What Are the Safest Ways to Store Bitcoin?

Cryptocurrencies are digital tokens designed to be exchanged through encrypted transactions via decentralised computer networks known as blockchains. While crypto tokens exist on the blockchain, crypto wallets are the mechanism for making the assets accessible, so you can send and receive tokens between two different accounts. In addition to the public key, a Bitcoin address also has a private key.

Australian company Elbaite has a non-custodial exchange model that facilitates crypto transactions directly between two individuals’ self-custody wallets. To safely store your Bitcoin, we recommend using two different wallets. This type can be stored on a mobile device and holds a smaller amount of Bitcoin. A cold wallet is not connected to the internet and instead the keys are stored somewhere physically secure like a fireproof safe.

Paper Wallets

Take these precautions and bad actors will likely have a harder time getting your coins. However, if you’re committed to exploring relatively unproven coins, always research the founders’ backgrounds before you jump in. Ignatova, for example, had a history of frauds and multi-level marketing scams. Before downloading any software wallet, ensure you conduct your own due diligence and read the reviews of other customers. Also, confirm you are downloading a legitimate copy of a real wallet.

As of the date this article was written, the author does not own cryptocurrency. So, you might be a target if you have bitcoin, but if you don’t have anything in your wallet, it can’t be stolen. If you have the option of using multi-sig, ensure you know the other people and trust them before joining the wallet. It’s estimated that about 17% of the bitcoin that will ever be in circulation has been lost—as in misplaced, keys forgotten, and so on. Hacking stories may be scary, but the reality is there are ways to lower the chances of losing your investments if you follow commonsense steps. Here are 4 strategies that can reduce the chances your crypto gets stolen.

Digital wallets vs. other alternatives

1. These phrases allow you to recover your keys if you ever lose your storage devices or your access.
2. With offline wallets, the keys to your storage are kept on the physical machine rather than online.
3. It’s important to know that many of these devices advertise compatibility with DeFi applications.
4. Some popular examples in this category include mobile wallets (for example, BitPay), web or online wallets (for example, Coinbase) and desktop wallets (for example, Bitcoin Core).
5. Also be wary of exchanges that offer high yields, as they are often not sustainable.
6. Once a customer entrusts a custodian with their assets, the custodian is responsible for holding and managing those funds in accordance with the customer’s instructions.

In 2021, Stefan Thomas, a programmer and Bitcoin enthusiast lost 7,002 Bitcoins (BTC), now worth about $203 million, because he couldn’t remember his wallet password. The most popular solution for Bitcoin and other cryptocurrency storage is in a digital wallet, but that isn’t always the only solution. Here’s a quick breakdown of how the digital wallet storage method works and how it stacks up against four other potential solutions, including offline wallets, hardware wallets, paper wallets, and physical coins. Cold wallets such as hardware wallets or paper wallets are the safest options when it comes to storing your bitcoin. These are completely offline products and cannot be accessed by the internet; meaning someone would have to be in the same physical location as the wallet to steal it. When you use an online paper wallet generator, however, it’s important to note some can pose a security risk because you are trusting the website with key generation.

How to Store Cryptocurrency

This allows you to view and use your holdings without needing to enter your private keys. Non-custodial wallets are those you use to store your keys with no one else involved. Hardware wallets mean that the cryptocurrency is stored on a piece of hardware like a USB stick. Cryptopedia does not guarantee the reliability of the Site content and shall not be held liable for any errors, omissions, or inaccuracies. The opinions and views expressed in any Cryptopedia article are solely those of the author(s) and do not reflect the opinions of Gemini or its management.

Company

If you’d rather provide your own custody, consider transferring your investments to a cold wallet. Consider the example of Canada’s largest crypto exchange, what are quick assets list QuadrigaCX, whose CEO passed away while traveling in 2018. Because only he had the password to the company’s cold wallets, customers suddenly found themselves locked out of their investments. Third-party custodians may be a better option for inexperienced investors. One example of a third-party custodian is traditional trading platforms. These are typically platforms that traditionally offer equities, and are now also offering crypto.

These phrases allow you to recover your keys if you ever lose your storage devices or your access. Your keys are encrypted and a series of words are generated from that encryption that gives you access to your wallet. When you purchase bitcoin, you’re given ownership of the amount you bought. The public key is used to encrypt information and is your wallet address, and the private key allows you to decrypt the information, or access your bitcoin. Furthermore, there are an increasing number of partial custody solutions that combine the benefits of third-party and self-storage custody.

As we noted in the section “Choose where to store your crypto,” crypto exchanges come with both benefits and risks. No cryptocurrency storage method is 100% safe, even with the various security measures. And if you think it doesn’t matter which wallet you decide to house your cryptocurrency in, consider the man who lost upwards of $220 million in Bitcoin because he forgot the password to his digital wallet. “Additionally, it is important to properly secure the device, like creating a strong passphrase and keeping the device firmware updated.

The information provided on the Site is for informational purposes only, and it does not constitute an endorsement of any of the products and services discussed or investment, financial, or trading advice. A qualified professional should be consulted prior to making financial decisions. The one drawback to this strategy is that some platforms do not yet provide the ability to send your coins to other wallets. Though this may change in the future, it may also not be a significant downside if your only goal is to use crypto as an investment. While security is gradually improving across the crypto industry, cyberattacks still happen.

Crypto is also not insured by the Federal Deposit Insurance Corporation (FDIC) or the Securities Investor Protection Corporation (SIPC), meaning you should only buy crypto with an amount you’re willing to lose. In general, remember that crypto is highly volatile, and may be more susceptible to market manipulation than securities. Crypto holders do not benefit from the same regulatory protections applicable to registered securities, and the future regulatory environment for crypto is currently uncertain. In addition to these headline-grabbing hacks, smaller phishing scams (i.e., social media and email scams) are continuously occurring. Learn more about Consensus 2024, CoinDesk’s longest-running and most influential event that brings together all sides of crypto, blockchain and Web3. Jody McDonald is a freelance writer based in Brisbane who specialises in writing about business, technology and the future of work.

When used with safety in mind, these commercial storage methods are safer than storing your keys in the wallet on your connected device. However, the wallet you use stores your private key, and wallets are generally software on a hardware device, which makes it hackable—thus, the weak link lies between the blockchain and the user. So, it pays to understand how to safely store your cryptocurrency because no storage method is 100% secure. Although paper wallets may seem like the most straightforward option, they actually require more knowledge of digital currencies than any other option and can be generated online or off.

Cold storage can also include paper-based documentation but it’s an approach that’s out of favor because of paper’s fragility. A custodial wallet is managed by a third party, such as an exchange like Coinbase. In this arrangement, the custodian stores your private keys for you, guaranteeing their safety and sometimes providing insurance on holdings up to a certain amount. As the cryptocurrency industry continues to grow, there will likely be an increasing number of custody solutions that cater to a wide range of user requirements. If you are comfortable storing your assets in a financial institution like a bank, then a regulated financial institution may be the best fit for storing your crypto. Luckily, there are many options for securely storing bitcoin, ranging from regulated exchanges to your smartphone, to a piece of paper.