So you’ve decided to take the leap and become part of the Bitcoin community. You may have come into possession of some prized cryptocurrency. Your next question is probably along the lines of how to store bitcoin.
The last thing you’d want is to lose your precious currency, so of course, you need to find the best way to protect them. But, this can be a confusing and tricky task. You may not know anything about how to store the coins or be lost in all the options available to you.
You have to choose the option that fits you best. Those wanting to make use of bitcoin on a day-to-day basis might need a more convenient and accessible way of storing their cryptocurrency. While those who want to save it in a more long-term way will take a different route.
The key to making the best decision for you is to understand as much as you can about how to store bitcoin. We take you through the in’s and out’s of storing your digital currency and help you find the best solution to suit your plans.
Why Is Cryptocurrency Storage Important?
Since the currency is all digital, and thus do not exist in a physical form, they need to be protected. Knowing about cryptocurrency and its storage options is important because some storage options are more dangerous than others. For example, some cryptocurrency exchanges offer storage services, but these are often more likely to be targeted by hackers.
Furthermore, the way you store your cryptocurrency has some effects on the way you use your funds. Some methods make it more difficult to use funds on a daily basis, while other storage options are mobile, on the go, and quick and easy to use.
In other words, cryptocurrency storage is important not only for the safety and security of your existing assets but it is also important for your use of it.
How To Store Bitcoin: Wallet Options
When it comes to how to store bitcoin, the most popular route to take is the wallet option. However, to simply say “the wallet option” is a bit of an oversimplification, since there are a few different wallets you can choose from.
What Is A Wallet?
The concept of the wallet can be confusing on its own. So before getting into the options, let’s quickly touch on what exactly it is. While you may be picturing an online system that keeps each individual bitcoin in a safe space – like something similar to a normal wallet – that’s not exactly what it is.
Your cryptocurrency funds are attached to your public and private keys. The public key is the one everyone can see, and other users make use of it when transferring funds to you. The private key is the one nobody can see, and you use it to allow funds to be transferred from you to another user.
The wallet stores your keys, rather than your actual funds. This is because if your private key is safe, then so are your funds. In addition, the wallet can function like online banking. It functions like a site where you can review your funds, or buy and sell things. However, your actual funds are not physically stored there.
A final idea to keep in mind when it comes to how to store bitcoin is the difference between hot and cold storage. A hot wallet is one that is connected to the internet, whereas a cold wallet is one that is completely offline. The difference between the two has security implications as you will see in the descriptions of the different wallets below.
1. Desktop Wallet
The desktop wallet is an example of a “cold storage” form of how to store bitcoin. It is essentially software that you install on your laptop or computer. These wallets can only be accessed through the private machine that you have installed the software onto, and with your personal security keys. This offers some security advantages.
Your potential to be hacked is lower because of the lack of connection between your wallet and the internet. Of course, there is still a possibility that you may be hacked through malware, but the chances are less than if you used online storage.
2. Mobile Wallet
Similar to a desktop wallet, a mobile wallet is software that you download. However, in this case, the software is installed onto your smartphone and runs like an app. This option is better for those who will be using bitcoin on a more day-to-day basis, but it is known to be prone to hacking.
Usually, the software of a mobile wallet is much smaller and simpler than a desktop wallet.
3. Hardware Wallet
Some say that this is the most secure way to store your bitcoins. The wallet is an external piece of hardware like a USB or external hard drive that you’re able to carry around with you. This means that the USB stores your keys, rather than having them on a machine (which is more likely to be stolen or be attacked by malware). The hardware is usually encrypted too.
These devices also have no links to your identity or personal information, which means you have increased anonymity.
4. Paper Wallet
You may need a deeper understanding of cryptocurrency for this one. However, if you are comfortable with the intricacies of digital currencies it will be great for you since it is a relatively safe way of storing coins. A paper wallet is usually a physical copy or print of your public and private keys.
There are various websites dedicated to generating paper wallets. They are convenient because they can be stored easily and offer high anonymity.
5. Web Wallet
Web Wallets keep your keys on a server. This means it’s online and controlled by a third party. There are various options for this service and some offer the option of linking the wallet to mobile and desktop applications. You will be able to gain access to your wallet using any device connected to the internet.
This storage solution is a bit dangerous because if it lacks protection the organization that you store your funds through may be able to acquire your key information.
How To Store Bitcoin: Other Options
While wallets may be the more popular option when it comes to how to store bitcoin, it’s best not to forget that there are other routes you can take too. In the end, it’s all about what you think is best for you and your funds.
The exchange option is a variation of the web wallet. The specific exchange that you are trading at may offer to store your funds in an account. However, this is probably one of the most dangerous options when it comes to how to store bitcoin.
The specific exchange organization will have control over the funds in your account or web wallet. Since they control several accounts, they are prone to being hacked or being victims of fraud and theft.
7. Custodian Solutions
Cryptocurrency custodian solutions seem to be increasingly popular. This option is essentially a storage and security system that holds massive amounts of cryptocurrency, offered through a third party. Commonly they offer combinations of hot and cold storage options.
However, their services are mainly aimed at larger investors, like big institutions. There are some options for the individual investor, though.
8. Physical Coins
More recently the service to purchase physical coins has become available via various organizations. When you buy the physical coin, it comes with a sticker that is tamper-proof and covers a predetermined amount of the cryptocurrency.
In other words, the coin will have a preloaded, unchangeable amount attached to it. The funds linked to the physical coin cannot be used without the unveiling of the private key, which is hidden in a seal on the coin that is tamper-proof or rather will show that it has been tampered with.
To buy it, you have to pay a bit more than the actual value of the amount of bitcoin you’re interested in. This covers the associated manufacturing and delivery costs.
These are useful for safety reasons and may also come in handy if you’d like to trade offline. The issue with this option is that because bitcoin is not legal everywhere, the country you’re in may consider a physical bitcoin to be counterfeit money. Therefore, this may be a rather risky option when it comes to how to store bitcoin.
Be Sure Your Storage Solution Is Best For You
As you can now see, there are many answers to the question about how to store bitcoin. While some may prefer cold storage, others may want a hot wallet. It all depends on how you want to make use of your cryptocurrency, and what role the storage option will play in your day-to-day life.
When you’re making your decision about how to store bitcoin remember to keep a few things in mind. Take into account the security implications and the convenience and accessibility of each, and you’ll be good to go.