Ethereum (ETH) is the second most popular cryptocurrency today, right after Bitcoin (BTC). Its market capitalisation is also second only to BTC, enabling people worldwide to use Ether for all sorts of transactions – from buying different products and trading the currency for fiat money on exchange platforms, to investing in different business ventures. It’s a fully decentralized software platform, with the aim of providing users with a diverse choice of defi products and services, such as smart contracts and decentralized applications or dApps for short.
In order to enable these and many more services, the Ethereum blockchain uses the Ether crypto token to carry out all sorts of transactions and to cover the transaction fees that are measured in gwei, the smallest denomination of ETH. There are also many altcoins based on the Ethereum network such as ERC20 tokens.
Since Ethereum is such a popular cryptocurrency and constantly traded in high volumes on cryptocurrency exchanges like Coinbase or Binance, people need trusted and secure methods of storing their ETH. There are different ways to keep your Ether safe and ready for use at all times, though the different methods come with varying degrees of security. We will take a look at these methods and list some of the popular options for Ethereum storage.
Cryptocurrency Blockchains: Ethereum (ETH) vs Bitcoin (BTC)
Before we get to the storage options, let’s take a quick look at how the Ethereum ecosystem works. In order to see the specific characteristics of the Ethereum blockchain, we will compare it to the most popular crypto network, the Bitcoin blockchain.
Bitcoin was the first crypto asset, with its famous peer-to-peer blockchain technology that enables miners to earn Bitcoin rewards while expanding the blockchain by verifying BTC transactions and preventing fraud in the form of double spending. When enough transactions have been verified by miners whose computers are actually solving mathematical tasks that contribute to the verification of these transactions, a new BTC block is added to the blockchain. The first miner to solve the problem gets the BTC reward.
The ETH blockchain is also an open-source network but instead of solving mathematical problems, the network consists of developers and clients that use ETH to launch different smart contracts and dApps and pay for them. The system nodes also verify transactions, using the proof-of-work algorithm which is based on having one network participant act as the prover and other participants as the verifiers who confirm the validity of the transaction by using a minimal amount of computational power. This sort of verification system enables the smooth functioning of smart contracts which are really the moving power behind the ETH blockchain, since they enable users to conduct business quickly, safely, and on their own terms.
Ethereum Smart Contracts
So, what are smart contracts and what is their role in the ETH network?
The Ethereum blockchain enables users to initiate and run smart contracts in order to carry out different computational tasks. The concept of smart contracts itself was a fresh innovation introduced by Ethereum back in 2015, when the network first appeared. These contracts were made to provide users with far more opportunities than just financial transactions, such as exchanges or cashouts of digital assets. They are essentially really simple and their goal is to allow two interested parties to enter a business agreement that is solely based on the conditions they agree upon.
This eliminates the need for a broker who defines the contract conditions, since all the terms and conditions of a smart contract are directly negotiated between participants. There is no central authority (government institutions, banks) or digital middleman that defines the agreement apart from the two interested parties. Smart contracts essentially democratize the process of doing business by giving the opportunity and means to individuals, startups, and other companies to do business on whatever terms they agree upon with their partners.
Hot Storage vs. Cold Storage
Now that we briefly introduced you to how the Ethereum blockchain works and what it’s used for, we can move to the methods of storing your ETH. The first thing you need to decide when it comes to storing any type of crypto assets is what you want to use them for. Do you want to have small amounts of ETH available in just a few clicks, so you can carry out day to day payments? Maybe you’re planning on serious investment using ETH to develop decentralized apps and conduct smart contracts on a daily basis, or you just want to store large amounts of Ethereum securely, so you can cash out bigger sums when needed.
Depending on how you plan to use your ETH, you should decide what kind of cryptocurrency wallet you want to use, whether to go with hot storage (or so-called hot wallets), desktop wallets that are constantly connected to the internet, or with different types of cold storage (or cold wallets) that store your crypto data offline. You can always choose one method for storing your crypto, but if you plan to use your assets in various ways, it’s a good idea to diversify the wallets you use and combine both hot and cold storage.
Since this guide is focused on storing Ethereum offline, we are going to take a closer look at cold wallets. Cold wallets are divided into two categories: hardware wallets and paper wallets. Since the cold wallets are offline, with no connection to the web, there is no chance of someone compromising your ETH and stealing your funds with your private key and public key. The only way someone could possibly get to your funds is if they physically find your wallet and steal it (if you have a paper wallet), but if you’re using a state-of-the-art hardware wallet, you’ll have an extra layer of protection in the form of a PIN code.
Cold wallets are a bit slower for use because they require additional steps when you want to check or exchange your funds, because the wallets aren’t located on your PC, laptop, or smartphone. However, an additional minute or two to access your funds is really worth in exchange for top security of your funds. Storing ETH in cold wallets is especially recommended when you need to keep large amounts of assets. The possible risks associated with hot wallets, such as hacking or compromising transfers, are thus avoided.
Hardware wallets are wallets in the form of specialized USB devices made by hardware wallet manufacturers. These devices store all the necessary data you need in order to access your crypto assets without exposing them to potential external breaches because they aren’t connected to the internet. These wallets often come with special locks with PIN codes and encryption to add even more security to your digital assets.
Paper wallets are another form of highly secure cold wallets. Basically, a paper wallet is a piece of paper with the printed public and private keys to your funds, along with QR codes of the keys to enable quick access using a smartphone. Some people regard paper wallets as a secure way to store ETH offline, but keep in mind that with a paper wallet, you have to be careful where you keep it, so that it doesn’t get physically damaged, like the print fading away and becoming useless.
Popular Ethereum Wallets
These are some of the most popular crypto wallets for storing Ethereum. We picked two hardware wallets for safe offline storage of your ETH and two hot wallets that are compatible with hardware wallets as well for maximum protection.
Trezor Hardware Wallet
Trezor is one of the most trusted cold storage options available on the crypto market today. It is a key-sized device that stores your private keys securely and you can sign transactions with it, too. The hardware is so secure that you can even connect it with a USB cable to a computer infected with malware and your data still won’t get compromised.
You have total control over the private keys stored on the device and you have the option to back up the content of the wallet with a 24-word seed phrase generated while setting up the device. Your seed phrase isn’t generated while connected to the internet. It’s generated offline and the words will appear on your Trezor device’s screen. There is even a possibility to add an extra passphrase to the 24-word seed phrase, which means you have an additional layer of security just in case.
Exodus Crypto Wallet
Exodus is a multi-currency, multiplatform hot wallet that offers easy-to-use, fast services, and it’s a popular tool for storing ETH. Users of Exodus have a superb online support team at their disposal that really excels in answering all questions related to the platform. When it comes to storing Ethereum offline, the main perk of Exodus is its partnership with Trezor, which enables a seamless connection between your hardware wallet and the Exodus wallet in just a few steps. All you need to do is pair your Trezor device with your Exodus account and you can transfer funds instantly between the two wallets or from Trezor to a bank account, debit or credit card.
Ledger Nano X
Ledger Nano X is a next-level hardware wallet that comes with increased capacity for storing crypto, along with Bluetooth connection capability. A USB cable connection is not necessary and you can control the wallet with your iOS or Android-based smartphone directly. As far as security goes, your private keys remain perfectly safe in the Ledger Nano X security chip. You also have the standard 24-word passphrase set up and an additional PIN code to ensure that even in the event of losing the device, no one can hack it and get access to your ETH. Ledger is a great choice for storing large amounts of Ethereum without worries.
My Ether Wallet
My Ether Wallet or MEW is the Ethereum network’s native web wallet for storing ETH. It’s easy to use, practical, and provides good security. However, what’s even more important is the featured possibility of this hot wallet for a smooth connection to Ledger Nano X, giving you a very secure option for storing the bulk of your ETH offline, with easy access in combination with MEW.
A Few Words Before You Go…
The popularity of Ethereum is ever growing, alongside Bitcoin and other popular altcoins like Litecoin and Ripple. With the market cap increasing by the day, users need secure and trusted solutions for storing their ETH offline. We’ve presented you with the most practical methods to keep your ETH safe and easily accessible at the same time by offering combinations of the best hardware and software wallets on the market.