The popularity of cryptocurrency hit the mainstream in 2021, and with Bitcoin’s explosive price ascension came unprecedented demand from both new and seasoned investors to get in on the crypto train. But regardless of how new or experienced you are with investing, cryptocurrency trading works differently, in that once you purchase your Bitcoin, Ethereum or other cryptos, you then need to have a place to store it. The best way to store your Bitcoin is to weigh up the pros and cons of the various wallet storage options, before implementing some cybersecurity best practices to ensure you have done as much as possible to store your Bitcoins safely.
To begin with, there are three main wallet types to consider when storing bitcoin and other cryptocurrencies.
1. Hot Wallet
A hot wallet is a digital wallet that is hosted online. This can include your crypto exchange of choice (such as BTC Markets), a mobile app, or a dedicated online platform that will hold and store your various cryptocurrencies. The advantages of a hot wallet are that you can access them anytime, anywhere, so long as you have an internet connection. The disadvantages are that because they require an internet connection, it means they can, in theory, be hacked (just like any other account you have online, such as email, social media, or eCommerce platforms).
Often, people trading cryptocurrency will transfer their holdings from a hot wallet to a cold wallet if they plan on holding onto their coins for a long period of time. Conversely, many people choose to keep their holdings in a hot wallet if they’re trading daily, weekly, or even monthly, since it gives them quick and easy access at the whim of a market bear or bull run.
2. Cold Wallet
The second type of wallet is called a cold wallet. A cold wallet is a piece of hardware (usually similar in size to a USB drive), that connects to an online wallet (such as an exchange or other platform) where your cryptocurrency is stored. All you have to do is connect the hardware to your computer and transfer your cryptocurrency onto it, unplug, and store it in a safe place! The advantages of a cold wallet are that they are more secure, in that in order for them to be hacked, somebody needs physical access to the hardware. The disadvantages are that if you misplace the cold wallet, then you’ve misplaced your cryptocurrency and cannot retrieve it!
If you’re planning on storing your Bitcoins or other cryptocurrencies, and you want to use a cold wallet, we recommend storing it in an actual safe to ensure that it always stays safe and free from damage.
3. Paper Wallet
The third and final type of wallet is known as a paper wallet. A paper wallet is a type of cold wallet in that it is stored offline, and as the name suggests, your key access is printed on a piece of paper by a certain website. The advantages of this method are the same as those for any other cold wallet, however, the disadvantages are that since your access code is printed on a piece of paper, if you lose that piece of paper or it becomes destroyed or accidentally thrown in the trash, then all of your cryptocurrency is lost along with it!
For this reason, BTC Markets recommends that you store your Bitcoins and other cryptocurrencies in either a secure hot wallet or a cold wallet that is stored somewhere safe. Once you have chosen your preferred storage method, the next course of action we recommend you take it to check up on your computer’s security health by running a deep and extensive virus scan, deleting any unused or unfamiliar apps and browser extensions, and avoiding websites that are usually known for having malware, spyware, or other virus risks (such as online casinos, adult websites, and peer-to-peer file-sharing networks).
Security precautions to undertake when storing your Bitcoins
There are several recommendations that BTC Markets makes for those wanting to safely store their Bitcoin and other cryptocurrencies. In addition to knowing where to store Bitcoin (such as cold wallet, hot wallet, or the old school paper wallet), there are cybersecurity procedures you can undertake to reinforce and protect your holdings from hackers. These procedures don’t just apply to cryptocurrency trading, of course—more broadly, they apply to anything you do online that requires an account that stores private information, such as your name, address, and debit or credit card details.
Run a check for data breaches linked to your email account
It is highly advisable that before entering a password for your account, that you run an email data breach check at ‘Have I Been Pwned’, to ensure that the password you are using has not turned up in a data breach elsewhere on the internet. Most people don’t realise that their email accounts have likely been compromised at some point, whether it be through online shopping, a mobile app, or through social media websites. Breaches often occur when in places that you least expect: it could be from a website where you made a one-off purchase, or even a much larger retailer (the results may surprise you).
Use ‘Have I Been Pwned’ to see if the email you are using for your account has previously been breached, and then make sure that you don’t use the same password that you did for the breached site in question—and of course, make sure you change all of your passwords regularly to help future-proof your accounts!
Update your software
Whether it’s your Windows or Mac software that needs updating, your antivirus software, or browser, updates come out regularly that have everything from bug fixes to security updates. It’s important to always have the latest software updates as technology changes all the time, as do discoveries of inefficiencies, bugs, and even malware attacks. Malware, spyware, and viruses can enter your computer from a range of sources (such as file downloads or clicking unsuspecting links) and can install everything from keylogger programs that record your password entries to Remote Access Tool (RAT) programs that can give a hacker visibility and control over your computer.
Updating your software is one way to ensure you have taken that extra step when it comes to cybersecurity, and by extension, this also means that whenever you are trading crypto online, you have that extra layer of protection.
Enable Two-Factor Authentication (2FA)
Two-Factor Authentication adds an extra layer of security when logging into your cryptocurrency exchange account. Also known as 2FA, this method of data protection strengthens the security of your account by requiring two forms of identification to gain access to your account, instead of just one (i.e. a password). Most commonly, aside from the password required to access your account, you can set up your security so that a code needs to be sent to your mobile phone as a second step to gain access. Another method for 2FA is to use a fingerprint (depending on whether or not your smartphone or computer has a biometric security setup).
2FA is a great way to protect your account, as it requires physical access to your smartphone so, in the unlikely event that someone gained access to your password, they still would not be able to gain access to your account.
Backup your public and private keys to an external hard drive
There are two types of keys that every cryptocurrency holder can generate: public keys and private keys. Both are strings of alphanumeric characters that are identifiable to the account holder in question, but the main difference between them is that a public key is strong of characters that are shared with others in order to receive cryptocurrency, while a private key is used to trade or spend cryptocurrency.
It’s advisable that you back up each of these keys to a file and then store them on an external hard drive or USB, to be kept somewhere safe. This way, you never have to worry about losing access since virtually nobody can memorise these complicated and long strings of characters.
When it comes to the question of how to store cryptocurrency (Bitcoin or otherwise), these are some of the most important factors to take into account. To recap, make sure that you really do your research and find a reputable exchange to start trading (such as BTC Markets), choose your method of wallet storage depending on how often you will be trading, and do a clean sweep of your computer to ensure it is clean and free from viruses, before checking your email account for data breaches (being conscious to avoid using a password for your account that may have previously been exposed).
Remember: you can never be too safe online, whether you’re doing online shopping, trading stocks and crypto, or even scrolling through social media. The safest way to store Bitcoin and other cryptocurrencies, and to have peace of mind, is to take the right precautions before executing a trade. If you are interested in learning more, you can download the Bitcoin Whitepaper by visiting bitcoin.org.