How to store Bitcoin safely?
Storing Bitcoins can be tricky for some users – especially those who are new to the trade. In this post, we will be discussing how you can store your bitcoins and how to avoid losing your funds while keeping your identity protected.
A lot of Bitcoin users right now are asking how to store their coins securely. Considering that Bitcoin is a digital asset, it means that it could still be vulnerable to an external threat, it is understandable why people feel the need to know exactly how they can securely store their coins.
Why is it important to store your coins securely?
Historically, many Bitcoin and crypto users have had their money stolen or have lost their coins for some reasons. As already mentioned, there are many reasons why people lose their coins – may it be accidental or through fraud and hacking.
Accidental losses
First, Bitcoin and other cryptocurrencies can be lost accidentally. In the past, many people have lost their coins accidentally because of failed backups, mistyped letters, forgotten hard drives or corrupted SSD devices. In cases like this, your friend is your good old pen and paper. Good Bitcoin wallets will use the seed phrases to help restore the entire wallet in case there is an accidental loss.
Intrusions leading to loss of coins
In other cases, hacking can also be a risk for Bitcoin users. It is true when they said that the blockchain is virtually unhackable. However, what is vulnerable are Bitcoin wallets or online storage facilities where users can store Bitcoins. There are also reported cases of crypto exchange platforms being hacked. This means that even the blockchain network is not hackable, third-parties that links the user to the network is still vulnerable to attacks.
How to store your bitcoins securely?
The most important thing to know if you want to store your coins securely is to understand the different types of storage for cryptocurrencies. In general, there are two basic types of storage for you bitcoins: Cold wallets and Hot Wallets. Cold wallets are offline storage units for Bitcoins while Hot wallets are online and are hosted in the cloud.
Cold Wallets
Cold wallet, in the simplest terms, is a Bitcoin storage that generates and stores private wallet keys offline on a clean, newly-installed air-gapped computer. Through the cold wallet, the transaction is being done online with a watch-only wallet. Because the wallet where the transaction is made is a watch-only wallet, the transaction will be unsigned. In order to complete the transaction, the unsigned transaction will be transferred offline for signing, which will then be sent back online to be broadcasted to the Bitcoin network. This type of storage wallet allows users to manage their Bitcoins offline.
Pros:
When used correctly, the cold wallet is protected from external threats such as malware and hackers. Since the wallet does not exist online, it is very hard for threats to penetrate the wallet and steal the funds stored inside — best for those who want to store huge amounts and don’t necessarily need constant and timely withdrawals.
Cons:
The most obvious downside of cold wallets is practicality. Cold wallets need to have its own computer and to process a transaction with this type of storage can be arduous. It’s also a hassle to carry around since it requires a user to bring the actual hardware in order to make a transaction.
Hot Storage Wallets
Unlike Cold Wallets, Hot storage wallets exist online. It refers to keeping a single-signature wallet with private keys kept on an online computer or mobile device. Most Bitcoin wallets available in the market right now is a Hot wallet. It is also a term used loosely to refer to keeping bitcoins in an exchange where they can be withdrawn, transferred, and used on-demand.
Pros:
Since Hot Wallets are available online, they are the most practical storage for everyday Bitcoin users. It does not exist in one hardware, so it is very portable, and users can manage their bitcoins on the fly – anytime, anywhere — best for those who are only storing small amounts of bitcoin.
Cons:
Hot storage wallets pose huge risks to its owners. As earlier explained in this post, most hot wallets are vulnerable to external threats like hackers and malware. These intruders can exploit the vulnerabilities of hot storage to break into its system and steal the funds stored there.
Storing your Bitcoins while keeping your privacy secured
One risk that is totally underestimated when using bitcoin is its possible privacy intrusions. While it is true that Bitcoin is pseudo-anonymized, there are also ways for intruders to link your Bitcoin address to your identity. When this happens, ill-intent people can take advantage of the information they can get out of your bitcoin transactions to inflict real-life harms on you or your family.
Imagine this: you have 10 BTC in your hot wallet, and someone was able to trace the Bitcoin address from the bitcoin transaction you made in the past to your physical address. That person thinks that you might be a rich person and decides to abduct and kidnap you for a ransom. And this example has happened in real life, which highlights the need for you to not only secure your coins but also to keep your privacy in making transactions.
How to keep your privacy while using Bitcoin?
Since Bitcoin is a digital asset, and the transactions can be reviewed by checking the blockchain network, the privacy of users is at risk. That is why there is a need for users to protect their privacy while using Bitcoin. One effective way to do this is by mixing your coins. Bitcoin mixing refers to the process of breaking the trail of bitcoin by anonymizing the coins through swapping coins between multiple users. In simple terms, Bitcoin mixing happens when multiple users send coins to a Bitcoin Blender, and the mixer will then swap the coins with fresh new coins of the same value. This way, the bitcoin transaction can be virtually untraceable to its origin or to its destination.
Summary
Using Bitcoin is one thing, securely storing them is another. There are different storage facilities where users can store their coins. The two most basic ones are Cold Storage and Hot Storage. Cold Storage refers to the offline way of managing bitcoins, while Hot Storage can be accessed online.
Knowing the right place to store your bitcoin with the consideration of how you will use them is important in securing your funds. For example, it is highly recommendable for those who want to store huge amounts of Bitcoin in cold storage because it is protected against external threats like malware and hackers. Similarly, for those who need their bitcoin in day-to-day transactions should store their funds in hot wallets because it allows them to withdraw their funds on demand.
But securing your transactions does not end there. You also have to make sure that you keep your privacy while using Bitcoin. One best way to keep anonymity is by mixing your coins through Bitcoin Mixers.