Investing in Bitcoin comes with its own risks, like volatility, regulators’ constant attempts to create new laws, scams, hacks, and so much more. One thing that is not discussed as much is the safest way to store Bitcoin. Many beginners don’t know where to store Bitcoin securely before they buy. It is very important to know about the types of storage for Bitcoin and other crypto assets to avoid setbacks in your investment.
Due to the growth and massive adaptation of Bitcoin and other crypto assets, there has been an increase in scams, hacks, and thefts. In 2023, over $1.7 billion worth of cryptocurrency was stolen by scammers and hackers according to the Chainanalysis 2024 Crypto Crime Report.
The amount dropped by 54% because in 2022, the total amount that was stolen was $3.8 billion. There were more hacks in 2023, and right now hackers are always looking for loopholes to explore and steal Bitcoin and other crypto assets. In the face of all this Bitcoin theft, how do you keep your investments safe? Let’s talk about the best Bitcoin wallet.
Understanding the Risk of Storing Bitcoin
Phishing Attacks
Phishing is a common way hackers attempt to steal your Bitcoin. They will send you links or even clone websites, and by visiting them and carrying out certain actions, they get access to your information or passwords and then steal from you. You need to be aware of the links and websites you interact with regarding crypto and Bitcoin.
Exchange Failures
Using a centralised exchange to store your Bitcoin also comes with its own problems. There might be security breaches, insolvency, or other technical issues that lead to you losing your Bitcoin. A good example is the FTX collapse, where thousands of users lost their investment due to poor management by individuals.
Hacking and Theft
Hacking and theft are among the biggest risks associated with storing Bitcoin. Hackers constantly target crypto exchanges, wallets, and even individuals to steal from them. Transactions on the Bitcoin blockchain are irreversible, so if they have access to your private keys, they will transfer your Bitcoin, and you can’t get it back.
Loss of Private Keys
A popular term in the crypto world is “Not your keys, not your coin.” Once someone else has access to your keys, they can remove crypto or Bitcoin from your wallet. If you forget or delete the private keys, you might lose your Bitcoin forever.
Hardware Malfunctions
If you store Bitcoin on a hardware wallet, a physical device designed to keep your Bitcoin offline, it is susceptible to damage or loss. If it is damaged and you don’t have a proper backup, there is a high chance of losing your Bitcoin.
Regulatory and Legal Risks
Governments worldwide are always cracking down on Bitcoin and other cryptocurrencies, which affects the storage of digital assets. Currently, Binance has been banned in some countries, which simply prevents users from storing Bitcoin on the platform.
Understanding the risk involved is very important if you want to store Bitcoin securely. We will discuss the best practices for storing Bitcoin, and they will help you determine where to store Bitcoin.
Types of Bitcoin Wallets
1. Software Wallets
Software wallets are mainly software or applications on smartphones. Some work on computers and your keys are stored on them. Examples of these types of wallets include Coinbase, Binance, Bybit, Phantom, Metamask, and Exodus. They are user-friendly, and some are even free with no transaction fees.
They don’t work without an internet connection, making them vulnerable to cyber-attacks. These types of wallets are centralised, and if you don’t trust the owner of the app or software, you shouldn’t use it. There is also the risk of losing the device with the app or software, which might have its own implications.
2. Hardware Wallets
Hardware wallets are physical devices that you use to store BTC. They are generally USB devices designed to generate and store private keys securely. A hardware wallet is generally regarded as one of the best Bitcoin wallets because it’s offline.
Trezor Model T, Ledger Nano S, and Keep Key are good examples of hardware wallets. A hardware wallet gives you full control and ownership of your Bitcoin and other crypto assets. However, it has its own limitations: You can only store your Bitcoin in the wallet; you can’t stake it or carry out other things with your BTC. If the hardware also damages and you don’t have a backup, you can lose your Bitcoin.
Read also: Best Cold Storage Wallets in 2024: Secure Your Crypto Assets
3. Paper Wallets
A paper wallet is a printed document that contains a bitcoin wallet public address and the private key is informed of a QR code or alphanumeric strings. It is one of the safest ways to store bitcoin because it gives you full custody. Paper wallets are immune to hacking and malware attacks if created securely. Paper wallets are mostly generated for free without any cost implication.
Some examples of platforms where you can create paper wallets include bitaddress.com and walletgenerator.net.
Most platforms are not user-friendly, and you need technical knowledge to use them. Paper can be damaged easily, and it might not be a good idea to have your keys on a piece of paper or document.
4. Multi-Signature Wallets
Multi-signature wallets are used mainly by multiple investors or a community of investors who hold Bitcoin. Multiple keys are required before any transaction is carried out. It is one of the best Bitcoin wallets because hackers will find it difficult to hack multiple keys to steal from the wallet address.
BitGo and Coinbase Vault are good examples of multi-signature wallets. They are less common, and only a few people use them. Another big problem with this type of wallet is that investors might have a fallout, which will affect the decision regarding storage.
Best Practices for Secure Bitcoin Storage
Use a Reputable Wallet
Choose a wallet that has a track record of being reputable. Everyday, there are new crypto exchanges on the block. Some exchanges have been there since the beginning. Research how secure and trustworthy a platform is before investing your funds. It is also important to know how quickly you can move your Bitcoin out of the wallet.
Enable Two Factor Authentication (2FA)
It surprises me when I see someone who has invested in Bitcoin and doesn’t have 2-factor authentication. It adds a second layer of verification and makes it difficult for anyone to access your wallet. If you are looking for a free authenticator, you can use Google Authenticator.
Use a Strong Password
Avoid guessable passwords, and consider using a password manager to protect your Bitcoin wallet. Try to create a password that has numbers and letters.
Update Software and Apps Regularly
This will protect you against vulnerabilities and exploits. You should check regularly to see if an update is required and ensure you update.
Safeguard your Private Keys
Your keys are the only way you or any other person can access your Bitcoin. You must store them in an offline location where they won’t be vulnerable to any hacks.
Beware of Phishing Links
There are a lot of fraudulent websites and links that will steal your bitcoin if you store them on a software wallet. Scammers will have access to your computer, and steal from you if you are not cautious of the links you click.
Educate Yourself
It is important to stay informed because hackers and scammers constantly devise new methods of stealing Bitcoin. By constantly researching, you will find updated methods of keeping your Bitcoin safe.
Factors to Consider When Choosing a Secure Bitcoin Wallet
Security Features
It is important to see the security measures protecting your Bitcoin on a platform before storing it there. How are they protecting your transaction records and private keys from unauthorised access. Choose wallets that offer 2FA as an extra layer of security.
Reputation and Trustworthiness
It is important to check the wallet provider’s past record and see if there have been any breaches or misappropriation of public funds. Some wallets have open-source codes that can be accessed and audited by the general public.
Ease of Use
Choose wallets with a friendly user interface that makes receiving and sending Bitcoin easy. It is also important to use a wallet that is available everywhere: mobile, desktop, web, and more.
Control Over Private Keys
Choose wallets that give you full control over your private keys. Always remember that if you don’t have your private keys then it’s not your crypto. Sole ownerships give you total control of what happens to your Bitcoin.
Customer Support and Community Engagement
Evaluate how the wallet provider responds to customers online and offline. How do they resolve issues and provide assistance and feedback? Do they have an active community of developers and customers discussing their services? It is important to ask this question.
Conclusion
Well, there you have it: the various types of Bitcoin wallets and how you can stay safe while using them. Thieves will make many attempts to steal your Bitcoin, but the measures you take are also important.
Make sure you have your Private Keys safe at all times, as without them, you won’t have access to your Bitcoin. If you have any questions, feel free to ask in the common section.
Frequently Asked Questions (FAQs)
Most people online say that Hardware wallets are the best bitcoin wallet because they are offline and won't be easy to hack. I find them suitable for long term investors, but for short term software wallets are the best.
A Bitcoin wallet is a digital tool or software that allows you to store, receive, or sell Bitcoin. It has a private key required to access and carry out transactions on the Bitcoin blockchain.
Yes, Users can have multiple Bitcoin Wallets for carrying out different types of transactions. You can have wallets for long-term investments and short-term investments.
