There is quite a debate in the cryptocurrency community about the best way to store Bitcoin and other tokens. All cryptocurrency investors are rightfully concerned with the security of their Bitcoin and other assets. There is an ongoing effort to make forms of Bitcoin storage more accessible and secure. Here is a look at how to store Bitcoins and the debate around this topic.
The Cryptocurrency Wallet – Bitcoin’s Storage Mechanism
The primary form of storage for Bitcoin and other digital tokens has always been the cryptocurrency wallet. In point of fact, these wallets are a big part of what make Bitcoin a viable means of exchange. A wallet is essentially a set of encrypted keys that allow users to send and receive Bitcoin.
Satoshi Nakamoto, the anonymous developer of Bitcoin introduced the Satoshi Client in 2009. This ultimately became Bitcoin Core, a software that allowed an individual to create Bitcoin wallets and send coins to other addresses. The program had its fair share of flaws. Namely, it was easy to lose your private keys. Typing in addresses that were incorrect was also a problem for this type of wallet generator. It was obvious that something more efficient was required.
Ultimately more secure wallets were developed. These included Cloud-based wallets, desktop wallets, paper wallets, and hardware wallets such as the ledger nano s. There has even been a so-called brain wallet which exists only in the human mind. Those who opt for this method should have a strong memory and the ability to recall long hashes of letters and numbers.
Today the cryptocurrency wallet is still the preferred way to store Bitcoins. There are some variations of the wallet, however, that some individuals might want to use. Some of them are secure and some of them are prone to vulnerabilities.
Storing Bitcoin on an Exchange
Many cryptocurrencies have popped up since Bitcoin was introduced. There are now so many coins that active exchanges have been created to allow individuals the opportunity to buy and sell tokens. Some of these are reputable while others don’t have the best reputation. Cryptoswede has reviewed a number of crypto exchanges so that individuals can make their own decisions.
Each exchange typically provides the account holder with a wallet to store cryptocurrency. The wallet is maintained by the exchange on behalf of the customer. As you might imagine, this can present some problems. One of the most horrific hacks to affect an exchange occurred when Mt. Gox was breached. The Japanese exchange lost millions in crypto value and was forced into bankruptcy.
There are some advantages to storing Bitcoin and other tokens on an exchange. The biggest of these would probably be ease of access. You can get to your holdings without having to manage multiple wallets. The trade off is that anytime your crypto is maintained online it is subject to a hack. When that happens you will be very lucky if you ever recover your lost Bitcoin.
What is Bitcoin Cold Storage?
You will often hear the term cold storage mentioned when storing Bitcoins is discussed. Simply put, cold storage for Bitcoin is a way to store coins that does not require you to maintain the wallet online. The most famous example of cold storage would probably be the paper wallet.
A paper wallet is one that contains the user’s keys in the form of a QR code. The keys are also sometimes printed out. This type of wallet is always kept by the user, so no one except the person in possession of the wallet can access the cryptocurrency.
Seems like a pretty secure method, right? It is, indeed, but there are some drawbacks. The obvious one is that paper wallets can be lost, torn up, washed in the washing machine, or otherwise destroyed. If that happens it is impossible to retrieve the Bitcoin unless one has committed the keys to memory.
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On that subject, some people have found that the ultimate form of cold storage for Bitcoin is the human brain. Yes, the brain wallet really is a thing. It lets an individual memorize their keys. In theory, the user would write them down to be on the safe side and then place the keys in a safe. But some people have surely depended on their memory alone to recall the keys. Can you see where this is going?
The human memory can be an unreliable beast. If you have ever tried and failed to remember a phone number that you regularly call you will understand why the memory cannot be depended on by most people. Unless you have the brain of a Stephen Hawking, it might be best to leave the brain wallet be.
Which Bitcoin Storage is Right for You?
Deciding how you will store Bitcoin is a matter of personal preference. The decision you make will likely be based on some factors such as:
- Ease of access
- Whether you want separate wallets for your coins or one wallet to hold them all
No solution is probably right for all users. One thing that many seem to agree on is a diversified approach. Some people prefer to spread their Bitcoin around in multiple wallets. They might have a paper wallet to keep for saving Bitcoin, an exchange wallet that they use for trading, and a hardware wallet for accessing many types of coins. Whichever ones you choose should serve your ultimate goals as a cryptocurrency investor.
One thing we would suggest is to adopt some type of Bitcoin storage that will also allow you to store other tokens. Altcoins are becoming very popular today, and more of them appear on exchanges each day. You will probably want to obtain some of these coins at some point in time, so a wallet that will accommodate different coin types will be most useful.
Bitcoin storage is essential to security. Always remember that without proper storage and due diligence, your tokens could be at risk. Choose a method that allows you the highest form of security.