If you are thinking of buying some Bitcoin or other cryptocurrency, or have already done so, then the next thing you need to consider is where to store your newly bought coins.
This is a very important step, and you need to make sure that you store your coins in such a way as so as to be protected against theft, and recoverable by you in any situation. Or, even recoverable by someone else, should anything happen to you.
When dealing with cryptocurrency, everything is up to you. You are in complete control of your assets. However this also comes with increased responsibility. If you lose your coins, there is no body or organisation to bail one out. Lost or stolen cryptocurrency is in most cases irrecoverable.
The good news is that securely storing your Bitcoin or cryptocurrency is not nearly complicated as rumour has it to be. With understanding, you can put in place a super secure storage set up, which is safe from hackers and also backed up in such a way that you will not lose access to it through accident or mishap.
3 Things You Need to SWAT up on before Setting up Safe Storage for Your Crypto
Before we take a look at the different ways in which in you can store your Bitcoin and other cryptocurrencies, there are three things which you need to get clued up on, because they play a key role in keeping your crypto safe.
#1 Seeds – the recovery tool for your wallet
When a wallet is generated, you the wallet owner are provided with a string of letters and numbers which is termed a ‘mnemonic seed’. This is seed designed to be used for recovering or resurrecting your wallet should you lose access to it.
Keep Your Seed Safe
This seed that you are given upon the creation of your wallet should never be shared with anyone or be put online anywhere. To keep it safe, you will need to write it down, print it out or record it physically or offline in some way, in duplicate or triplicate. These copies that you have made should then be stored securely, preferably in differing locations. This is to protect against losing them all to something like a fire. If you are concerned that paper is too fragile a medium for your seed, then you can consider other options such as engraving. An extra precaution is to make text files on a USB which can act as a backup to paper. These should be encrypted for extra safety.
Do NOT record and store your seed on your computer or any device. Seeds should be strictly stored offline.
Upon creating their first wallet, many users skip the step of writing down their seed because they are in a hurry. Don’t be this person. If you have created a wallet, and not securely stored the mnemonic seed, do so now.
Like the mnemonic seed, keys also consist of a string of random characters. There are two types of keys. These are private keys, and public keys. Your wallet has both a private key and a public key.
Private Key –
Your private key is similar to your seed in the fact that it MUST be kept private. You must not disclose your private key to anyone. The private key is just as important as your seed, and must also be written down, printed, or recorded in some physical form and stored offline in duplicate or triplicate.
Public Key –
Your public key is what your wallet uses to interact with other wallets. If you share your public key with someone, they can see what transactions your wallet has processed. While public keys are not as vital to keep safe as private keys, it is still not common practice to share them.
Lastly, as a final layer of security, you can also have what is termed a passphrase when creating your wallet. Some wallets also term this a ‘mnemonic extension’, a ‘seed extension’, a ‘Salt’, or a ‘13th/25th word’. Some wallets do not require the creation of a passphrase at all.
If your wallet requires one to be created, once you have set up the passphrase, even if someone where to find out your mnemonic seed, they would still not be able to gain access to your wallet and funds. They would also need to have the passphrase. People often create passphrases which can be memorized.
If you create a passphrase which you are able to memorize, then there is no need to record the phrase anywhere, which allows maximum security against physical theft. However this strategy is risky in the event that if something happened to you, nobody would be able access your funds. Or, if you were to suffer memory loss, and could not remember your passphrase, that would also be an ill turn of events!
The choice to record your passphrase, or keep it in your mind is one which you will have to decide.
Once you have researched and understood these components of wallet protection and security, you are ready to begin devising your storage plan. Be aware that wallets differ, and you will need to read up on your specific wallet or wallets.
Check That Your Computer is Clean before Moving Any Cryptocurrencies Around
An extremely good practice to always do when working with your wallet or moving cryptocurrencies around is to check that your computer is clean of any possible malware, viruses or spyware. Presuming you have an antivirus program installed, you should run this regularly, and directly, before working with your wallet.
If you are going to be investing hard earned money into the crypto space, then it would also be worth your while to invest in a strong antivirus program such as Kaspersky, if you do not have such a service already.
In addition, you can also run Herdprotect which is a cloud based software detection program. It is free, and collects data from the top 68 anti-malware engines. Termed as a secondary layer cloud scanning platform, it is designed to be used in addition to your main protection service.
Be aware the even a capable antivirus service is not 100% risk proof, and that one should always try to do as much as possible offline when working with your cryptocurrency.
How and Where You can Store Your Crypto
Now that you have the basics covered, let’s take a look at some of the places where you can store your cryptocurrency and how these compare in terms of safety.
Online Storage (Can be unsafe)
While being possibly the main mode of storage that people use, online storage is considered to be the most unsecure place to have your cryptocurrency. In the same way that using online banking can possibly increase the risk of having your bank account hacked. Except that in crypto, there is no bank to potentially help you recover your funds.
Exchanges are possibly the worst places to store cryptocurrency. Most people buy their Bitcoin or other cryptocurrencies from an exchange, and often times simply leave it there. This can be necessary if you are planning on actively trading. However if you are simply aiming to invest in come crypto, possibly for the long term, then you should move it off of the exchange.
The reason for this is that exchanges can, and have been, hacked. Exchanges are big and compelling targets for cyber criminals, because there are huge volumes of cryptocurrencies stored on them at any one point in time. Some exchanges will reimburse lost funds, but not all.
If you do find it necessary to store your purchased crypto on an exchange, make sure to enable 2 Factor Authentication (2FA). 2 Factor Authentication requires you to enter a code sent to your selected device every time you log in to your account. With this in place, a potential hacker would have to have access to your device as well as your log in details to be able to enter into your account at the exchange.
Online wallets are a marginally more secure way to store crypto funds. Online wallets have the benefits of convenience. You can access your funds at any time, from any device. They are great for making payments and working with cryptocurrencies like you would money.
However from a safety point of view they are also vulnerable to breaches, purely because they are online, and thereby could potentially be hacked.
Online wallets should ideally be used like your savings account or Paypal account. As a place to store small amounts of cryptocurrency, meant possibly for spending. Just like you wouldn’t want your investment lying around in your bank account, neither do you want your crypto investment stored in an online wallet managed by a third party who you have never met or possibly even heard of before.
Again, if you do make use of an online wallet, make sure that 2 Factor Authentication is activated.
Offline Storage (Safest)
Offline storage is deemed to be the safe way to store your Bitcoin and cryptocurrency. If you are careful, the chances of anybody stealing your funds will be drastically reduced.
However, with offline storage you do have to be diligent with backing up the aforementioned passphrases, mnemonic seeds, and private key. If you lose these, or they are destroyed, or stolen, that would equate to a complete loss of access to your wallet and your funds.
Cold storage can be done in two main ways.
Cold Storage on a Paper Wallet
Creating what is known as a paper wallet is the easiest way to set up safe offline storage right away.
Step 1 Clean Your Computer
First off, before doing anything, run that virus scan we spoke about earlier. This will protect you from horrid little things like key loggers, clipboard hijackers, etc.
Step 2 Make the Paper Wallet
Upon creation of your wallet, write down or print, or physically record in some other way, your mnemonic seed, passphrase, and private key. Make at least two replicas. Laminate them if they are on paper to protect the paper from damage. You can also take an extra precaution of recording the mnemonic seed, passphrase, and private key in a text file on a USB stick. This must be done offline.
Some wallets also offer a paper wallet generator, which you can utilise to create and print out your paper wallet.
Step 3 Store Your Paper Wallets
Decide where and how to store your paper wallets and possibly USB stick. Remember, no one must see them or have access to them except for yourself, and possibly a loved one. Good storage options to consider are places like safety deposit boxes.
Step 4 (the final security precaution)
Once you have finished these steps, in a final foul swoop of ultimate security, you can delete your wallet from your computer. Your holdings will then be in total cold storage, living on the blockchain, with no digital entry point to them in existence. When you want to access you wallet, you will need to reinstall the wallet software on your computer. While this is an additional step, the time it requires is nothing in comparison to the sense of satisfaction one gets from knowing that your coins are out of the reach of even the most ingenious of cyber villains.
Cold Storage on a Ledger Wallet
Another way to store your coins offline is by using a ledger wallet, also known as hardware wallets. Ledger wallets function in a similar way to a USB stick or external hard drive. Except they are coded to be encrypted, and therefore theoretically nobody can remotely access them, even if they are plugged in to your computer and you are online.
Ledger wallets have the advantage of being convenient to use. You can make transactions from them, and they can be used to safely record your seed, private key and passphrase. They are considered to be highly secure.
Hardware wallets are however costly, and also not perfect. They can malfunction, be stolen, or even be fraudulently coded by manufacturers or middle men to steal your coins. Be very careful when purchasing a hardware wallet, if you choose this option. Only buy it from a reputable source, and make sure that you do your due diligence and back it up with a paper wallet as described in the above steps.
As with all wallets, be sure to do your own research.
Consider Making a Will for Your Cryptocurrency
Another thing to consider while on the topic of safely stashing your crypto, is to implement a way for the money to pass on in the event of your death. We all think that the possibility of dying tomorrow is slim – and it is admittedly strange to have to think this way – but as the only certainty in life is death, it is a good idea to cater for it.
When buying and storing cryptocurrencies it is easy to forget about them with regards to one’s will. Especially if one is purchasing small amounts. However, there is the possibility that even a small investment made now could potentially be worth substantially more in the future. If you were to die, and your coins died with you, this could be a marked loss for your family.
Of course, unlike with a traditional investment, including your crypto holdings in your estate is not as easy as simply mentioning them in your will. You will need to entrust somebody with the knowledge of where and how they are stored, and how to go about retrieving them in the event that you are not around to do it. In other words a little crypto training may need to take place in order for you to be sure that your loved ones will be able to gain access to the fund if it was all up to them.
This may seem like dramatic measures, for perhaps what may seem like a relatively small and causal investment. However, if cryptocurrencies become widely adopted, there is a chance that even a small investment made now, could be something worth leaving to someone in the future.
We hope you have enjoyed this article, and now feel cool and confident about the safe storage of your digital assets. Remember to always do you own research, never share your private wallet info with anybody, keep your computer clean, and have backups.
Cryptocurrencies are revolutionary in the fact that they are a store of value over which only you have control – providing you do not hand over your private information to a third party. The added responsibility this brings can sometimes feel more like a liability than a privilege. However once you have understood and implemented a secure storage setup for your Bitcoin or other cryptocurrencies, it has the potential to be one of the most ‘physically’ safe investments you can make.
This post may contain affiliate links.