What is the Safest Way to Store Bitcoin?

With the Bitcoin value steadily increasing over time, it’s imperative that you know how to store Bitcoin safely and the options out there.  In this article, we’ll discuss five main options for storing bitcoin and we’ve ranked them in order from the least secure to the most secure.

They are:

1. Exchange wallets

2. Software wallets

3. Paper wallets

4. Cold storage wallets

5. Hardware wallets

Let’s look at each of these options in greater detail.

1. Exchange wallets

One of the easiest and most convenient options for storing bitcoin is to use a wallet hosted on a cryptocurrency exchange. When you register with an exchange that offers a wallet service, a bitcoin wallet will automatically be created for you. The exchange will store your wallet’s private key on their servers, meaning that you don’t fully own the wallet. However, this option does offer some undeniable advantages.

For starters, all you need to access this wallet is your username and password. You don’t need to store or backup your private key and you cannot accidentally lose or destroy it. What’s more, many exchanges have a policy of storing the majority of their customers’ deposits in secure offline cold-storage wallets, safely out of the reach of hackers. As a further precaution, many exchanges have an insurance policy in place to cover their customers’ crypto assets.

2. Software wallets

Despite stringent security measures, standard best-practice is to not store significant amounts of bitcoin in an exchange wallet. The wallet’s private key is stored on the exchange’s servers and historically, exchanges have been targeted by hackers. That’s why a more secure option is to download a software wallet from a trusted site such as Bitcoin.com and move your bitcoin there.

Software wallets are fully owned and controlled by you. This gives you responsibility for your own private key but also carried the risk that should this information be lost or compromised, your bitcoin will likely be irrecoverable.

Desktop Bitcoin wallets

Some of the best desktop bitcoin wallets you can choose from include:

1. Atomic

2. Jaxx

3. Armory

4. Copay

5. Exodus

All these wallets are free and are available for Windows, Mac OSX, Linux. Some have mobile versions available too.

Mobile Bitcoin wallets

Many desktop wallets have mobile versions for both Android and iOS. However, you can also try a mobile-only Bitcoin wallet such as Mycelium, if you primarily use your phone instead of a computer.

3. Paper wallets

A paper wallet simply means writing or printing your private key and seed phrase on a piece of paper, instead of storing them on a computer or device that is connected to the internet. This is much safer than keeping your bitcoin in an exchange wallet or software wallet and is great for long-term storage of significant amounts of bitcoin.

To create a paper wallet:

1. Visit an open source paper wallet software such as BitAddress.

2. Generate a random private key.

3. Choose ‘Paper wallet.’

4. Print out the results. You’ll see your wallet’s public address on the left and the private key on the right.

5. On BitAddress, you can also encrypt your wallet by adding a passphrase.

4. Cold storage wallet

Believe it or not, some people would consider the above method for creating a bitcoin paper wallet to be insecure. Why? Because you are connected to the internet during the process. Your internet connection could be compromised or your computer could be infected with malware such as a screen capture of keylogger software. To make your bitcoins even more secure, you’ll need to go completely offline and create a cold storage wallet. 

‘Hot’ vs ‘Cold’ wallets explained

A ‘hot’ wallet is any wallet that is stored or connected to a device or platform that is connected to the internet. Examples of hot wallets would include exchange wallets, software wallets, mobile wallets and paper wallets created online.

A ‘cold’ wallet is any wallet that is kept completely offline. This is considered to be the most secure type of bitcoin wallet.

How to create a cold storage wallet.

1. Head to a paper wallet tool such as Bitcoin.com

2. Save the page as a complete webpage by hitting Ctrl + S.

3. Disconnect from the internet.

4. While offline, open the saved file and enter a string of random characters into the text box. This will create a random public and private key pair completely offline.

5. Print the page.

You now have an offline Bitcoin address and a hard copy of your public address and private key.  

5. Hardware wallets

For a practical, convenient and secure way of storing your bitcoins, your overall best option is to buy a hardware wallet. Hardware wallets are small physical devices and they connect to a computer or laptop via a USB port, although the upcoming Ledger Nano X will offer BlueTooth connectivity. Hardware wallets are a form of cold storage as the wallet’s private keys are kept offline even though the device is routinely connected to a computer that is connected to the internet.

How?

Each wallet works slightly differently, so let’s take the example of one of the most popular hardware wallets on the market today, the Nano S, manufactured by the French company Ledger. The Nano S is built around a secure chip within the device. Your bitcoin wallets’ private keys are stored on this chip and protected by a PIN code. As your transactions are signed within this isolated environment, your private key is never exposed.  

When you set up the Nano S for the first time, you must download the desktop interface called Ledger Live and update the Nano S’ firmware. The device will generate its own 24-word recovery phrase. You’ll need to write this down and store it safely, just as you would a paper wallet. If your device is ever lost or stolen, you’ll use this phrase to recover your cryptocurrency.

To set up the Nano S, open the Manager tab in Ledger Live and find and download the Bitcoin app in the app catalog. Once set up, each time you connect your Nano S to a computer, you’ll need to your 4-digit PIN via the embedded touch screen. This lets you check and secure your payments without revealing your personal data.

Closing thoughts

With the Bitcoin value rising over time and you are looking for the safest way to store bitcoin, you’ll likely want to try all of the ideas on our list. Each method has pros and cons and you’ll probably find yourself using a range of wallets, depending on your reason for holding bitcoin. You’ll likely hold some bitcoin in an exchange wallet for ease of access, trading, and convenience and you’ll probably hold some in a mobile wallet if you like to shop with bitcoin on a regular basis. Lastly, you’ll want to look into cold storage options such as offline paper wallets and hardware wallets for securing significant amounts of bitcoin over the long term. Good luck!