The Safest Ways to Store Bitcoin
As with all valuables, there are people in the world who actively work on trying to steal BTC from owners. Much like physical money, cryptocurrency can be taken if it’s not stored safely.
Unfortunately, the reality is that the more valuable BTC becomes, the more frequent hacking attempts become. Especially among new or inexperienced investors who don’t yet fully understand the best ways to store their crypto or where the vulnerabilities lay.
Additionally, the more time that passes, the more ways hackers create to be able to attempt hacking in the first place. Once a weakness has been detected, it can be exploited.
What can often make these hacks worse is they happen in plain sight with the owner powerless to stop what is occurring before their very eyes. The hackers gain access and control and make transfers while the owner can only watch.
Like a scene from a movie, except you can’t just press pause to make it stop. This is why if you’re going to be a Bitcoin owner, you must know what the safest ways are to store it. Read on as we cover this below and keep your assets secure.
Important Points to Remember
- Owners of Bitcoin can lose their assets in several ways including theft, computer hacking, and losing their seed
- Cold storage, which we’ll go into more detail about later, is the safest option as it stores the BTC offline. However, this is not as convenient for owners who trade regularly
- Using a hardware wallet is a safe option and should be considered by those interested in keeping their BTC long-term
A wallet for Bitcoin is called a digital wallet. It works in the same way a physical wallet does in the sense that it stores your money safely. A digital wallet can be either web-based or hardware-based. And you can keep the wallet on your computer, cell phone, or by printing onto paper your private keys.
But can you trust these wallets as much as you do the wallet in your back pocket? Well, the answer as to its security depends on how the owner of the wallet manages it.
Each wallet has a set of private keys. With these private keys, you can’t access the BTC inside. So, if the owner doesn’t keep the private keys, well… private, then your assets can fall into the wrong hands.
And given there are several ways for this to happen, including losing the keys, having them stolen, your hard drive crashing when it is the only place you store your keys, or by losing your device altogether, it’s no surprise that there are thousands of stories of people lamenting the loss of their BTC over the years.
With that in mind, let’s look at some of the safest wallet options.
A hot wallet is a wallet that is stored on an internet-connected device such as a laptop, PC, tablet, or cell phone. The vulnerability here is that the internet is hackable. And if your private key is being generated by an internet-connected device, then you are always going to be putting yourself a little at risk.
However, despite this security risk, hot wallets are convenient. It’s kind of like how making banking transactions online is far more convenient than doing them in person. It’s safer to do in person, but it’s most certainly not convenient.
People’s complacency regarding the security of hot wallets has led to numerous stories of people being hacked. There have even been accounts of owners boasting online about their BTC, only to have a hacker-genius run off with it all shortly after.
One of the best ways to keep your BTC safe in a hot wallet, aside from keeping your private keys safe and in a secure location, as well as not openly talking about your assets online or in real life is to have multiple wallets.
A hot wallet should only ever contain a small portion of your total BTC. In the same way that it’s wiser to spread $500,000 out into five different bank accounts with five different banks, it’s wise to store small amounts of BTC in several different wallets.
This way, if the worst happens, you haven’t lost everything.
Don’t forget that a hot wallet is not the same as an exchange wallet. An exchange wallet is a wallet looked after by a third party (the exchange).
Unfortunately, if your wallet is hacked, lost, or stolen while in custodial third-party care, your Bitcoin will be lost forever. Since crypto is unregulated, the FDIC (Federal Deposit Insurance Corporation) or your country’s equivalent is not obligated to protect and reimburse your assets like with a bank account.
Next up is the cold wallet. A cold wallet is a wallet that is not held on any internet-connected device. Rather it is stored offline on a device similar to a USB. Since it is not connected to the internet, it isn’t at risk of being hacked in this sense.
An offline wallet will provide greater protection and massively reduce the risk of compromise. Although you do have to be careful with where you store your cold wallet - in a desk drawer, for example, might not be safe.
Often, people who plan on leaving their BTC for the long-term place their cold wallets in a safety deposit box at a bank for safe keeping.
But, as we said earlier, it’s not a convenient option for anyone who trades regularly.
A paper wallet comes under the cold wallet category but it still deserves its own heading since it is a third, different, option. A paper wallet used to be considered the most secure wallet type. And while not everyone will agree this is still the case, it’s certainly more secure than a hot wallet.
A paper wallet is a wallet you can generate from several websites. From this, you get both public and private keys you print onto a piece of paper. The only way to then access the BTC is with this piece of paper.
This type of wallet is also often kept in a safety deposit box. After all, it only takes a fire or flood at your home and your Bitcoin is gone forever. There are a lot of similarities between a cold wallet and a paper wallet and the final choice is often just the user’s preference.
Cold wallets and paper wallets require a little more knowledge to set up than a hot wallet so it’s important you know beforehand what you need to do. Ideally, you should know how to set up a hot wallet also in case you need it one day.
Physical coins are a relatively new concept and have yet to fully take off. You can, however, buy physical coins and even use physical coins to store your own BTC. If you buy BTC as a physical coin(s), you should expect to pay a little more than the market value.
Other Security Precautions
You should back up your wallet often. If your computer fails, the only way you have any chance of recovering your digital wallet is with a recent update. Therefore, you want the update to always be recent. The backup should also be stored in multiple locations - i,e the hard drive and a USB.
Like with all software, your wallet bitcoin software should always be kept up to date. Software that is behind in updates will always be more vulnerable to hackers. Since updates can fix bugs or increase security, it’s not something you should ever forget to do.
A multi-signature is similar to 2-factor authentication, except it involves more people. Generally, around 3-5 other people. People you trust.
This means that before any transaction takes place, all people have to give their authorization. Therefore, the risks are massively reduced as there are multiple barriers in the way. Of course, this is only a good option if you have people you trust deeply.
Are You Ready?
If you have just opened a wallet and want to start adding BTC, or already own BTC and want to make more, then the best option is to join a mining pool. A mining pool is a low-risk way to mine BTC without needing vast amounts of money or rigs. Your future could look incredibly different if you have the support of a like-minded team!
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