What are the best Bitcoin Storage Solutions?

What are the “ best Bitcoin Storage Solutions?

Following a price peak in late 2017 and a subsequent decline in popularity, cryptocurrencies such as Bitcoin have seen another significant surge in 2019 and 2020, surpassing previous all-time highs. As a result of this, the number of publicized hacking events has increased as well. Because many investors are new to the system and may not know how to keep their investments safe, hackers are devising new ways to steal money. Some of the most visible thefts have occurred in plain sight: some hacks have even blatantly redirected tokens bound from one wallet to another. The victims watch helplessly as their tokens are taken from them with no recourse.

Bitcoins are kept in a wallet—a digital wallet—in the same way, that cash or cards are kept in a physical wallet. A hardware-based digital wallet or a web-based digital wallet are both possible. The wallet can also be stored on a mobile device, a computer desktop, or printed on paper to keep the private keys and addresses for access safe. But are any of these digital wallets secure? The answer to this question is contingent on how the user manages his or her wallet. The bitcoin owner cannot access the currency without a set of private keys, which are stored in every wallet. The most serious threat to bitcoin security is an individual user losing or having their private key stolen. The user will never see her bitcoins again unless she has the private key. A user can lose her bitcoin for a variety of reasons, including computer malfunctions (hard drive crashes), hacking, or physically losing the computer where the digital wallet is stored.

We’ll look at some of the best ways to safely store bitcoin in the sections below.

Hot Wallets

“Hot” wallets are another term for online wallets. Hot wallets are digital wallets that operate on internet-connected devices such as computers, smartphones, and tablets. Because these wallets generate the private keys to your coins on these internet-connected devices, this can pose a risk. While a hot wallet can be very convenient in terms of allowing you to quickly access and transact with your assets, it also lacks security.

This may seem unlikely, but people who do not use adequate security when using these hot wallets risk having their funds stolen. This is a common occurrence that can occur in a variety of ways. For example, bragging about how much Bitcoin you have on a public forum like Reddit while using little to no security and storing it in a hot wallet is not a good idea.

Small amounts of cryptocurrency should be stored in these wallets. A hot wallet is similar to a checking account. According to conventional financial wisdom, you should keep only your spending money in a checking account and put the rest of your money in savings or other investment accounts. Hot wallets fall into the same category. Mobile, desktop, web, and most exchange custody wallets are all considered hot wallets.

It’s important to note that keeping cryptocurrency in an exchange wallet differs from keeping it in your personal wallet. Exchange wallets are exchange-provided custodial accounts. The private key to the cryptocurrency held in this wallet is not held by the user of this wallet type.

Your funds would be lost if the exchange were to be hacked or if your account was to be compromised. Because cryptocurrency exchanges do not provide SIPC or FDIC insurance, safe cryptocurrency storage is critical. Within cryptocurrency forums, the phrase “not your keys, not your coin” is frequently used. As previously stated, keeping large amounts of cryptocurrency in any hot wallet, particularly an exchange account, is not recommended. Instead, you should transfer the majority of your funds to your personal “cold” wallet (explained below). Coinbase, Gemini, Binance, and a slew of other exchanges have accounts.

While these wallets are connected to the internet, creating a potential attack vector, they are still very useful for making transactions or trading cryptocurrency quickly.

A Cold Wallet

Cold wallets are the next type of wallet and the safest option for storage. A cold wallet is simply a wallet that is not connected to the internet and thus has a lower risk of being hacked. These wallets are also known as hardware wallets or offline wallets.

These wallets keep a user’s address and private key on a device that isn’t connected to the internet, and they usually come with software that runs in the background so that the user can see their portfolio without risking their private key.

A paper wallet is perhaps the most secure way to store cryptocurrency offline. A paper wallet is a type of cold wallet that can be created using certain websites. It then generates both public and private keys, which you can print out on paper. Only if you have that piece of paper can you access the cryptocurrency in these addresses. Many people laminate these paper wallets and keep them in their bank’s safe deposit box or even in their home safe. Aside from a piece of paper and the blockchain, there is no user interface for paper wallets.

A hardware wallet is a USB drive device that securely stores a user’s private keys. This has a number of advantages over hot wallets, including the fact that private keys never come into contact with a network-connected computer or potentially vulnerable software, making it immune to viruses. These devices are often open-source, allowing the community to determine their safety rather than a company declaring it safe to use.

Cold wallets are the safest way to keep Bitcoin and other cryptocurrencies. However, setting them up usually necessitates a little more knowledge. Anyone interested in owning cryptocurrency should learn about secure storage and the differences between hot and cold wallets.

Real Physical Coins

There are now services that allow Bitcoin investors to purchase physical Bitcoins. A tamper-proof sticker covering a predetermined amount of Bitcoin will be attached to the coin you purchase. Due to the cost of the coin’s manufacture and shipment, you may need to pay a slight premium over the value of the Bitcoin you’re buying to purchase the physical coin.

Other Security Measures

Backup

Early and often, back up your entire bitcoin wallet. A history of regular backups may be the only way to recover the currency in the digital wallet in the event of a computer failure. Ensure that all wallet.dat files are backed up and that the backup is stored in multiple secure locations (like on a USB, on the hard drive, and on CDs). Set a strong password on the backup as well.

Updates to Software

Maintain the most recent version of your software. Hackers may target a wallet that isn’t running the latest bitcoin software. The most recent version of wallet software will have a better security system in place, ensuring that your bitcoins are safe. Because of the enhanced security of the wallet, if your software is updated with the latest security fixes and protocol, you may be able to avoid a major crisis. Update your mobile device’s or computer’s operating systems and software on a regular basis to keep your bitcoins safe.

Multi-Signature

The concept of a multi-signature has gained traction; it entails obtaining approval from a group of people (say, 3 to 5) before a transaction can be completed. As a result, the risk of theft is reduced because transactions cannot be carried out by a single controller or server (i.e., sending bitcoins to an address or withdrawing bitcoins). The people who can transact are chosen at the start, and when one of them wants to spend or send bitcoins, the transaction must be approved by the rest of the group.

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