While the astronomical surge in Bitcoin values may have left crypto enthusiasts spellbound, the incidence of hacks and cyber thefts have made them cautious also. In spite of the Bitcoin prices experiencing frequent spikes, there have been publicized reports of reputed exchanges getting hacked and funds having been stolen. While newcomers are preoccupied testing the waters and may not be still aware of the different ways in which to keep their money secure, hackers are using more and more sophisticated methods to siphon funds. So, what are the best ways to store your Bitcoins securely?
Wallets: Similar to how we keep cash with us in a wallet, Bitcoins can be safely stored in digital wallets. This digital wallet may be offline or online, hardware or web-based. You can also print your address and private keys onto a paper wallet to keep it locked up securely in a safe. Each of the hardware or software wallets will have private keys that the Bitcoin owner alone can have access to. However, there is always the risk that the owner may misplace or lose the key, or it could get stolen. Without this key, as an owner, you can never retrieve your coins again. Apart from losing this private key, the computer in which you have stored your funds may malfunction or may be hacked. In such a situation also, you will not be able to recover your money.
- Hot wallets are the online wallets running on web-connected devices such as tablets, smartphones, and computers. These may be vulnerable since they are web-based but they are convenient as they allow you to make quick and smooth transfers. Online wallets are usually recommended for storing small crypto amounts; they work like checking accounts in a bank.
- Exchange wallets refer to custodial wallets that are offered by exchanges like Coinbase. In this case, you may store your coins in the exchange but the private key stays with the exchange, not you. So, in case the exchange got hacked for some reason, your money may be lost forever. Crypto exchanges do not offer FDIC insurance; this explains why you need to store your coins securely. Experts suggest keeping the majority of your funds in cold wallets.
- Cold wallets are believed to be the best and most secure option for storing Bitcoins. These are not web-based making them secure against possible hacks or cyber thefts; risks of getting compromised are far less. They store the private key and user addresses on a device that is not web-connected and has software allowing users to see their portfolios without risking their private keys.
- Paper wallets are naturally a rather secure way to store your coins. This is a type of cold wallet storage because you do not need an Internet connection to own it. You can write both your private and public keys on paper and take a print out of this. People usually laminate these and then store then in their bank’s safety deposit box.
- Hardware wallets are typically USB drive-like devices which can store your private keys safely. These are found to be safer than hot wallets as they cannot be impacted by viruses. Private keys are not exposed to potentially vulnerable software or web-connected computers.
- It is now possible to buy Bitcoins physically; these coins you buy have tamper- proof stickers that cover a pre-set amount of BTC. You may have to pay a premium to buy such physical coins.