Once you’ve learnt something about cryptocurrencies and bitcoin, but before you go and buy your first bitcoin (or more likely part of a bitcoin), you’ll need to work out where to put it. There are so many options out there that it’s often difficult to work out which one to choose. A good place to start is to think about what your needs are and this guide to storing bitcoin will discuss some of the most popular ways to store bitcoin and cryptocurrencies depending on your needs. Whether it be on paper, in an online wallet, on a computer, mobile phone or hardware wallet, each has their pros and cons and we’ll run through them here.
What is a Wallet?
A wallet is a piece of software that stores two codes or ‘keys’ as well as interfaces with the blockchain so you can keep an eye on your balance and conduct transactions. One of these keys is private and should be guarded carefully and the other is public. Unlike a physical wallet that you put your euros, dollars, pounds etc in, your crypto wallet doesn’t have physical bitcoin stored in it exactly.
What’s actually happening is that the person sending you cryptocurrency is handing over ownership of the coins to your address. Now when you want to do anything with the coins your private key must match the public address that the coins were sent to. If they match then your wallet balance goes up and the sender’s balance goes down and the transaction is recorded on the blockchain.
Paper might seem a little bit old fashioned or counter-intuitive when talking about a digital currency however paper wallets are quite a secure option for storing bitcoin. It is a form of cold storage meaning that your bitcoin has no contact to the digital world and is therefore safe from hackers.
On the paper wallet, the public and private address keys are printed and can be squirreled away far from the light of day. Wallet Generator offers free step by step instructions about how to go about creating and printing a paper wallet securely. Bitcoin Paper Wallet helps you create paper wallets with security seals so you know when someone has got into your private wallet address.
Although paper wallets sound like a great way of storing bitcoin, keep in mind that like any other physical piece of paper they can be damaged easily by fire, water or sunlight and if you lose them or they get stolen there’s little to no chance of getting them back. They’re also not so practical if you want to spend your bitcoin but they can be a good long term solution when properly stored.
Online Cloud Wallets
Also known as ‘hot wallets’, online wallets are probably the easiest and most convenient method which is why it is one of the most popular ways to store cryptocurrency. Basically your wallet is held online by a company and you can access it more or less anywhere over the internet with your password. This makes it very convenient as most wallet providers have apps for your mobile device or computer to make it easier to send, receive and manage your crypto assets. They are particularly convenient for mobile phones as you can send, buy and exchange bitcoin with the scan of a QR code.
There are so many wallet providers out there that it is very difficult to decide which one. You, of course, have to trust them as well because they have your coins, you’re relying on the site to keep them safe from hackers or not to close down overnight, taking your hard-earned crypto with them. This method is probably the least secure of all as you don’t have full control over your coins and just about anything connected to the internet can be hacked.
That being said there are many reputable wallet providers out there like Blockchain who also offer a hardware wallet, Lockbox. Some online wallets like Coinbase or ABCC are attached to bitcoin exchanges providing your wallet with extra functionality.
Software wallets are exactly that, software downloaded directly onto your computer. In comparison to online wallets, they give you the control over your wallet keys and therefore a greater level of security.
That being said, now that you have direct control over your wallet, you also have to make sure that your computer or device is secure from hackers and malicious software, and is regularly updated. It is also a very good idea to regularly back up your computer in case it crashes, is stolen or brakes somehow.
There is a range of wallet software options out there and unlike the Bitcoin Core Protocol, the original bitcoin wallet, you don’t have to download the entire blockchain ledger to use them. Exodus is a good, beginner-friendly option and Electrum is even compatible with hardware wallets.
Unlike software wallets, hardware wallets store the keys to your wallet on a hardware device. This means that although they make transactions online, the keys and other information are stored offline making them more secure than software and online wallet options. You just plug in the wallet, enter your pin, send the funds, confirm and unplug it when you’re done. They usually support multiple currencies depending on which one you choose and often come with apps or web interfaces.
There are several reliable and secure devices on the market right now and the Trezor hardware wallet was the first ever created back in 2014 and is still considered secure and easy to use. Another popular hardware wallet is the Ledger Nano S which is also considered one of the most secure options for storing bitcoin or other cryptocurrencies as your keys are generated on, and never leave, the wallet. Multiple cryptocurrencies are also supported however with limited memory only about 5 apps can be stored on it at a time. A third popular device on the market is the Keep Key hardware wallet from Shape Shift, it’s a little larger than both the Trezor and Ledger Nano S wallets but has a larger display and built in exchange powered by Shape Shift.
Ledger has recently announced that they are releasing the new Ledger Nano X and it aims to solve some of the above issues with more memory and Bluetooth.
In short, hardware wallets are probably the best mix of security and convenience when storing bitcoin but keep in mind, just like anything physical they can be lost or stolen.
Conclusion and Things to Keep in Mind
This is an important decision to make whether you are just learning and experimenting with cryptocurrencies or are an experienced enthusiast. And whatever option you choose to use, remember that each storage method is only as secure as you allow it to be.
A few final things to keep in mind when storing bitcoin and cryptocurrencies:
- Online storage is the least secure and only a limited amount for day to day purchases and spending should be stored online. An idea would be to combine it with a hardware wallet like those from Trezor or Ledger. I mean you don’t walk around the streets with your life savings in your pocket do you?
- Make sure you have as many layers of security activated as possible and use strong passwords. Wallets with things like 2 Factor Authentication, pin codes and multisig (multi-signature) transactions are best.
- Nobody likes having to update stuff but keeping both your computer and wallet software updated is very important when you want to keep them secure and your digital assets safe.