How To Store Bitcoins & Cryptocurrencies

So you want to know how to store bitcoins and other cryptocurrencies safely and securely?

Storing Bitcoins is as simple as setting up a Bitcoin wallet. These wallets hold encrypted private keys that will allow you to unlock a Bitcoin address to move or spend your Bitcoins. But cryptocurrency wallets come in different shapes and forms. Bitcoin is a new and developing blockchain technology. One if its many applications is a modern equivalent of printed paper money or to be more accurate a store of value and is the digital equivalent of physical gold. Bitcoins are generated using an algorithm based on proof of work and there is a limited amount in supply.

At the time of writing this article, there are 16,582,950 Bitcoins (BTC) in supply (you can find the latest number at Coinmarketcap.com) and there could only be 21,000,000 Bitcoins ever in existence, a number which would only be reached in year 2141. Once you buy your Bitcoins, they’re yours – no financial institution or government can touch them – but how do you store your Bitcoins safely and securely? This is probably the most important thing to learn when dealing with Bitcoins and cryptocurrencies. Many people have lost their bitcoins to hackers because they did not take security seriously and they were therefore an easy prey for hackers. Don’t be that person!

You normally keep your cash in your wallet and pull it out to pay for transactions. Bitcoin is somewhat similar, but the function of the wallet is very different in this case, and the term wallet is actually misleading, better to think of it as a key ring rather than a wallet.

Your Bitcoins actually reside on the blockchain and never leave it. A Bitcoin wallet encrypts and holds the main private key that allows you to move your Bitcoins to another address, exchange them for other crypto or fiat currencies, or spend them for goods and services. Your private key is basically your unique digital signature, no one can use those Bitcoins without your signature. It’s similar to a bank cheque if you think about it. If you write someone a cheque, they can’t cash it unless you sign it, except that with Bitcoins, that signature is based on cryptography and mathematics. Bitcoin doesn’t know who you are, and doesn’t actually care, all it cares about is your unique signature, which is represented by your private key. That’s why, if anyone finds out what your private key is, they could steal your bitcoins. So it is incredibly important to keep your Bitcoin wallet’s private key safe and secure, and only share it if you have to with people you trust with your life.

So what type of wallets exist out there?

Desktop Wallets

Right, so you’ve installed the Bitcoin client (Bitcoin Core) on your home machine. So you now have a wallet which you could unlock with your unique private key. You can use the Bitcoin network to transact as well as store, send and receive Bitcoins.

If you want access to other types of desktop wallets there are options. Multibit for instance runs on various operating systems. There’s also Hive for OS X based systems. Want to keep everything as secure as possible – then use Armory. If you want to keep your identity to yourself then Darkwallet is the desktop app that you want to use – it’ll plug in to your browser and your transactions will become invisible.

What about Mobile?

Walking down the main street and want to pay for a new pair of shoes with Bitcoin? A mobile wallet is what you need. Well there are plenty of apps for your smartphone that fit the bill. These apps store you private key and you can then use your phone to make payments. It gets cleverer than that. Using near field comms you can simply tap your phone against a reader to fulfill your transaction. But the mobile app is tiny. It cannot store an entire blockchain of information. That is simply to large. So they rely on pieces of the Blockchain to ensure that the transaction is valid.

So which app do you use?

Try Android-based Bitcoin wallet, Mycelium, Xapo and Blockchain. For Apple users the system and apps are slightly more complicated. To put it mildly Apple really doesn’t like cryptocurrencies. However it has cautiously allowed apps back into the store and there are a number of different choices.

For those really on the move there are apps like the Aegis Bitcoin Wallet which supports android smartwatches.

There are also more choices for mobile such as browser-based wallet CoinPunk which is under development.

On to the web

So you want to store your private keys on the web? Well – you’ll have to give up control to someone else. They’re in control of the computer. There are many options and most will link to your own device or mobile phone.

There are distinct advantages – your access is mobile so you can control your wallet from anywhere, but you will theoretically be surrendering control of your wallet. Get enough coins in your wallet and that’s going to start making you a little uncomfortable.

There are some trusted providers that should make that unease a little better. For instance Coinbase, which combines a wallet/bitcoin exchange on a worldwide basis. Users in the U.S. and Europe can buy bitcoin through its services. Circle offers global users the opportunity to store, receive and buy bitcoins. Currently only U.S. citizens are able to link bank accounts to deposit funds, but credit and debit cards are also an option for those in the global community.

Blockchain is also trusted by many users and hosts a popular web-based wallet.

Hardware wallets

For those who actually want to see their wallets in the real world there are options. But hardware wallets are not as popular as the virtual types. Wallets such as the Trezor hardware wallet are extremely good value at under $100 and available from SatoshiLabs. This wallet is aimed at Bitcoin owners who want to maintain a substantial stash of coins, but want anonymity or the security of not relying on third-party bitcoin storage services.

Paper wallets

It may sound odd – but paper wallets are amongst the most popular and safets methods of storing Bitcoin. There are many sites which offer so called ‘paper wallets for storing Bitcoins. They give you a Bitcoin address and supply two types of codes, One is your public address which allows you receive coins and the other is a private key – allowing you to spend coins. So why ‘paper wallets’? They are not stored digitally – they’re in your head. No one can hack them.

Safety issues

So how safe are your wallets? Well, it’s really up to you. Manage them properly and Bitcoin is one of the safest forms of currency in the world. You have a private key and that’s yours – don’t reveal it to anyone. Lose that and you can kiss your coins goodbye.

Anonymity

So you’ve chosen your wallet – and you still have that lingering doubt about the Internet – is my wallet anonymous. Relax it is, and it isn’t. But it is. Every transaction you make is visible to all users of the Bitcoin system. But those users will never know any details about you. Your wallet is transparent – that’s the beauty of Bitcoin – you are invisible. Some companies have tried to track Bitcoin transactions – but Bitcoin has responded with merge avoidance, stealth addresses, and coin mixing. Try to avoid detection as an individual and Bitcoin will help out.

Safe and Secure

Your wallet can be secured. There are several ways to do this.

Encryption

Passwords are your friend. Protect your wallet with a robust password. Makes it more difficult to access your wallet – but as with all passwords – not impossible. Malware and hacking will always be a threat.

Backups

Make multiple copies of your wallet. Corruption, loss of keys and other mishaps are always a possibility. Don’t just back up your private key – back up the entire wallet.

Multisignatures

The more signatures the better. There are a number of Bitcoin related services that now offer what are call ‘multi sig’ verification services. In essence that means that a number of people are required to sign off on a transaction. So your business partner, your best friend, your significant other – whoever are required to sign in on the validity of the transaction from their accounts.

Cold Storage

Take it offline. If you are nervous about online storage option than you can set up hardware to store your Bitcoins in the comfort of your own home. Some people like this idea when they are holding large amounts of Bitcoin. Removing the ability of anyone to access your Bitcoin account is attractive to many people. Transfer little bits at a time to a different address when you need them and keep the rest safe under your own roof.

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