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      Home Technology Crypto Currency

      How to Store Your Bitcoin Safely

      Nathaniel Augustine by Nathaniel Augustine
      October 13, 2021
      in Crypto Currency, Technology
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      Bitcoin wallets contain the private keys required to access a bitcoin address and spend your funds. But which type is best for you?

      After purchasing bitcoin, you’ll need a place to store it, just like you’d need a bank account or a physical wallet.

      Bitcoin is kept in digital wallets, which are pieces of computer software that are linked to the Bitcoin network. Digital wallets, like bank cards, have a unique address that can be shared with others when you make transactions.

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      This one-of-a-kind address is a condensed, more usable version of your public key. It is typically composed of between 26 and 35 random alphanumeric characters and takes the following form: 1A1zP1eP5QGefi2DMPTfTL5SLmv7DivfNa.

      It’s worth noting that each letter and number in this address is significant. Before sending or receiving funds, always double-check a Bitcoin address.

      Keep your bitcoin private keys private

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      A Bitcoin address has a private key in addition to the public key. This key, as the name implies, should not be shared with anyone. Anyone who has your private key can easily gain access to your wallet and steal your funds. Likewise, if you fail to securely store your private key and lose it, you may never be able to recover your bitcoin.

      Consider your public key to be your home address to better understand public and private keys. Anyone can see it and use it to send deliveries or, in this case, transactions to your home. Your private key functions similarly to the key to your front door. It is something that only you want to have, and it is what prevents others from accessing the contents of your digital wallet.

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      A private key is used to validate that you are the owner of the public key. It gives you access to your wallet and allows you to sign off on transactions. Some wallets generate a secure seed phrase for you; this is a string of words that allows you to unlock your wallet if you lose your keys. Print or write this phrase on a piece of paper and keep it somewhere safe. Never photograph or capture a screenshot of your seed words.

      Types of bitcoin wallets

      Similar to bank accounts, there are various types of wallets for storing your bitcoin, each with its own set of advantages and disadvantages. In general, bitcoin wallets are divided into two categories:

      Hot wallets: These bitcoin wallets are internet-connected and are typically available online or on your smartphone.

      Cold wallets: These are bitcoin wallets that cannot be accessed via the internet. They frequently involve physical devices (such as a USB stick) on which bitcoin and other cryptocurrencies can be securely stored offline.

      See Also: How To Pay With Your Phone & Smartwatch

      Hot wallets

      Hot wallets, despite being less secure, are the most popular in the crypto world due to their convenience. Because hot wallets are already connected to the internet, people can quickly access and exchange funds – which is essential if you want to make quick trades when the crypto market is moving. Mobile wallets (for example, BitPay), web or online wallets (for example, Coinbase), and desktop wallets are some popular examples in this category (for example, Bitcoin Core).

      When you sign up for a cryptocurrency trading platform, a web wallet is created for you to store your bitcoin. One disadvantage of using web wallets on exchange platforms is that your private keys are held by a third party. Remember the analogy with the front door key? Consider the possibility that someone else has the key to your house. If the owner of the key allows the key to fall into the wrong hands, they could decide to lock you out or someone could break in without your knowledge.

      See Also: E-naira; Nigeria’s new digital currency

      To put things in perspective, the New Zealand-based exchange Cryptopia was hacked in 2019, and more than $17 million in ether and other cryptocurrencies were stolen, forcing the exchange to close. A former exchange employee was also convicted of stealing $170,000 in cryptocurrency by making copies of Cryptopia’s private keys and saving them to a USB. This gave him access to more than $100 million in cryptocurrency.

      On the other hand, an online exchange wallet is arguably the easiest to set up and use, and some of the most popular exchanges now have insurance funds to compensate users in the event of a hack. It should be noted, however, that this should not be relied on solely.

      As previously stated, there are also mobile and desktop wallets (also known as software wallets) that provide you with greater control and security. Unlike wallets created by cryptocurrency exchanges, most mobile and desktop wallets allow you to access your private keys. However, if your phone is hacked or stolen, the thief may be able to obtain a copy of your wallet as well as your bitcoin. As a result, software wallets necessitate more stringent security measures. Software wallets include Electrum and Exodus.

      Before downloading any software wallet, make sure you do your research and read the reviews of other customers. Also, ensure that you are downloading a genuine copy of a real wallet. Some shady programmers create clones of various crypto websites and offer free downloads, potentially leading to a hack.

      Cold wallets

      When it comes to storing your bitcoin, cold wallets such as hardware wallets or paper wallets are the safest options. These are completely offline products that cannot be accessed via the internet, which means that the wallet must be stolen while someone is in the same physical location as it. When using an online paper wallet generator, it’s important to keep in mind that some can pose a security risk because you’re entrusting the website with key generation. If you do use one, make sure there are no backdoors in the code (ways for the website developers to see your keys).

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      These are recommended if you intend to hold your bitcoin for an extended period of time and do not intend to trade it frequently. However, unless you have kept reliable backups of the keys, if you lose the hardware wallet, your bitcoin may be lost. Some large investors keep their hardware wallets in safe places like bank vaults. Trezor and Ledger are two well-known hardware wallet providers.

      Don’t worry if you can’t decide which wallet to get. Many serious bitcoin investors take a hybrid approach, keeping the majority of their cryptocurrency wealth offline in cold wallets and a smaller spending balance on a web or online wallet. This is the best of both worlds situation, and it ensures that your bitcoin is securely stored.

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