- Storing your bitcoin properly is vital to ensure you don’t lose it
- There are many ways of storing bitcoin, from paper wallets to mobile wallets
- What are the various bitcoin wallets you can use, and which is the one for you?
Whether you’re storing real money or cryptocurrency, the way you are going to do so is extremely important because money, any kind of it, is always susceptible to thievery. Similar to storing real money currencies, cryptocurrencies also have different types of wallets, and you should really handle these with even more care than your regular wallet or credit card. Here are a few things that every bitcoin owner should know when it comes to safety and security.
Keep Your Bitcoin Well Protected
It’s important to get yourself well familiarized with digital security as well as bitcoin security if you do not want your account to be hacked and have your hard earned money stolen. To send or spend bitcoins, one must have access to both public and private keys. Private keys, especially, must be protected. Because you are not actually storing bitcoins, you are storing these keys which are used to access your public bitcoin address and sign transactions.
Types of Bitcoin Wallets
This sensitive info is stored in a bitcoin wallet, which come in one of five forms:
- Desktop wallet
- Mobile wallet
- Web wallet
- Hardware wallet
- Paper wallet
Of course, whichever you choose, it’s very important to secure and back up your bitcoin wallet. So let’s go over all of these, see how they work and you can decide what you want to use.
Some of these are known as ‘cold storage’ wallets which is very important since computers are vulnerable to hackers, but we’ll come to that. When it comes to desktop wallets they operate as a software which you must download and install, which includes downloading the entire blockchain and all its historical transactions. Some people do not find this option as practical, and newcomers may well find it confusing, but as far as bitcoin storage goes, desktop wallets are considered to be at the higher end of the security spectrum.
Bitcoin Core is the first and original wallet in this category but it requires at least 300GB of free space since, given the size of the blockchain today – and this will keep growing. Other popular desktop wallets include Exodus and Electrum.
Bitcoin Mobile wallets are both accessible and practical. Many of these incorporate a couple of layers of security to ensure that your bitcoin does not get compromised. This is a really good idea if you plan on keeping a small amount of bitcoin on you but leave the majority in a cold wallet, which we would always recommend. Mobile wallets have less security than desktop wallets, but they have added convenience.
Mobile wallets can store the private keys for your bitcoin addresses and enable you to pay for things directly with your phone. In some cases, a bitcoin wallet will even take advantage of a smartphone’s NFC feature, since you can pay in bitcoin with a phone tap without having to enter any information at all. Most popular android-based wallets in this category include Exodus, TrustWallet, Jaxx, and Coinomi.
Web wallets, or online wallets, allow web-based storage of your crypto assets. Being web based you can access them from any web-connected device, but you pay for this with greatly reduced security – your wallet provider keeps your private keys, which means that you don’t control your wallet or your coins. Should the provider be hacked, or decide to abscond with your funds, there is nothing you can do. This goes for keeping your coins on exchanges too.
If you decide to use web wallets you should apply the same method as with mobile wallets, keeping smaller amounts on them but leaving the bulk of your holdings on a more secure (offline) form of storage. Popular Web wallets include Coinbase and Blockchain.info.
Hardware wallets and paper wallets are considered ‘cold storage’, which is the best way to store the bulk of your cryptocurrency holdings. Of these two options, hardware wallets are more preferable because they are easier to store and protect and allow quicker moving of funds than paper wallets, which can be easily destroyed or discarded.
Hardware wallets are USB devices to which you can send your cryptocurrencies before storing them somewhere safe. They are only connected to the internet when you want to move coins onto them or off them, making them incredibly safe. However, while it is hard to hack into hardware wallets, recent episodes like the hack on the Ledger customer database in 2020 show that there are other sources of weakness with regard to hardware wallets.
Hardware wallets are very safe because you are in total control of the private key, meaning that you have full access to the coins on the device at all times. Hardware wallets are PIN-protected, meaning that if your wallet is stolen it should still be hard to access by the thief.
Paper wallets are by default the safest way to store your bitcoin because they are never connected to the internet. You can also store the private keys to the wallet in a separate location so that if it were ever stolen it could still not be accessed. Paper wallets were the default way of storing bitcoin in its early years before the first hardware wallets came out.
However, leaving your bitcoin holdings on a piece of paper has the obvious safety connotations – fire, flooding, or other damage could wreck it, while we all know how easily a piece of paper can be lost. Of course you could keep it in a bank vault or with a trusted third party, but this makes it more impractical to deal with if you want to send the coins on. There is nothing to stop you printing off multiple copies of your paper wallet so you have backups.
Paper wallets are created through websites which take you step by step through the process and allow you to print out the resulting QR code and keys which make up the wallet. You can then send your bitcoin to this address. Before deciding on a paper wallet, there are risks involved in creating one, in that you have to trust the website you are using. In February 2020 it was discovered that a popular Bitcoin paper wallet creation site, bitcoinpaperwallet.com, had been sold to a scammer who had started compromising every wallet created on the site and stealing the bitcoin sent to them.
Start Using a Bitcoin Wallet Today
To a new Bitcoin user this information might seem daunting, but it is of crucial importance to get yourself a bitcoin wallet as soon as you own some. You might have heard of bitcoin being lost due to hacks, malware, or scammers, but many of these situations can be remedied by good security. Bitcoin allows you to be your own bank, but this means you must also be your own bank security.
Keeping your bitcoin safe is easier than this article may have made it sound, but once you have worked out your convenience/security ratio and decided on a wallet or wallets, the process is easy to learn. Happy hodling!