How to Store Your Bitcoin Safely

Just like bank accounts and physical wallets for storing traditional currency, you need a place to store your bitcoin assets.

Bitcoin is stored in digital wallets. These are special computer software that connects to the Bitcoin blockchain, allowing people to conduct Bitcoin transactions.

Just like banks have account numbers for users, cryptocurrency wallets feature a unique address that can be used to transfer Bitcoins to the wallet. The address is called a public address.  

Digital wallets also have private keys, which allow users to access and transact with their funds. Private keys prove the ownership of funds. Therefore, losing them equates to losing your digital funds.

Some wallets automatically generate a secure seed phrase. This is a set of words that can help you recover your wallets if you lose your private keys. You should print the seed phrase and store it safely.

There are different types of wallets you can choose to store your Bitcoins. The choice of which wallet to use depend on factors such as security and convenience. The wallet should be secure enough to protect your funds from any form of loss, especially theft. Also, the wallets should be convenient enough to support your intended use

Having said that, we have two main types of Bitcoin wallets: Hot wallets and cold wallets.

Hot wallets are connected to the internet and are typically available online or on your smartphone. Hot wallets are highly convenient and hence the most popular in the crypto world. Since these wallets are already connected to the internet, you can easily access and exchange funds quickly. This is important if you are a day trader who wants to make quick trades when the bitcoin market is moving. Additionally, it suits those who use bitcoin for day-to-day transactions.

The catch with these wallets is that they are relatively less secure. They are vulnerable to hacking since they are connected to the internet. Most of the hot wallets are custodial, meaning a third-party provider gets hold of the private keys. Wallet providers can exercise censorship, determining who and how to use the wallet, which is against the primary principle of bitcoin – decentralization.

Examples of hot wallets are mobile wallets, desktop wallets, and web wallets.

Cold wallets offer offline Bitcoin storage. They include paper wallets and hardware wallets. Cold wallets keep the private keys off the internet making it impossible to hack and steal funds. They include paper storage or hardware storage.

However, cold wallets are less convenient compared to hot wallets. You must have your wallet physically with you to perform a transaction. Therefore, wallets are recommended if you plan to hold your bitcoin for a long time. They are not suitable for frequent trades.

Deep cold storage is an even more secure way of storing Bitcoin. This type of bitcoin storage not only involves keeping crypto assets offline but also at a highly inaccessible place. This may range from burying your cold wallet in your backyard to splitting your private keys and keeping them in third-party vault services away from home. The storage should be very inconvenient, making it difficult to access the private keys.

How to Store your Bitcoin

Storing your bitcoin can be easy as you only need a wallet. However, it may require careful research and planning to determine the best storage method. Striking a balance between convenience and ultimate security is always difficult. While cold wallets in general are considered more secure, they are the least convenient. On the other hand, hot wallets are more convenient yet least secure.

If you have bought a lot of bitcoin that you are not planning to trade soon, cold storage is the best method for you. Deep cold storage is suitable for an even longer storage period.

On the other hand, if you are a day trader who needs to respond to short-term market movements by placing orders, then you should go for hot wallets. They are easily accessible. The method is not suitable for the storage of a large number of bitcoins since it is the less secure of the two.

If you cannot decide which wallet to go with, do not worry. You can take a hybrid approach and hold a majority of your bitcoin assets offline in a cold wallet while keeping a small a small balance in hot wallets for frequent transactions.