Bitcoin, like the coin itself, is stored digitally. You will not have a safe that holds your Bitcoins, but you may have a piece of paper that contains the passphrases to your wallet. There are several different ways that you can choose to store your Bitcoins.
The primary options for Bitcoin storage are on a hardware wallet or on a remote wallet. A hard wallet means that you have a device that you plugin to your computer and use for storage. A remote wallet would be on an exchange or other third party site that keeps your coins. These options are different and have their own sets of positives and negatives.
Storing Bitcoins on a Trezor
The most popular form of wallet hardware is called a Trezor. A Trezor is a small device that is powered and used with a USB cord. This device assigns you a personal wallet address and will allow you to both send and receive coins. A Trezor is not designed for buying or selling coins, but instead for storage, sending, and receiving.
A Trezor is very small and can fit in the palm of your hand. In order to actually use the device, you will plug it into a computer. From here, your browser will open the MyTrezor app. This allows you to complete transactions in your browser, just as you would on an exchange. To ensure absolute security, transactions will need to be verified on the Trezor device itself.
After you initiate coins to be sent to another wallet, the device will ask you to enter your PIN that you created at setup. It will then ask you to again confirm that the receiving wallet address is correct, and that you are sure you want to actually send the Bitcoins. This is all that is involved in the actual process of using the Trezor. Beyond this, you will have multiple ways to protect your account.
When you use your Trezor for the first time, you will be given around 15 random words. These random words are known as your passphrases. It is this set of 15 words that serve as your password. In the event that you lost your physical, actual Trezor, you would be able to regain access to your wallet accounts using this 15 word set of passphrases. As such, it is recommended by Trezor that you write down these words on paper and store the copy in a safe place, should you ever happen to lose the Trezor device itself.
There are a few downsides to using a Trezor for your Bitcoin storage. First, you will need to have the device with you in order to use it. While the MyTrezor browser app can show you your current balance and past transactions, it will not allow you to actually send Bitcoins. This is done in order to ensure that your coins are safe at all times. If you could send Bitcoins without the Trezor in your actual possession, so too could someone else.
The second downside to using a Trezor is that you will also need access to a USB port on a computer. Since the actual process of sending Bitcoins takes place within the browser using the MyTrezor client, you will need to plug the device into your computer. In addition, sometimes browsers are glitchy, making it hard for the computer to identify the device itself. While these are certainly downsides to be noted, they shouldn’t dissuade you from the use of a Trezor.
Storing Bitcoins in a Remote Wallet
When we reference a “remote wallet,” we mean a wallet that can be accessed anywhere and is hosted by a third party. Examples of a remote wallet would be on Coinbase or Bittrex. In most cases, wallets that are on other sites can be accessed from just about anywhere. Depending on your security settings, you may only need to log into your account in order to send or receive Bitcoins.
The most glaring issue with storing your Bitcoins on a third party site is found in your vulnerability. Since the wallets are controlled by another company, a security breach on their end would in turn make you susceptible to hacking. In fact, almost all of the biggest losses of Bitcoin were a product of websites being hacked and money stolen from user wallets. Perhaps the most noteworthy instance of this was Mt. Gox.
The convenience of using a remote wallet is unmatched. Whether you are on your phone or computer, you will be able to access your wallet so long as you have internet. This is very important if you need to send or receive Bitcoin in a timely manner.
Since security is the biggest liability in using a remote wallet of any type, there are a number of precautions that these sites have taken in order to help protect their users in the best way possible. First, you will usually be emailed or sent a text every time your account is logged in to. This way, if someone hacks into your account, you will be notified immediately. In fact, Bitcoin not only sends an email, but requires that the email be clicked to verify that the correct person is accessing the account.
In addition to log in notifications, most wallets now include the option of Two Factor Authentication, also known as 2FA. With 2FA, you will be able to add an additional layer of security that makes it virtually impossible for your account to be fraudulently accessed. 2FA is simple. When you log in, the site your wallet is located at will ask you for the code on your phone. This code is provided by an authenticator app. 2FA is the same as when you sign up for an account online, and then a text is sent to your phone to double verify your identity. It is a basic, yet very effective way to add more security to your account.
How do I keep my Bitcoin safe?
Keeping your Bitcoin safe should always be your priority. If there is one inherent downside to digital cryptocurrencies like Bitcoin, it is that theft cannot be traced, and the number of hackers and thiefs is always growing. If you create any sort of exploitable opportunity for someone to potentially steal your coins, you can bet that someone will try to take advantage of it.
There are a few common sense steps and a few logistical steps that can be taken to help ensure the safety and security of your Bitcoins. Believe it or not, common sense may be one of the best ways to keep your coins out of harm’s way.
Do Not Share Info Publicly
Do not post about your Bitcoin holdings, especially in publicly accessible mediums like Twitter. The first thing that a potential Bitcoin thief needs to know is that you own Bitcoins, and the next piece of information is your name or other self-identifying info. If you provide a hacker with this sort of data, it is akin to posting a sign on your front lawn saying “I have $100,000 in cash inside my house!”
Knowing that you possess Bitcoin is not enough for someone to steal from you, but it certainly gives thieves a huge step up. If you discuss Bitcoin, you should do so only with immediate friends and family that you consider to be trustworthy. You never know who may ultimately try to steal from you, so always be careful. Remember, once Bitcoins are gone, they are almost certainly gone for good.
Process Bitcoin Transactions on a Secure Network
Next, be careful about how you go about processing any and all Bitcoin transactions. If you are using a computer on an open network, for example, you may be sending sensitive information in an environment that can easily be accessed by others. Now, you may wonder, if the blockchain itself is entirely public, why does it matter if someone else sees your transactions? The answer is found in keyloggers.
A keylogger is a device that can be put onto your computer or phone without your knowledge. What a keylogger does is record and identify the information that you are typing. If the owner of the keylogger sees you are sending what appears to be a Bitcoin wallet, they can then modify the wallet address to meet their needs. Instead of you sending your coins to one wallet, you may end up copying and pasting the hacker’s wallet instead. If a hacker can identify a wallet address, they may also be able to change it. This is what you need to prevent by taking precautions before sending any coins.
One way to make sure that your coins are being sent to the right wallet is to not only paste the wallet, but to take note of the first and last characters in the address. If the wallet starts with the letter “g” and ends in the letter “z,” you can remember this. Then, when you input the wallet again, you can confirm that these characters are correct. If anything is off, you can identify the error before it is too late.
Keyloggers and other similar hacking methods should not scare you out of Bitcoin. In reality, it is highly unlikely that your devices will be hacked and your Bitcoin will be stolen. Of course, this doesn’t mean that you shouldn’t take every step possible towards ensuring your own security, either.