According to CNBC, a $100 Bitcoin investment in 2009 would have been worth over $48 million by February 2021. And while the days of generating enough fast returns to make a Wall Street trader sick with envy may be over, there’s still lots of money to be made from investing in Bitcoin.
But even so, many aspiring investors are faced with a major problem:
Bitcoin and other cryptocurrencies have a long and storied history of being stolen.
What’s the most secure way to store Bitcoin? How can you use the Bitcoin network while protecting your cryptocurrency? Keep reading to find out what you should know about all things Bitcoin security.
Your Bitcoin Storage Options
As it turns out, you don’t have to stand by and watch helplessly as crypto thieves and hackers empty your cryptocurrency wallets — if you have the keys, the buck stops with you. Here are two of the most common resources at your disposal when it comes to storing and protecting your funds:
1. Cold Wallets
The phrase “cold wallet” is used to describe crypto wallets that don’t connect directly to the internet. And because computers are often full of trojans, spyware, and viruses, the offline status of these wallets has a special appeal for people who want to store their Bitcoins in the safest way possible.
For the most part, these wallets will come in two forms:
- A USB-like hardware device that will store your portfolio
- A good old-fashioned pen and paper wallet
With this approach, you’ll be able to stay in total control of your coins. In addition, it’s not really possible for bad actors to “hack” the piece of paper that you store at the bank. Because these wallets offer enhanced security and full control over the private keys, security and privacy-minded individuals tend to really like the options provided by cold wallets.
Cold Wallet Pros
Are you thinking about opting for a cold wallet? Here are some of the reasons why members of the Bitcoin community tend to like these:
- Secure self-storage
- Immunity to computer viruses
- Access to the private keys
- Total control over the location of the password
Cold Wallet Cons
Even with all of those advantages, there are still some drawbacks associated with opting for cold storage:
- There’s a steep learning curve
- Misplaced paper or password means that the coins are lost forever
- Tech-related problems with the cold wallet storage device could make it impossible to view the portfolio
2. Hot Wallets
Hot wallets are the internet-connected alternative to cold wallets. Depending on when and how you access your Bitcoin portfolio, these solutions can be browser-based, app-based, or computer-based. But in summary, if you’ve seen crypto exchanges offering free wallet services, chances are that you’ve seen a hot wallet service provider at work.
The main advantage of an internet-based crypto wallet is the fact that it’s convenient. If you’re juicing up your crypto returns by staking or trading, a hot wallet will keep the funds in easy reach. You might have to sign up for a wallet through your service provider or you might have to download an app.
Either way, however, the heavy lifting involved with creating your wallet becomes a lot simpler when you’re relying on a hot storage plan.
Hot Wallet Pros
Online wallets do have their uses for crypto investors. Here are some of the reasons why this wallet option continues to be viable:
- Quick and easy to access makes these wallets convenient for trading
- The intuitive and straightforward setup process
- Typically available for free
Hot Wallet Cons
At this point, we’ve just sung the praises of hot wallets. Here are just a few of the things you may want to keep in mind while considering the use of a hot wallet:
- Vulnerable to hacking
- Not all service providers will give you access to the private keys
- If the service goes offline, investors are out of luck
How to Choose a Storage Option
Even within the two general categories of “hot wallets” and “cold wallets” there are multiple self-storage options for you to choose from. On the hot wallet side, digital wallet apps and service providers are in abundance. And with cold wallets, the whole paper versus USB debate doesn’t seem to be dying down any time soon.
If you’re not sure what to choose, here are some questions that might help you make a decision.
1. How Do You Plan to Use Your Bitcoin?
Let’s face facts.
Buy-and-hold Bitcoin investors have an entirely different set of needs compared to their short-term trading counterparts. And this is especially clear when you take a look at the storage needs of the individuals involved.
If you plan to stake some of your coins and loan a few others while taking positions on the crypto exchange, an online wallet will likely serve you best. However, if you’re planning to purchase a few coins every month while otherwise leaving your crypto alone, a cold solution might be a better bet.
As you assess your Bitcoin storage options, this question should be one of the first ones that you ask.
2. Look at the Crypto Company’s Reputation
How many times have you looked at a sleek website or an amazing online service and said, “This company is not nearly as awesome as I was expecting.”? If you’re like most people, your answer to that question was “Far too many to count.”.
When it comes to your crypto portfolio, you’ve got hundreds, if not thousands, of dollars on the line. One mistake during the selection process could cost you everything. And thankfully, the cryptocurrency market has matured to the point where most accessory providers have had time to build up their reputations.
Are customers constantly fighting with the company in the comments? Do the customer support people seem to be reading off of a script with no consideration for the actual concerns being expressed? How is the final storage product?
In most professional settings, you wouldn’t hire someone without talking to them and getting a feel for how they operate. And if you knew that someone had a terrible reputation, the last thing you’d do is bring them onboard. Believe it or not, there’s a similar dynamic involved when assessing Bitcoin storage companies.
3. Consider Your Level of Tech-Savvy
Some people have a hard time turning their computers on while others are practically born taking apart electronics and putting them back together. Part of the problem with being your own bank is that it’s your responsibility to create your wallet and keep it secure.
If you’re highly skilled with technology, opening a paper wallet and keeping your coins inside of it will be easy. But if you’re the type of person who needs a more intuitive interface, you might be better off outsourcing your security requirements to a well-established digital wallet provider.
This is one of those situations where there isn’t necessarily a right or wrong answer. It really just comes down to assessing your relative comfort with handling self-run and self-hosted cryptocurrency solutions.
Here’s How You Can Protect Your Bitcoin
For the sake of argument, let’s just assume that you’ve done the basics. You’ve chosen a wallet, you’ve purchased your coins, and now you’re looking for some practical day-to-day advice on keeping your Bitcoins safe.
Here are some of our top tips.
1. Always Update Your Software
A lot of people don’t realize that software providers and hackers are in the middle of a long-running arms race. For every vulnerability that gets discovered, there are always people who are working hard to patch up security flaws and debug the services that you use and depend on every day.
If you’re in the habit of putting off updates for as long as possible, you could be exposing your laptop — and your Bitcoin — to people with bad intentions. And if you’re relying on internet-based wallet solutions, you could even accidentally expose your passwords.
Whether you’re using a browser-created wallet or a wallet that only connects to your laptop some of the time, however, protecting your cryptocurrency starts with protecting your internet browsing devices.
2. Don’t Share Your Recovery Keys
Are you the type of person who likes giving house keys to close friends and family? Do people other than you know your important passwords? Although it’s nice to know that your loved ones have your back, you’ll want to be very cautious about sharing your keys with your extended social circle.
Here’s why:
Let’s say that you’ve printed off three pieces of paper that have your private key and your user address typed on them. You give away two to your closest friends thinking that your bases are covered if anything happens.
Fast forward three years into the future and one of your friends is victimized by a robbery while the other one doesn’t speak to you anymore. Even if you’ve opted for a cold wallet, your coins are still in danger.
In the interests of security, you’ll want to be careful about letting people have access to your wallet.
3. Be Mindful of How You Buy
We’ve spent a lot of time talking about Bitcoin storage and the importance of making sure that you’re working with reputable companies that will keep your coins safe. But as it turns out, your process for buying and selling Bitcoin matters too.
Imagine trying to sell Bitcoin on an exchange that’s on the verge of being robbed. Or worse yet, picture yourself traveling to shady parts of town in order to deposit your latest round of crypto.
If the thought of losing all of your hard-earned cryptocurrency was hard to swallow, it’s clear that figuring out how to buy Bitcoin safely should be somewhere near the top of your crypto investment priority list.
In many cases, this can be solved by taking the time to find a bitcoin ATM in a place that’s well-lit and easily accessible to crypto holders like yourself. You can get the officialness of a formal cryptocurrency exchange without having to face the risk of waking up one day and seeing the company announce to everyone that all the customers have hacked wallets.
4. Consider Using Multiple Storage Options
Let’s assume for a minute that your plan is to be ridiculously active in the crypto scene. You’re going to be staking, lending, and generally managing your coins on an extended basis. But at the same time, you also plan to keep a long-term crypto stash at your disposal.
Maybe you shouldn’t be choosing between hot wallets and cold wallets. Maybe the answer is that you need a mix of both.
Of course, this strategy isn’t without its risks. According to Investopedia, 20 percent of all Bitcoin that has ever been created has been lost due to people losing access to their wallets.
If you’re diligent about creating backups and maintaining your keys, however, there’s no reason why you can’t consider a hybrid storage solution for your portfolio.
Here’s the Most Secure Way to Store Bitcoin
When you deposit money at the bank or receive your paycheck, the words, “It’s my job to keep this cash safe.” probably never cross your mind. When you’re purchasing Bitcoin and other cryptocurrencies, however, you have to function as both your own bank and your own security systems expert.
To that end, if you’re looking for the one strategy that deserves the title of “Most Secure Ways to Store Bitcoin”, offline and cold storage methods could make sense for you. But if you’re the type of person who needs a solid interface and an accessible coin portfolio, you may benefit from taking a closer look at some security-minded online wallet solutions.
In the crypto market, hackers, scammers, and malicious actors aren’t just urban legends made up to scare investors – they’re a legitimate threat to the safety of your Bitcoin. But by establishing secure storage practices and being careful in your buying and selling, you can quickly build your portfolio while protecting your crypto with ease.
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