Here is a list of ways on how to store Bitcoin and other crypto currencies. Securing your wallet is of utmost importance. Bitcoin and crypto currencies can easily leak out of your wallet is not properly secured and your hard earned cash could vanish in seconds.
Below is a how you can store your Bitcoin and other crypto currencies in a very cursory glance.
- You Can Store Bitcoin on Your computer
- Bitcoin can be stored on removable drives [external offline wallets] – Cold Storage
- Crypto currencies can be stored on third party websites which are known as online exchanges
- You can have a paper wallet
- Cryptocurrencies can be stored as a bearer item
Understanding How to Store Bitcoin and Crypto Currencies
Since this website is aimed at new users, before we can discuss on the how to store Bitcoin safely and secure your wallet, we will explain what private and public keys mean. The keys are what you need in order to open your wallet and transact bitcoin with.
What are public and private keys for Bitcoin?
In order to store Bitcoin you need to have
- A Public Key
- One or more Private Keys
Although this is not the right way to describe it technically, a Bitcoin wallet is similar to your bank account. The wallet has an address which keeps a log of your transactions both incoming and outgoing.
All the transactions that are linked to your address are stored in your Bitcoin wallet. Believe it or not, this is public information and is known through the public key. It gives any user an idea of your spending habits!
How are the key pairs related?
Your Bitcoin wallet contains both the public and private keys of your addresses.
A Bitcoin private key is your “ticket” that will allow you to spend or sell your Bitcoin. It is a string of numbers and letters that is randomly generated and which allow you to use, transfer or buy with your bitcoin. The private key is always directly related to the particular wallet you choose to use. Because of its super strong encryption, once generated a private key is impossible to reverse. A private key can be stored in a computer file, a flash drive or even printed on paper.
A Bitcoin public key is not your wallet address as you may think, but it is related. Your bitcoin wallet is merely a hashed version of the public key.
A public key is a long string of numbers, 256 (to be exact) and the final hash is your wallet address. Your wallet address is just 160 bits (as they are called) or the combination of numbers and letters in all forms shapes and sizes!
A bitcoin wallet creates and saves a “master file”. This is where all the previous transactions are stored. It is saved on a Windows machine.
Now let us move to more serious matters as this technical stuff can give you a strong headache.
“Unless you back up your private key and store it in a good place, you can lose the possibility of using your coins. If fact you may still be able to see your coins in your wallet, but you will not be able to access them. If for any reason you lose your private key, you have lost your capital forever”
This is how serious the subject of how to store bitcoin safely is!
How to Store Bitcoin – Cold Storage or Online Storage?
Again before we go into further detail on how to store Bitcoin, we must differentiate between online wallets and cold storage.
Online wallets as the name implies means that your bitcoin is available at the stroke of a fingertip. Your spendable coins are in a purse that just needs opening and you pay from it. This is known as online storage.
Similar to any other purse where you keep your traditional Fiat Money (coins notes etc.,) you will not just keep your wallet running around as this can be easily stolen.
All offline methods of how to store Bitcoin are known as cold storage. It can be stressed enough just how important it is to use all the necessary precautions when storing large amounts of bitcoin.
Legitimate and white hat exchanges will ask you to immediately withdraw a large amount of bitcoin you may have just bought, and reserve it for you in “cold storage” – meaning they will take it offline and only bring it online on request, whenever you want to “spend” any of your bitcoin.
Let us Now Analyze the
Pros and Cons of the Different Methods on How to Store Bitcoin and other Cryptocurrencies
#1 Storing Bitcoin on Your Computer – Online Alternative
As we explained earlier, you can store your private key on your computer. The advantage of this is that it is very easy to understand and your spending power is at the tip of your fingers.
On the other hand, storing bitcoin on your computer is fraught with risk. First of all, unless you have very strong hardware to download the full blockchain, you may have issues. It may take you long hours or days to download the full history of your key. If you are not an advanced user you may encounter difficulties.
Furthermore, you are exposed to maximum vulnerability. Malware, hackers, Trojans, anything that is an online threat may steal your data.
Any innocent request from an online game to whatever it is that you are surfing, that requests you to create a key, may be silently scanning your information. Within seconds that your private keys are discovered they are stolen and transferred to another wallet. And your cash is gone FOREVER!
If you decide to store Bitcoin on your computer, make sure that you make regular back-ups of your wallet data files. This is where your private key is contained.
#2 Storing Your Private Key on Removable Drives – Offline Alternative
Removable drives are anything in which your data can be stored such as USB’s or CD-Roms or better still external offline wallets.
Here is how to store bitcoin on a removable media device. You will need to save a copy of your wallet.dat file on your device and then remove it from your computer. This process must be done when your bitcoin software is offline. Once saved your remove the file from your computer.
For people who will find download challenging, it is highly advisable to use external offline wallet. An external offline wallet is an external device that you can connect to your computer via USB and which will store the private keys in an encrypted format.
The advantage of an external offline wallet such as Trezor or Ledger Nano Cryptocurrency Hardware is that the device has an application already formatted to store your private key.
On the other hand, a regular USB needs to be formatted and have an environmentally friendly format to store the private key. Although it does not require a mastermind to format a USB to receive a .dat file, it may be difficult for people who are not computer savvy.
It is strongly advisable that if you are storing large amounts of coins, that you should store them on more than one device. Because removable data may fail or corrupt, it is of absolute importance to save on different devices.
The advantage of storing your bitcoin on removable data is clear. You can put your device in a safe and have total control over your coins. It is probably the safest method of storing your coins as long as you do not lose your device. It is also a fairly simple procedure to execute for most computer users.
The disadvantage of this cold storage method of how to store your bitcoin, is that it takes hours or even days to download the block-chain. Every time you need to “spend” coins or part of coins, you will need to update all your drives as the private key will have been altered.
#3 Storing Your Bitcoin with an Online Exchange
An exchange is an intermediary that stores bitcoin on your behalf and which allows you the freedom to deposit and withdraw easily.
As the name implies this is an online method and it offers maximum ease by which to use your coins. Through an exchange, you can use your bitcoin to purchase goods, or even to transfer to other wallets. They offer this service in pretty much the same way as you would do yourself on your computer without the hassle. Naturally, exchanges offer this service for a fee which varies from one exchange to another.
The advantages are very clear and for nominal amounts of bitcoin, this is probably the easiest way how to store bitcoin. When using an exchange to store your crypto currencies, you will not need to have any software, and you do not need to download the blockchain. You can simply access your coins from a mobile device.
The disadvantages of this method of storage is that the coins can be stolen by the operator of the exchange or by anyone who hacks the exchange. This has happened in the past with Mt. Gox. In 2014, Mt. Gox the then largest bitcoin exchange, suspended trading and closed its exchange service and website causing a $460 million disaster.
As explained earlier, serious exchanges will today ask you whether you would like to take your coins offline to cold storage in their safe-keeping.
#4 Storing your bitcoin on paper – Paper Wallet
If you are worried that your USB drive may become unreadable, then another manner by which to store bitcoin is to simply print your blockchain key on paper.
This cold storage method is very safe but quite cumbersome. The download system is the same as saving the information on a USB drive but you print it instead.
Obviously, anyone who can see it will be able to steal it. And paper can rot or burn. Therefore, the manner in which you store it and where you store it is very important. It is the same as storing paper money.
#5 How To Store Bitcoin on a Bearer Item
Another interesting way on how to store Bitcoin is by storing it as a bearer item. A bearer item carries the same storage system as a paper wallet with the difference that they private key is embedded in a physical “coin” or object that needs to be broken or torn in order to access it.
The advantage of the type of cold storage is that it can be physically stored in a safe or safety deposit box. It does not require download and can be held in the same manner as physical gold. This is especially safe and easy to understand for people who are computer challenged or senior citizens who want to take advantage of the rising price of bitcoin as an investment.
The disadvantages are also potentially noteworthy. A holder of Bitcoin bearer item cannot “spend” his bitcoin unless he or she breaks the coin. Furthermore, the price by which the physical “coin” is bought is usually higher than its face value at the time of purchase. There are several companies who “mint” Bitcoin and offer the sealed encryption for sale.
How to Store Bitcoin – The Bottom Line
This post today has mapped out just an outline of how to store Bitcoin and other crypto currencies. The choice of how to store bitcoin depends entirely on your computer skills and your preferred method.
Once cannot re-iterate enough the importance of checking the safety of your coins.
Do you have questions about Bitcoin and related crypto currencies? Drop us a comment and open a discussion.