How to safely store crypto: a practical guide for everyday investors

The U.S. Securities and Exchange Commission’s Office of Investor Education and Assistance has released guidance to help retail investors understand one of the most important parts of owning crypto: custody. In simple terms, custody refers to how and where your crypto is stored—and who controls access to it.

Below is a plain-English breakdown of the basics, along with key questions to consider before deciding how to hold your digital assets.

What does crypto custody mean?

Crypto custody describes how you store and access your crypto assets. Most investors use a crypto wallet, which is a piece of software or a physical device that allows you to interact with the blockchain.

Importantly, crypto wallets don’t actually “hold” your crypto. Instead, they store private keys—secret codes that prove you own your assets and allow you to send or spend them.

Understanding crypto assets and keys

A crypto asset is any asset created or transferred using blockchain or similar distributed-ledger technology. This includes tokens, digital assets, virtual currencies, and coins. Each crypto asset works a bit differently, which means risks and benefits can vary widely.

When you create a wallet, two cryptographic keys are generated:

• Private key:
  This is a randomly generated alphanumeric code that gives you full control over your crypto. Think of it as your wallet password. If you lose it, there is no way to recover your assets.
• Public key:
  This key allows others to send crypto to your wallet. It’s similar to an email address—you can share it safely, but it cannot be used to access or move your funds.

Together, these keys confirm your ownership and allow you to send, receive, or store crypto.

Hot wallets vs. cold wallets

Crypto wallets generally fall into two categories:

Hot wallets

Hot wallets are connected to the internet and often come as mobile apps, desktop software, or browser-based tools. They are convenient for frequent transactions, but their online nature makes them more vulnerable to hacking and cyberattacks.

Cold wallets

Cold wallets are offline storage options, such as hardware devices, external drives, or even paper backups. They are less convenient for daily use but are generally more secure against online threats. However, if the physical device is lost, damaged, or stolen, access to your crypto may be permanently lost.

Protect your seed phrase

Many wallets generate a seed phrase—a series of random words that can restore your wallet if something goes wrong. This phrase is extremely sensitive.

• Store it securely offline
• Never share it with anyone
• Treat it as seriously as you would the keys to a safe

Self-custody vs. third-party custody

Another key decision is whether to manage your crypto yourself or rely on a third party.

Self-custody

With self-custody, you control your private keys and are fully responsible for security. This gives you maximum control—but also maximum responsibility. If your keys are lost, stolen, or compromised, your crypto may be gone forever.

Questions to ask yourself:

• Am I comfortable setting up and maintaining a wallet?
• Do I want full responsibility for securing my crypto?
• Should I use a hot wallet, a cold wallet, or both?
• What fees are involved in using this wallet?

Third-party custody

With third-party custody, a service provider—such as a crypto exchange or a dedicated custodian—holds your crypto on your behalf. These custodians manage the private keys and typically use a mix of hot and cold storage.

While this can be more convenient, it comes with risks. If the custodian is hacked, shuts down, or becomes insolvent, you could lose access to your assets.

Questions to ask a custodian:

• Is the company regulated, and does it have a solid reputation?
• Which crypto assets can I store there?
• What happens if the company fails?
• Do they insure against theft or loss?
• How are assets stored and secured?
• Do they lend or reuse customer assets (rehypothecation)?
• What privacy protections are in place?
• What fees will I pay to hold, trade, or withdraw assets?

General tips to protect your crypto

• Research custodians carefully before trusting them with your assets
• Never share private keys or seed phrases
• Keep details about your holdings private
• Watch out for phishing and scam attempts
• Use strong passwords and multi-factor authentication

Crypto custody decisions involve trade-offs between convenience, control, and security. Understanding these basics can help investors make more informed choices—and avoid costly mistakes.

Disclaimer: This article is a rewritten summary for educational purposes. The original Investor Bulletin is published on https://www.investor.gov/