How and where to store Bitcoin: The best ways to store Bitcoin cryptocurrency (BTC) with examples and recommendations
The year is 2020, Bitcoin is growing noticeably, interest in it is steadily increasing again. And newcomers who have come to the cryptosphere on this wave are wondering – where to store “digital gold” so that it is safe even with long-term investments?
Different types of Bitcoin wallets come to the rescue.
We recommend a general guide: where and how to store cryptocurrency correctly?
- 1 What is Bitcoin wallet
- 2 What are the types of Bitcoin wallets
- 3 Account on a crypto exchange for storing Bitcoin
- 4 What are public and private keys for
- 5 Seed phrase
- 6 Conclusion
What is Bitcoin wallet
Bitcoins are not physically stored anywhere. It is a digital entity and cannot be placed under a mattress or in a safe deposit box. Funds are available through addresses accessed using a set of digital keys. So the question of how to safely store Bitcoin boils down to keeping those keys secure.
Each wallet has two keys – private and public (private key and public address), or private and public. Addresses are generated from public keys and are public. The private key must be kept in a safe place, as it represents the ability to access coins belonging to a specific Bitcoin address.
Some wallets take over the storage of private keys, others allow the user to store them on their device.
What are the types of Bitcoin wallets
In terms of functionality, cryptocurrency wallets can be compared to a bank account. They are used to store, send and receive coins. There are many different types of Bitcoin wallets, but they can be divided into two categories: hot and cold.
What is cold storage (offline)
With this method, BTC is stored offline, for example, in a special hardware wallet.
While most wallets are installed on servers connected to the internet, cold storage wallets are kept completely offline at all times, which also protects hacker attacks.
What is hot storage (online)
Most cryptocurrency exchanges work according to the “Hot Wallet” principle – thus, the sites provide a certain liquidity in case of a massive influx of requests for withdrawal of funds. This can be compared to a cash reserve that any bank must keep so that customers can access their funds at any given time.
One of the main principles of exchanges is not to store too much money in a hot wallet. After all, if the platform is hacked, it can lead to a catastrophic loss of funds.
In addition to exchanges, there are quite a few programs that specialize in storing keys and managing funds. Unlike cold storage, a hot wallet is connected to the internet 24/7.
An excellent example of a hot wallet is Matbi’s multicurrency service. The company has been on the market for more than 6 years and provides users with services for the reliable storage of cryptocurrencies. It also has a built-in online exchanger for a quick and profitable exchange of cryptocurrencies for rubles and vice versa. The service currently supports 4 cryptocurrencies: Bitcoin, Litecoin, Dash and Zcash. Official site: matbea.com.
What are software wallets
Software wallets are used to store the private key on a computer / laptop. This choice seems safe, but not completely – after all, no one has canceled computer viruses and trojans. You can minimize the risk if you ensure proper computer security, install and regularly update antivirus.
Software wallets are free and don’t need to be purchased like hardware wallets.
Some of the popular software wallets for storing Bitcoin:
- Electrum. Available for Windows, Mac and Linux as well as Android. The main advantage of Electrum is that its servers index the blockchain instead of loading the entire blockchain onto the device, making it much faster and easier. Such a scheme is called a “thin” wallet, and a “thick” one downloads the entire blockchain to a PC, then only synchronizing it.
- Copay. Secure open source software with multisignature system. Able to support several connected wallets at the same time, if you decide to create separate accounts for different purposes. Copay is available for Windows, Mac and Linux, as well as iOS and Android.
- Exodus. There are no multi-signatures here, but there is an aesthetic simple design and support for dozens of different cryptocurrencies other than Bitcoin, including Ethereum, Litecoin and Zcash. Exodus is tied to its own exchange, allowing you to buy and sell all of these cryptocurrencies right from the interface.
What is online storage (browser)
A browser wallet is an account on an external site where BTC can be stored. Examples include various online services and payment systems. It is important to choose such a service carefully, since you entrust your private keys to an unknown provider. And it is better to give up the idea of storing a large amount of funds on such sites.
Otherwise, the method has many advantages:
- Improved anonymity against third parties who monitor the use of the IP address.
- An account can usually be set up in just a few minutes.
- No need to worry about the security of your local wallet.
- Easy to use the options to send and receive funds.
- If the service supports several cryptocurrencies, then often fast transfers from one account to another are available in it, without having to wait for confirmation from miners.
Account on a crypto exchange for storing Bitcoin
The most common and easiest way to store it, which however is not recommended due to the simple fact that you do not have complete control over your coins. Exchanges can be hacked, or your account gets blocked for some reason, and you could potentially lose all of your funds. This is not to say that exchanges have no place in this ecosystem, as they are great for beginners looking to get familiar with the process of using cryptocurrencies.
Example of a wallet on the EXMO exchange:
Bitcoin wallet on LocalBitcoins:
What are hardware wallets
A hardware cryptocurrency wallet is an electronic physical device created solely for the purpose of ensuring the security of Bitcoins. To spend funds from your account, you need to connect your hardware wallet to your computer, phone, or tablet. Hardware wallets are a good choice for those who are serious about the security and reliability of storing cryptocurrency.
Hardware wallets keep private keys separate from vulnerable internet-connected devices. All keys are stored in a secure offline mode on the equipment and are fully protected, even if the device is connected to a computer. To restore access, you will need to save the seed phrase.
The three most popular and best Bitcoin hardware wallets:
Generating and storing private keys offline with a physical wallet ensures that hackers can’t get to your funds. Even if attackers steal the device itself, they cannot do anything without knowing the pin code. And you can withdraw your BTC at any time, knowing the reserve code. The only drawback of this type of storage is the cost. You will have to pay a tangible amount to get a device.
What are paper wallets
A paper Bitcoin wallet is just a piece of paper with a public and private key printed on it. It is self-contained and often belongs to the type of cold wallet, although some nuances make it controversial to belong to this category. Example: if you have lost your TREZOR, it is not scary, they will not be able to steal your money. If a sheet is stolen from you, then the attacker easily gains access to the balance. In addition, the leaf can be burned in a fire or deteriorated from moisture.
As the name suggests, wallets are usually made of paper, although technically they can also be made of plastic or any other material that information can be printed on.
Keys are usually printed in the form of a QR code. You can copy and paste them manually into a text document, print, and then delete the document. Or use special free web services that provide services for creating such wallets. Keys are usually generated in the browser and are not sent to the Internet. To improve security, you can clear your browser data after the procedure.
Many services allow you to print in an interesting design in the form of an envelope or something else. To top up a paper wallet, you need to send money to a public address. To check your balance, use the Blockchain service (just enter your public key in the search box). If you need to spend money, you can scan the QR code in one of the wallet programs.
What are public and private keys for
A key pair consists of two one-way linked cryptographic codes (mostly long random numbers).
Below is an example of a public key (address) of Bitcoin in different formats:
- WIF format: 1Hdhqgs1dnuwHGUhiWCGoUAC7tED3BYqCB
- WIFC compressed format: 18XmGjXTFXMTisEMoqQuBk6hwRAKHuUSyV
- HEX format: 04CB6110EC3B109B1F723ACBCC1C5E27902D9F7F31B5E18A256A037BE0990EA880C85670539C64BF27E9B02E7F1C4C3917592620A905CC30F9125333EC79B25AE9
- B64 format: 03CB6110EC3B109B1F723ACBCC1C5E27902D9F7F31B5E18A256A037BE0990EA880
The public key is also called public. It is available to everyone and is freely transferable.
And the private key must remain confidential and known only to the owner. Since a key pair is mathematically related, anything encrypted with the public key can only be decrypted with the corresponding private key.
An example of private Bitcoin keys in different encodings:
- WIF: 5Jgw9jEUiRiF6PTJ5XqjuL2CWMs5ZZo62KfFBsZyFdeEvPdthie
- WIFC: L15G1XQVKr53Cn74P188MxxHnb638jkRAqMoczCXHajNSX6M1his
- HEX: 73007E12C5FBC0F98C26227D55AE99F84E2696B448425C16969DF5AE120F1C85
- BASE64: cwB + EsX7wPmMJiJ9Va6Z + E4mlrRIQlwWlp31rhIPHIU =
For example, if Bill wants to send bitcoins to Anna and wants to be sure that only Anna can receive them, he will encrypt the data with Anna’s public key (acting as an address). Only Anna has access to the corresponding private key, capable of decrypting the message and turning it into cash on the balance sheet.
Thus, cryptographic keys ensure the confidentiality of transactions. And also with their help digital signatures are created.
Seed phrase is a list of secret words that store all the information needed to restore a Bitcoin wallet. Usually this phrase of 12 (24) English words is generated by the wallet software, and the user must write it down on paper or save it in a safe place. If your computer breaks down, you can download the same (or different) software and use a seed phrase to regain access to your balance.
It is necessary to store the words in a safe place, since anyone who possesses them can access the wallet. Never store your Seed phrase on any site.
Not all wallets are hierarchical deterministic (or HD wallet) and generate a Seed phrase.
It is definitely impossible to answer the question which wallet is better to use. It depends on many factors, from how much security you need to how often you use your wallet. It makes a difference whether to use storage for daily transactions or for long-term investments.
Those who are primarily interested in high security usually choose hardware wallets like the Ledger Nano S. However, for even higher security, nothing beats a paper wallet. Web wallets are only used to store small amounts of Bitcoin and small daily expenses.
We recommend an overview of security measures: How to protect a cryptocurrency wallet from hacking