make trades and payments on your smartphone, tablet, or PC.
- Business interfaces: Many corporate accounts include features that simplify business operations.
- You must trust the exchange: In theory, the exchange could go out of business, get hacked, or have technical issues. This could lead to the loss of your funds.
- Chance of user error: Somebody in your business must be held responsible for the security of your exchange account login information.
Keeping funds on an exchange account might not be the safest available solution. Owing to ease-of-access, though, it is probably the best way to store cryptocurrency short-term
. If you expect to need to carry out payments in the near future, it is probably a good idea to maintain a balance on your exchange. External Wallet (Self-custody)
For larger sums of Bitcoin (and other cryptoassets) that are intended to be held long-term,
it is recommended to maintain a software or hardware wallet. Both of these kinds of wallets are different ways of storing private keys - the cryptographic "password" to your money. Software wallets are applications that you install on your PC or mobile device and which provide a user interface to manage your funds. With software wallets, keys are stored locally on your device. Hardware wallets provide the same kind of UI while storing keys on specially designed, cryptographically-protected, devices.
We generally encourage businesses that invest in Bitcoin to purchase one or multiple hardware wallets. While software wallets are free, the added value of the 75-150 GPB hardware device, in our opinion, is worth it. Hardware wallets are invulnerable to malware and keep your data offline at all times. Advantages:
- Always under your control: Manage your wallet keys on your terms and always have access to your funds.
- Backups: Create and store backup seeds in multiple locations to attain greater security.
- On-chain: Balances can be checked and accounted for using blockchain explorers.
- One extra step: When making trades via an exchange, it's necessary to send funds from the wallet to the exchange. This takes time and implies a network fee.
- Your wallet, your responsibility: If backups are not stored correctly, access to funds can be lost.