5 Solutions to Store and Secure Your Bitcoin Outside of Trading Platforms
Some are better than others and you have to know this before making your choice.
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In the articles I write about Bitcoin, I frequently explain that if you don’t own the private keys associated with your Bitcoin, then they don’t belong to you. So as long as your Bitcoin is on trading platforms such as Binance, Coinbase, or Kraken, your Bitcoin is not yours.
One hack into the platform where the private keys to your Bitcoin are stored and you can lose everything. The many platform hackings that have taken place since the creation of Bitcoin should alert you to the danger of leaving your Bitcoin on these platforms.
Many have lost a lot of money in this way. Recently, someone asked me what solutions to consider when storing Bitcoin outside of trading platforms. In this article, I will show you 5 solutions to store your Bitcoin outside of trading platforms, each with its advantages and disadvantages.
What Is a Wallet?
First and foremost, I think it is essential to go back to basics. If you are not yet familiar with all the terms in the Bitcoin world, I will explain what a wallet is. In the world of Bitcoin and cryptocurrency, a wallet is software that will allow you to manage the private keys associated with your Bitcoin and Altcoins.
You have to understand that it is not your Bitcoin that is stored but the private keys that give you access to your Bitcoin. You can draw a parallel between a wallet and a bank account. From your cryptocurrency wallet, you will be able to send and receive Bitcoin and Altcoins.
Cold Wallet vs Hot Wallet
If you’ve ever looked for solutions to store and secure your Bitcoin outside of trading platforms like Coinbase or Binance, you’ve probably already come across the terms Cold Wallet and Hot Wallet.
The terms Cold Wallet and Hot Wallet refer to how your Bitcoin will be stored and secured.
A Hot Wallet will store and secure your Bitcoin on a medium with Internet access. In contrast, a Cold Wallet will store your Bitcoin on a medium that does not have Internet access.
A device with Internet access will necessarily be at greater risk of attacks from hackers.
Generally, you should choose to store your Bitcoin on a Cold Wallet. However, it is important to know that Hot Wallets exist because they can be useful in some cases.
The first solution that exists to store your Bitcoin outside of trading platforms is to use an online wallet, which is to be classified as a Hot Wallet.
An online wallet is a Web platform that allows you to store and secure your private keys online.
Online wallets, also called Web wallets, will encrypt your private keys with a password you choose. While it’s good to know that this type of solution exists, you should know that online wallets offer a minimal level of security since they are very exposed to hacker attacks.
The only advantage of online wallets is that they can be accessed from any device connected to the Internet.
Nevertheless, their use is to be proscribed in my opinion.
Since online wallets will not guarantee you sufficient security, you might be tempted by a desktop wallet which is to be classified as a Hot Wallet.
A desktop wallet is a software that you download and install on a computer.
For example, you can download the Bitcoin Core Wallet which preserves your privacy as it does not rely on any third-party service for data management.
This type of wallet exposes you as soon as your computer is connected to the Internet.
You can try to limit the risk by only connecting your computer when you want to make a transaction on the Bitcoin network.
Since your private keys are generated by these wallets on a computer connected to the Internet, you cannot have 100% guaranteed security. This type of Hot Wallet may be a solution to consider for storing small amounts of Bitcoin that you want to use for day-to-day transactions for example.
Mobile wallets are comparable to desktop wallets except that they are installed on smartphones. Originally, Apple banned wallet applications from its App Store. As a result, developers focused all their efforts on developing wallet applications for Android.
The Google Play Store offers a wide range of wallet applications.
Since smartphones are constantly exposed to the Internet, your private keys are not 100% secure. There is always a risk of hacking, but this is far less than the risk your Bitcoins run by staying on trading platforms or online wallets.
Mobile wallets are very useful for storing small amounts of Bitcoin that you will use to make transactions with merchants accepting Bitcoin as means of payment.
You therefore only need to store very small amounts on a mobile wallet. With the growing adoption of Bitcoin as a means of payment by merchants over the next decade, wallet application usage will continue to grow.
We are now entering the Cold Wallet category. A Hardware Wallet is a dedicated device, without an internet connection, that will allow you to store your Bitcoin and Altcoins.
A Hardware Wallet is the safest solution to ensure the security of what you own in Bitcoin.
Among the companies offering Hardware Wallets, Ledger and Trezor are the references.
The entry-level devices, the Ledger Nano S and the Trezor One, are priced at around $60. That’s a relatively modest price to secure what you own in Bitcoin. The Ledger Nano X is more powerful at around $120, and the Trezor Model T at around $220 is the premium model of Trezor. The main flaw of Hardware Wallets for some is that they can be difficult to learn for some beginners.
Nevertheless, you must make the effort to use a Hardware Wallet because if Bitcoin allows you to regain control of your wealth, it comes at a price.
The price to pay is learning how to protect what you own yourself. Once you connect a Hardware Wallet to a computer connected to the Internet, a specific application allows you most of the time to make online transactions.
To do this, the user must enter their unique PIN, which adds a level of security.
Finally, we find the Paper Wallets. Paper Wallets were once a popular choice because they were easy to use and offered a high level of security.
Concretely, this consists of printing on paper a private key and a Bitcoin address.
Fans of Paper Wallets liked the fact that you could keep it safe at home or in a safety deposit box at the bank, making it very difficult, if not impossible, to hack you. To store a very large amount of Bitcoin, the Paper Wallet was interesting.
However, this method of cold storage has lost popularity since 2016 as it presents several significant risks.
First of all, a Paper Wallet is easily damaged. Secondly, a paper wallet encourages you to reuse the same address for your transactions, which is not a good practice.
Hardware Wallets are now preferred and continue to spread.
You now have enough information to choose a solution to store and secure your Bitcoins or Altcoins outside the trading platforms. I leave it up to you to judge what you think is best for you.
I generally advise storing most of your Bitcoin on a Hardware Wallet, such as the Ledger Nano S or the Trezor One, the Ledger Nano X or the Trezor Model T. This will protect your Bitcoin and you can wait for the Bitcoin price to continue to rise with peace of mind. Finally, having a mobile wallet on your smartphone with a small amount of Bitcoin is a good way to use Bitcoin as a means of payment at merchants that accept it. Think to use Lightning Network for this use case now too.
It’s also a way to support the growth of Bitcoin in addition to the traditional “Buy and HODL” strategy.
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