Bitcoin can be a great way to store your money in times of uncertainty. But your Bitcoin is only as safe as the method that you use to store it.
The best way to store Bitcoin, or any cryptocurrency, is a hardware wallet. It provides the perfect balance of convenience and security because you are in control of your private keys, but you can still pay through apps.
If you don't know what some of those things mean, don't worry. I'll explain the key concepts, how Bitcoin storage works and my pick for the best storage solution.
What is Bitcoin?
Bitcoin was the first digital currency to solve the biggest issues with decentralized currencies.
In previous attempts to create a decentralized currency, the primary roadblock was that account balances were stored in files. These files could simply be duplicated to multiply an account balance and create new money out of thin air.
Obviously not a good thing.
The designers of Bitcoin came up with a better solution. They used “mining” or making computers solve complex mathematical problems as a way to “unlock” Bitcoin in the system.
Mining also helped to verify transactions and create a ledger that could not be duplicated or hacked.
If you are new to Bitcoin and cryptocurrencies, then be sure to read this cryptocurrency guide. It will explain the differences between the various types of cryptocurrencies and go more detail on how they work.
There will only ever be 21 million Bitcoins in existence, so there's a limited supply.
This is what makes Bitcoin much more valuable than other cryptocurrencies that have a larger maximum supply, or have no maximum supply.
You don't have to buy whole Bitcoins, you can use very small fractions of a Bitcoin to do transactions.
So even if Bitcoin goes to $50,000, you can still buy that $15 t-shirt you've been wanting.
How Do I Buy Bitcoin?
You'll need to buy some Bitcoin before you store it, so let's start there.
The process of buying Bitcoin is very simple.
You buy Bitcoin by going to an exchange like Coinbase. Setup an account and purchase some Bitcoin with your credit card or bank account.
The Bitcoin you buy will be held in your Coinbase wallet until you're ready transfer it to your own wallet.
Get the complete step-by-step guide to buying Bitcoin for the first time here.
How is Bitcoin Stored?
Before we get into storing Bitcoin, there are a few key concepts that you should understand.
Bitcoin is stored in a wallet.
These wallets come in different forms, each type of wallet has benefits and drawbacks. I'll get more into specific wallet solutions, later in this post.
The important thing to understand is that a wallet is basically a database entry on the Bitcoin blockchain and is made up of a private key and a public key.
- Public key: This is the code that you give to others so they can send you Bitcoin. It's like the physical address of your home or your bank account number, it tells people where to send your packages or send your fiat money. You also use this code to check your wallet balance.
- Private key: This is the “password” for your wallet. Do not give this away to anyone! Once you use the private key, it's generally best to withdraw all of the money out of the wallet and use a new wallet, especially if you're using cold storage. If you use another solution, then you don't have to worry about withdrawing all your money because the software will take care of it for you.
It's important that you control your private keys. Some storage solutions don't give you the private keys to your wallet, so you should not keep a large amount of money in those wallets.
Where Can I Store My Bitcoin?
There are many different solutions to store Bitcoin, but there are 2 primary types of storage.
- Cold storage
- Hot wallets
Let's take a look at each of these solutions individually.
Cold Storage
Cold storage is a method of storing Bitcoin offline. It's called cold storage because the private keys are stored offline. It's like that long-term chest freezer that people have in their garage.
Deep freeze baby.
One cold storage method is a paper wallet.
But wait?
You might be wondering: How can a digital currency be stored on a piece of paper?
Well, you aren't actually storing the currency on a piece of paper, you're only storing the public and private keys. It's like storing your website passwords in a notebook.
The benefit of this storage method is that you don't need any electricity to store your Bitcoin, it's can't be hacked online and it's very portable.
On the downside, the paper can get damaged or lost easily. If you don't use the right type of paper and ink, it's also prone to smudging or fading.
You can learn the best practices for creating a paper wallet for Ethereum in this tutorial.
The process is similar for Bitcoin.
What is a Bitcoin Hardware Wallet?
A hardware wallet is a type of cold storage.
The private keys are kept offline on a dedicated hardware device such as a Ledger, which looks like a USB stick. Here are a couple of examples, next to a phone, for size comparison.
These types of devices generally provide multiple layers of security and allow you to recover your wallet, even if you lose your device.
So hardware wallets provide the best of both hot and cold wallets. They allow you to safely control your private keys, but also make it fairly easy to create transactions.
Hot Wallets
A hot wallet is a wallet where the private key can potentially be exposed to the internet. The wallet is password or security protected obviously, but there is always the chance that a hacker could crack the password and get access to the private key of the wallet.
Therefore, you don't want to store large amounts of Bitcoin in a hot wallet for a long period of time.
The benefit of this type of wallet is that it's easy to log into a website and create a transaction. It's very user friendly.
So if you're doing transactions it's fine.
But it's not a viable storage solution. This applies to:
- Web wallets
- Exchange wallets
- Desktop/mobile wallets
What is the Best and Safest Bitcoin Wallet?
In my experience, the Ledger line of hardware wallets is the best way to store cryptocurrency like Bitcoin.
I have the Ledger X and I love it.
I did a lot of research before I bought a Ledger and it really is the best solution out there.
They use a custom hardware solution that includes a custom secure chip and super secure operating system to store your cryptocurrencies. You definitely don't want to trust your money to an operating system like Windows.
It supports over 1,500 different cryptocurrencies, including Bitcoin, so you're covered. If there's a currency that they don't support, it's probably not worth having.
The device has an ingenious 2-button system for entering data and navigating through the menus.
A Ledger X does cost a fair amount of money, a little over $100 at the time that this was first written. But it's totally worth the cost.
Think of it this way…you can basically open a bank for $100.
Where else can you do that?
The Ledger X solves some of the shortcomings of the previous version, the Ledger S.
I like that the X now has a battery and gives you an option to connect via Bluetooth on your mobile device. The buttons are also easier to use on the X.
But the most important difference between the X and the S is that the X can hold way more information. Each cryptocurrency on the Ledger has to have an app installed.
The S can only hold about 4 apps, while the X can hold up to 100 apps. This is a huge difference!
That was my only complaint about the S, the small storage size.
It was otherwise a fantastic device and if you're only going to store a couple of cryptocurrencies anyway, it's more than enough.
It's also about half the price of the X, so that's also something to consider.
You can't go wrong either way, but I prefer the Ledger X.
How Do I Check My Bitcoin Wallet Balance?
Hardware wallets like the Ledger X come with software that allows you to easily check your wallet balances. Ledger makes this easy and adds another layer of privacy to your cryptocurrency storage because you aren't logging on to a website (which could be tracked) to get your balance.
Here's an example of the Ledger Live screen.
Hot/web wallets also allow you to login to your account and check your balance.
But if you're using another cold storage solution like a paper wallet, then the balance of any Bitcoin wallet is available online. That might freak you out a bit, but it's not as bad as you think.
I'll get more into why that is in the next section. But for now, let's just focus on how to check the balance of a wallet.
Here are a few websites that you can use to check your wallet:
To check your balance, simply copy and paste your public key into the search bar at the top of the page and hit enter.
Do NOT enter your private key! If you do, you're basically giving your money away.
From there, you'll see the balance of your wallet.
Wallets are Not Like Bank Accounts
One thing that you have to understand about Bitcoin wallets is that they are not like bank accounts. With a bank account, you get one account number and you keep that number for the entire time that you own that account.
But with a Bitcoin wallet, the “account number” or the private and public key combination is essentially “disposable.”
The wallet can receive multiple payments, but once you withdraw from the wallet, you should with draw the entire balance and use a new wallet. Whenever the private key is exposed online, you should assume that someone can get access to it.
You can just get another wallet by creating a new one, or using a hardware wallet like the Ledger to do it for you.
This is another reason why I like using Ledger. It streamlines the process of working with wallets and makes it almost seamless.
Is Coinbase Safe to Store Bitcoin?
Coinbase is reasonably safe.
But just like any other hot wallet, you should get your cryptocurrency out of your Coinbase wallet as soon as possible and put it into a wallet where you control the private keys.
If you really must store some crypto there to do a few transactions, make sure that it's an amount that you're willing to lose.
As I mentioned in the hot wallets section above, you do not own your private keys at Coinbase and you never know if they get hacked…until it's too late.
They are a solid company, but should be cautious when using any web wallet.
To get $10 of free Bitcoin when you buy at least $100 of cryptocurrency at Coinbase, click here.
Conclusion
Bitcoin and other cryptocurrencies have given us the ability to take control of our money and become our own bank. But by reclaiming our power, we also have to accept the responsibility that comes with it.
This means keeping our private keys safe and using wallets that give us control of our Bitcoin.
In my opinion, the Ledger X is the best storage option out there. But don't take my word for it, do your own research and find out for yourself.
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