How to Safely Store Your Bitcoin and Other Cryptocurrency
Okay. So, now you are in the crypto-game. You’ve bought some bitcoin and a few altcoins. In a moment of clarity between frantically refreshing your digital portfolio app to see if you’re a millionaire yet, it hits you – are my holdings protected?
There are no shortage of stories about people getting separated from their bitcoins and other crypto investments, so let’s take a look at various ways you can hold and safeguard your currencies.
The simplest security option is to leave them in the exchange you used to buy them. That can be somewhat of a risky choice, depending on where you keep them. There are many instances of crypto exchanges being hacked and relieved of their client holdings. Additionally, unlike your savings account at the local bank, your precious cryptos are not FDIC insured at these crypto-exchanges.
So, if you store coins at any exchange, pick a reputable one like Coinbase and utilize everything they have in the way of security. 2-Factor Authentication is a must for any exchange and websites in general. The annoyance of entering a code from your phone easily balances the welcomed extra security. All crypto-exchanges offer this, but if you should happen to find one that doesn’t, run like the wind in the opposite direction.
For even better security, Coinbase offers Vault where there is an automatic 48 hour delay on withdrawals and multiple signatures can be required before moving assets.
It is tough to give a finite recommendation here. Many new investors will leave assets in exchanges because its the easy choice and companies like Gemini and Coinbase have good reputations and records, but there is a trail of lost millions reminding us why it is dangerous.
All cryptocurrencies offer a wallet that you can install on your computer in order to hold and transfer coins, you will find these for download on the official website of the coin. Never download from any other site or you may get a fake. If you utilize this, make sure the wallet is encrypted with a strong password. While it’s a pretty simple setup, you must be very cautious about local computer wallets. First, be sure you have backups– and backups of the backups. Also ensure that the backups are properly encrypted, so they are not raided (stolen) if found.
Secondly, you need to be very paranoid of any software you install on your computer. Aside from nasty things like ransomware, there are many cases of rogue browser extensions or trojans that hide on your computer and look for cryptocurrency to steal. There is even malware that will replace the recipient address when you paste a bitcoin address into your wallet for a transaction. Did it say 1BvBMSEYstWetqTFn5Au4m4GFg7xJaNVN2 or 1BvBMSEYjr92etqTFn5Au4m4GFg7xJaNPM2? When transferring coins – always triple check.
Computer wallets may be ok for some testing early on, but don’t plan on keeping much value there for long term storage.
Note on Multiple Wallets
Be careful when installing more than one wallet on any computer. Hacks have happened when a rogue wallet was installed on a system that hosted other wallets. For a cautionary tale, read about the demise of Cryptsy, an altcoin exchange that installed a malware wallet and lost all their clients’ money.
A better, but not perfect, version of the standard computer wallet is a computer that you keep offline from the internet. This eliminates many scenarios in which an attack could happen. Data can be transferred back and forth utilizing a USB drive. Keep your airgapped computer safe and remember, encrypted backups are still needed.
Now we are getting into the serious contenders. A hardware wallet is typically a small USB device that hold your cryptocurrency so that it cannot be compromised like a computer wallet – they offer a good compromise between security and convenience. There are multiple hardware wallets available, such as Ledger and Trezor. Again, always be careful when selecting a hardware wallet, but the two mentioned here are well known and used broadly, so they would be good choices.
With any hardware wallet, the key protection is in a usb dongle with secure storage purposely built for private keys. To authorize transactions, you put the key into a computer and unlock it with a pin code. You can also regenerate the wallet with a 20-24 word recovery seed. It is vital to not store this electronically or your funds will be at risk.
It’s ironic that the safest way to store digital currencies in the 21st century is by utilizing an analog piece of paper. But it’s true. Simply download a piece of software that you run on a computer disconnected from the internet. That gives you a private and public address that no hacker can see. By sending your currency to the public address (i.e. like any bitcoin / altcoin address you may have) have effectively moved your holdings offline completely, but be careful to not lose the paper. Again backups are important – but be careful with who and how you do this.
Making these is easy and fun – check out this tutorial
Other Countermeasures for Crypto-piracy
Extreme paranoia when dealing with cryptocurrencies is advised, so a few general precautions are always good to take :
- Don’t trust links in emails, especially if they are unknown or unexpected – verify at the source that you are not being subjected to a phishing attempt. While we’re at it, beware of free wifi and unexpected phone calls. No reputable business will ever ask for your password or ask you to install weird or unfamiliar software.
- Use a crypto-email that you don’t give out. Setup a gmail account that you keep for crypto only. Even better, check out Proton Mail for a high strength secure alternative.
- Use tough-to-crack passwords – I recommend using sentences / phrases over impossible to remember phrases. As always, a relevant XCKD:
So .. Best Option?
As with most things security-related, you are trading security for convenience. There is nothing wrong with leaving smaller amounts of coins in an exchange or on your computer for convenience, but if you have more significant holdings that you want to safeguard, look into hardware or paper wallets.
For altcoins and lesser known cryptocurrencies such as Monero and ripple, the options are more limited. The hardware wallets support some of these, but not all. Unless you want to have a lot of wallets installed locally on your computer, you might be stuck keeping them in exchanges, especially if you are actively trading. In that case, pick reputable exchanges, enable 2-factor authentication, and use strong passwords. If possible, minimize the risk by spreading your holdings over several exchanges, so that you are not wiped out if one goes under, or is compromised.