How to Store Bitcoin
Here are your best options for storing bitcoin:
- • Online bitcoin wallets
- • Mobile bitcoin wallets
- • Desktop bitcoin wallets
- • Hardware bitcoin wallets
Unless you’ve been living under a particularly large, insular rock, you’ve probably heard the recent news about bitcoin’s meteoric rise. On December 17, 2017, the cryptocurrency hit an all-time high, with one bitcoin selling for nearly US$19,800. Considering that at the start of 2017, one bitcoin was worth just US$967, investor excitement around the cryptocurrency is certainly understandable. What other investments are currently offering a year-over-year return on investment of more than 1,947%?
Seriously: if you know of any, email us. We’re listening.
But being that bitcoin is a cryptocurrency, investing in it carries with it some unique challenges and considerations that traditional securities don’t. What is a bitcoin? How do I store bitcoin? Is bitcoin storage safe? These questions and more are the type that can keep savvy investors up at night, tossing and turning with nightmares of stolen retirements and vanished magic internet currency.
But worry not! Here are some of the top ways you can store bitcoin safely.
How Does Bitcoin Work?
Created in 2009 by a user with the alias Satoshi Nakamoto, bitcoin is designed to provide the world with a universal currency that is completely independent of any one nation and its government. Its value is decided by a truly free market, and it connects an increasingly global world without regulatory interference.
Like any commodity or currency, people can buy and sell bitcoin at its current market value. bitcoins are purchased via currency exchanges like Bitstamp and Coinbase, each charging its own fees per transaction.
Bitcoin is created (and can also be acquired) via a process called “mining.” Bitcoin mining involves using powerful computers (or entire networks of normal computers) to solve phenomenally complex math problems. The complexity of these math problems, and the computing power required to solve them, is what keeps the market from being flooded with too many bitcoins at once and protects the value of the currency.
Bitcoin users are completely anonymous, with each transaction heavily encrypted and individual users identified only by their unique “wallet address.” Access to bitcoin wallets is attained via private security keys that act as cryptographic “signatures,” and users store these private keys either on their own computers offline, or on remote servers hosted by online wallet providers.
Similar to an email address, users can send bitcoins to and from one another via their bitcoin addresses. Unlike your street address (we hope), bitcoin addresses should only be used once.
For security purposes, a bitcoin address, like a military drop zone or rendezvous location, is a sort of agreed-upon landing place for the bitcoins being transferred. Many computer programs exist to automatically generate brand new addresses each time you create a new invoice or payment request. Once used, and the bitcoins safely transferred to a bitcoin wallet, the old addresses should be discarded.
What does a wallet do? Why, it stores your money, of course! And that’s exactly what a bitcoin wallet does, too.
A bitcoin wallet is a software program where bitcoins are stored. Of course, bitcoins are not technically “stored” anywhere, ethereal and intangible as they are. But bitcoin wallets save the private security key for each and every bitcoin address stored in the wallet. This gives the wallet’s owner complete control over the ability to access, transfer, and trade all the bitcoins linked to the wallet.
How to Store Bitcoin
There are four main types of bitcoin wallets, and they each have pros and cons depending on whether you more highly value security or convenience.
Online Bitcoin Wallets
Online, or web bitcoin wallets, are stored and accessed on the cloud via remote servers. They do not exist on their owner’s computer or device, but rather are hosted by a private company somewhere far away.
Online bitcoin wallets are extremely convenient; they allow you to access your wallet and execute transactions from anywhere in the world, and they handle the process of generating new bitcoin addresses for each transaction for you automatically.
However, online wallets also store your security keys on those same servers. This arrangement makes transactions quick, but if these online wallet providers are ever compromised by hackers (which they absolutely have been before), you’re utterly and completely sunk. They will control your addresses, your security keys, your wallet, and therefore, your money.
When choosing an online bitcoin wallet, pay extremely close attention to the provider’s reputation for security and encryption.
Mobile Bitcoin Wallets
Unlike online wallets, mobile bitcoin wallets – run through apps on your smartphone or tablet – are only accessed through your private device. Your private security keys and bitcoin addresses are stored only on your device, and cannot be hacked via an attack on the host company’s servers.
This provides the mobility and go-anywhere responsiveness of online wallets, but with an extra, critical layer of offline security. Of course, if you ever lose your phone (and who among us hasn’t had at least a close brush with that), and you’ve not encrypted it, you’re in just as much trouble as you’d be if your online wallet had been hacked.
Bitcoin Cold Storage
“Cold storage,” in bitcoin parlance, refers to bitcoin wallets that are completely offline. These fit into two main subcategories: desktop bitcoin wallets and hardware bitcoin wallets.
Both are slightly less convenient than online wallets, but offer much greater levels of security – and, by extension, peace of mind for investors.
Desktop Bitcoin Wallets
Unlike online wallets, desktop bitcoin wallets cannot be accessed from anywhere in the world and are therefore much less vulnerable to potential hacking. Desktop wallets can only be accessed from the user’s private computer, and all personal security keys are stored – and accessed – on that private computer.
This greatly minimizes the exposure of your security keys to hacking. While you lose out on the convenience of being able to execute transactions from anywhere (after all, you’ll need your computer), you keep the security of your bitcoins in your own control.
Of course, your desktop wallet can still be compromised if your computer gets infected with malware or keylogging software designed to root out and steal bitcoin keys. Short of that, however, desktop wallets are very safe ways to store bitcoins.
Hardware Bitcoin Wallets
Another bitcoin cold storage option, a hardware bitcoin wallet is even more secure than a desktop bitcoin wallet.
Hardware wallets are, you guessed it, bits of external physical computer hardware, much like USB sticks, that store your bitcoin wallet(s). These devices are one of the most secure methods of bitcoin storage. In addition to being completely offline like desktop wallets, hardware wallets are further immune to nearly all computer viruses and malware programs that can steal from desktop wallets. Hardware wallets also have special, protected areas of the microcontrollers that store your private keys. These prevent your keys from being transferred out of the hardware in plaintext, guaranteeing always-on encryption.
In fact, to date, there have been no verifiable incidents of bitcoins being stolen from hardware wallets. Now that’s secure storage.
Of course, hardware bitcoin wallets may themselves need to be stored under lock and key. At Custodian Vaults, we provide secure, discreet storage for bitcoin wallets. Our small safe deposit boxes are an optimal and affordable choice for peace of mind when using cold storage for your bitcoin.
If you’re ready to convert your bitcoin to cash, ABC Bullion now accepts payment via Bitcoin. Numerous investors are swapping bitcoin for gold in anticipation of the crypto bubble bursting. In any case, hedging and diversification remain core tenets of smart investing, so keep that in mind as you ride the bitcoin wave.